Digital & Diversification Plans Place FEMSA (FMX) for Growth
Fomento Economico Mexicano S.A.B. de C.V. FMX, alias FEMSA, appears to be a lucrative pick with solid growth prospects. The company has been in investors’ good books due to gains from growth across all business units, a solid online show and continued strength in OXXO Mexico as well as OXXO Gas. It has been on track with its strategy of creating a distribution platform in the United States through the expansion of its footprint in the specialized distribution industry.
The company is also poised for growth through investments in digital and technology-driven initiatives. Moreover, FEMSA displays strong financial flexibility.
Backed by robust trends, FEMSA’s top and bottom lines improved year over year in the first quarter of 2023. Revenue growth was driven by gains across most business units, resulting from effective growth strategies and robust market demand. On an organic basis, total revenues rose 12.4%.
Shares of this Zacks Rank #3 (Hold) company have rallied 24.7% in the past three months compared with the industry’s growth of 5.4%. The FMX stock also compared favorably with the sector’s growth of 1.6% and the S&P 500’s 10.9% rise. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Let’s take a sneak peek into the factors positioning FEMSA for growth.
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Diversified Business
FEMSA has exposure to various industries, including beverage, beer and retail, which gives it an edge over its competitors. The company participates in the beverage industry through Coca-Cola FEMSA KOF, the world’s largest franchise bottler for Coca-Cola KO products.
In the beer industry, it enjoys a notable position with its 14.76% stake in Heineken, a leading brewer with operations in 70 countries. The company operates in the retail space through the FEMSA Comercio subsidiary.
Coca-Cola FEMSA is the flagship segment engaged in the production and distribution of carbonated beverages. The division is the largest Coca-Cola bottler in Latin America and the second-largest Coca-Cola bottler globally in terms of sales volumes.
Coca-Cola is on track with its strategy of becoming a total beverage company through last year’s streamlining of its portfolio, focusing on core brands and investing in its portfolio of brands to meet evolving consumer needs. KO is diversifying its portfolio to tap the rapidly growing RTD category. The company’s expansion initiatives are likely to aid Coca-Cola FEMSA’s results.
Expansion in the Specialized Distribution Industry
FEMSA’s venture in the specialized distribution industry relates to its plan of investing in adjacent businesses, which can leverage capabilities across different markets, providing an opportunity for attractive growth and risk-adjusted returns.
With the presence of its OXXO business and other retail operations, the company has become an expert in the organization and management of supply chains and distribution systems. FEMSA serves several businesses and retail customers through millions of interactions in different industries.
Digital Initiatives
FEMSA continues to focus on offering customers more options to make contactless purchases by intensifying digital and technology-driven initiatives across operations. The company’s Coca-Cola FEMSA is leading the way with its omnichannel business, while FEMSA Comercio is progressing with the adoption of digital initiatives.
Within its OXXO store chains, the company is on track with investing in digital offerings, loyalty programs and fintech platforms to evolve stronger after the pandemic and over the long term. Its OXXO digital wallet, OXXO Premia, and loyalty programs have been performing well.
The company has made progress in its digital efforts with the continued addition of Spin Premia and Spin by OXXO customers at an accelerated pace. Spin by OXXO received its definitive authorization to operate as a fintech in Mexico. Spin by OXXO reached 6.4 million users, with 4.2 million active users (representing 65.3% of the total acquired user base). Meanwhile, Spin Premia reached 28.9 million users, with 12.7 million active loyalty users (representing 43.9% of the total acquired user base).
Anheuser-Busch InBev BUD, alias AB InBev, is another beverage company focused on investing in new capabilities for several years to better connect with customers and consumers. BUD has been rapidly growing its digital platform and leveraging technology, such as B2B sales and other e-commerce platforms.
AB InBev is witnessing an acceleration in B2B platforms, e-commerce and digital marketing trends. BUD’s digital transformation initiatives have been on track, with B2B digital platforms contributing about 62% of its revenues in the first quarter.
Conclusion
However, supply-chain disruptions and higher raw material costs have been major hurdles for FEMSA. Although FEMSA continues to witness operating margin declines due to a contraction in the Proximity, Health and Envoy Solutions divisions, it is well-poised for growth in the long term, backed by its expansion and growth plans.
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CocaCola Company (The) (KO) : Free Stock Analysis Report
Fomento Economico Mexicano S.A.B. de C.V. (FMX) : Free Stock Analysis Report
Anheuser-Busch InBev SA/NV (BUD) : Free Stock Analysis Report
Coca Cola Femsa S.A.B. de C.V. (KOF) : Free Stock Analysis Report
