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FEMSA (FMX) Q4 Earnings Miss Estimates on Currency Impact - Analyst Blog

Fomento Economico Mexicano, S.A.B. de C.V. (FMX), also known as FEMSA, posted lower-than-expected bottom-line results for the fourth quarter of 2014. The largest franchise bottler of The Coca-Cola Company (KO) reported net majority income of US$1.37 per ADS (Ps. 2.03 per FEMSA Unit), significantly higher than the year-ago quarter figure of US$1.05 but below the Zacks Consensus Estimate of US$1.41.

Quarterly net consolidated income rose nearly 26.4% to Ps. 8,536 million (US$616.8 million) from Ps. 6,754 million (US$518.4 million) in the year-ago quarter. The increase was primarily due to rise in Heineken’s fourth-quarter results in which FEMSA holds 20% participation interest.  

Quarter in Detail

Total revenue fell 0.5% year over year to Ps. 70,156 million (US$5,069.3 million), mainly on account of the negative impact from using the SICAD II exchange rate to convert the results of Coca-Cola FEMSA S.A.B. de C.V. (KOF) in Venezuela. On an organic basis, total revenue climbed 2.2% from the prior-year quarter.

FEMSA’s gross profit rose 0.2% year over year to Ps. 30,416 million (US$2,197.8 million), again impacted by the negative translations of Coco-Cola FEMSA in Venezuela. However, gross margin expanded 30 basis points to 43.4% on the back of margin growth at both Coca-Cola FEMSA and FEMSA Comercio.

FEMSA’s operating income increased 0.8% to Ps. 9,782 million (US$706.8 million) from Ps. 9,705 million (US$744.9 million) in the year-ago period. On an organic basis, operating income inched down 0.8% year over year. However, consolidated operating margin expanded 10 bps to 13.9%.

Segmental Discussion

Total revenue at Coca-cola FEMSA dropped 8.5% year over year to Ps. 39,567 million (US$2,859 million) mainly due to the negative impact of using SICAD II exchange rate to convert its results for the Venezuela operations. However, on a currency neutral basis and excluding the non-comparable effect of Spaipa in Brazil, total revenue grew 23.3% driven by an increase of average price per unit case in almost every region along with volume growth in Brazil, Venezuela, Colombia and Central America.

Coca-Cola FEMSA’s operating income for the quarter declined 3.6% to Ps. 6,374 million (US$460.6 million) from the year-ago quarter. However, the segment’s operating margin expanded 80 bps to 16.1% in the quarter.

FEMSA Comercio registered revenue growth of 12% on a year-over-year basis to Ps. 28,812 million (US$2,081.9 million), while organic revenue growth was of 11.7%. The rise was mainly attributable to the opening of 458 new stores in the quarter and a 3.3% rise in same-store sales. The growth in same-store sales was led by an increase of 2.8% in average customer ticket and 0.5% rise in store traffic. The company opened 1,132 new stores in the last 12 months, bringing the total store count to 12,853 as of Dec 31, 2014.

Operating income for the quarter rose 6.2% year over year to Ps. 3,179 million (US$229.7 million). The segment’s operating margin contracted 60 bps to 11% due to a 17.6% increase in operating expenses resulting from new store openings; strengthening of FEMSA Comercio’s business and organizational structure to boost growth of new operations, particularly drugstores; and expenses related to the incorporation of new quick-service restaurant operations.

2014 Results, In Brief

For 2014, the company’s net majority income came in at US$3.16 per ADS (Ps. 4.67 per FEMSA Unit), down significantly from US$3.35 per share reported last year and the Zacks Consensus Estimate of $3.51. Revenues for the year grew 1.2% year over year to Ps. 263,449 million (US$19,812.2 million), while organic revenues fell 3.6%. The company’s top line, in U.S. dollar terms, fell short of the Zacks Consensus Estimate of $21,123 million.

Financial Position

FEMSA had cash balance of Ps. 35,641 million (US$2,421.6 million) as on Dec 31, 2014. Long and short-term debts were Ps. 80,998 million (US$5,503.3 million) and Ps. 1,104 million (US$75 million), respectively. Moreover, the company incurred capital expenditure of Ps. 6,528 million (US$471.7 million) during the quarter, bringing full-year capital expenditures to Ps. 18,163 million (US$1,365.9 million).

Currently, FEMSA carries a Zacks Rank #3 (Hold). A better-ranked stock in the same industry is Coca-Cola Amatil Limited (CCLAY), which has a Zacks Rank #2 (Buy).

 

 


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