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Can FEMSA's (FMX) Efforts Aid Earnings Trend Reversal in Q2?

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Can FEMSA's (FMX) Efforts Aid Earnings Trend Reversal in Q2?

FEMSA (FMX) witnesses mixed sentiments as investors are concerned about its dismal surprise history while its strategic initiatives reflect potential.

Fomento Economico Mexicano, S.A.B. de C.V. FMX or FEMSA is slated to report second-quarter 2018 results on Jul 27, after the closing bell.

The company’s earnings missed the Zacks Consensus Estimate in three of the trailing four quarters. However, it delivered an average positive surprise of 26.1%. Notably, the company has been losing its position, lately, due to a dismal surprise trend for both top and bottom lines.  It has delivered a negative earnings surprise in six of the preceding seven quarters. Moreover, revenues lagged estimates in four of the last five quarters.

Fomento Economico Mexicano S.A.B. de C.V. Price and EPS Surprise

 

Fomento Economico Mexicano S.A.B. de C.V. Price and EPS Surprise | Fomento Economico Mexicano S.A.B. de C.V. Quote

However, estimates reflect a positive picture. The Zacks Consensus Estimate for the quarter under review is pegged at 98 cents, which moved up 7 cents in the last seven days. Further, estimates for the to-be-reported quarter reflect 36.1% growth year over year. Additionally, the Zacks Consensus Estimate for revenues is $6.36 billion represents rise of 0.1% from the year-ago quarter.

The question lingering in investors’ minds now is, whether or not FEMSA will be able to deliver a positive earnings surprise in the quarter to be reported.

Factors Likely to Impact the Quarter

FEMSA is witnessing mixed sentiments as investors are concerned about its dismal surprise history while its strategic initiatives reflect potential. We remain impressed with FEMSA’s focus on strategic measures, including expanding the store base, diversifying the business portfolio and focus on the core business activities.

Moreover, the company’s focus on achieving growth via acquisitions looks good. In an attempt to strengthen its retail portfolio, the company acquired the grocery store Big John in Santiago, Chile. Given its renowned status and solid growth prospects, Big John is likely to enhance FEMSA Comercio’s convenience store operations in Chile.

Earlier, the company expanded its footprint in South America through the Grupo Socofar buyout, which not only widened its exposure in the drugstore business but also brought beauty operations under its ambit. Additionally, the company has been diversifying its retail chain operations by acquiring businesses across Latin America. FEMSA Comercio has considerably extended its footprint in the small-format retail chains in Mexico, Chile and Colombia.

Additionally, the company’s exposure in various industries, including beverage, beer and retail, gives FEMSA an edge over competitors. In fact, the company’s strong cash flow generation capacity enables it to make incremental investments in business expansion.

These attributes have helped the stock gain 11.3% in the past month, outperforming 1.4% growth recorded by the industry. This reflects a positive sentiment on the stock ahead of earnings.



However, we cannot ignore the near-term headwinds that may bother the stock’s growth. These mainly include the dismal top- and bottom-line trends as well as the persistence of currency headwinds.

Let’s see if FEMSA’s upcoming quarterly performance can help it break the dismal earnings surprise trend, backed by its strategic endeavors.

What the Zacks Model Unveils?

Our proven model does not show that FEMSA is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

While FEMSA has a Zacks Rank #3, an Earnings ESP of 0.00% lowers the chances of a beat in the upcoming release.

Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

The Boston Beer Company, Inc. SAM has an Earnings ESP of +13.00% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Monster Beverage Corporation MNST has an Earnings ESP of +1.46% and a Zacks Rank of 3.

Dean Foods Company DF has an Earnings ESP of +10.35% and a Zacks Rank #3.

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