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FEMSA (FMX) Earnings Beat Estimates in Q3, Revenues Miss

Fomento Economico Mexicano S.A.B. de C.V. FMX, alias FEMSA, reported net majority earnings per ADS of $1.49 (Ps. 3.00 per FEMSA unit) in third-quarter 2022, surpassing the Zacks Consensus Estimate of $1.25.

Net consolidated income was Ps. 13,268 million (US$655.5 million), reflecting a decline of 17.3% from Ps. 16,046 million (US$801.9 million) in the year-ago quarter. The improvement can primarily be attributed to a rise in operating income and lower interest expenses, offset by a decline in participation in associates’ results, mainly Heineken’s.

Total revenues were $8,481.4 million (Ps. 171,664 million), which improved 20.5% year over year in the local currency. However, revenues, in U.S. dollar, missed the Zacks Consensus Estimate of $8,525 million. Revenue growth was driven by gains across all business units. On an organic basis, total revenues rose 15.4%.

Shares of the Zacks Rank #3 (Hold) company have rallied 15.6% in the past three months against the industry’s decline of 1.7%.

 

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Zacks Investment Research


Image Source: Zacks Investment Research

 

FEMSA’s gross profit rose 18% year over year to Ps. 62,650 million (US$3,095.4 million). The consolidated gross margin contracted 80 basis points (bps) to 36.5%, owing to the gross margin contraction across all its business units. The gross margin contracted 110 bps at Proximity, 50 bps at Health, 10 bps at Fuel operations, 20 bps at Logistics & Distribution, and 70 bps at Coca-Cola FEMSA S.A.B. de C.V. KOF.

FEMSA’s operating income (income from operations) was up 13.8% year over year to Ps. 14,769 million (US$729.7 million). On an organic basis, operating income improved 10.1%. The consolidated operating margin contracted 50 bps to 8.6%, driven by margin contractions at Coca-Cola FEMSA, FEMSA’s Health Division, and the Logistics & Distribution business, offset by margin expansions at the Proximity and Fuel Divisions.

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

 

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

Fomento Economico Mexicano S.A.B. de C.V. price-consensus-eps-surprise-chart | Fomento Economico Mexicano S.A.B. de C.V. Quote

Segmental Discussion

Proximity Division: Total revenues for the segment rose 20.6% year over year to Ps. 61,252 million (US$3,026.3 million). Organic revenues improved 20%. The increase can primarily be attributed to a 17.5% rise in same-store sales on 4.9% growth in store traffic and an 11.9% increase in average tickets. The Proximity Division had 20,899 OXXO stores as of Sep 30, 2022. Operating income accelerated 23.5% year over year, while organic operating income rose 24.9%. The operating margin for the segment expanded 30 bps to 9.4%, owing to higher operating leverage.

Fuel Division: Total revenues rose 33.6% to Ps. 13,823 million (US$683 million). Average same-station sales improved 25.1%, driven by a 15.9% increase in the average volume and 7.9% growth in the average price per liter. Results also gained from volume growth in its institutional and wholesale customer network, as well as a favorable comparison from last year due to the reduced vehicle mobility trends resulting from COVID-19. The company had 568 OXXO GAS service stations as of Sep 30. Operating income advanced 64.7% and the operating margin expanded 100 bps to 5%.

Health Division: The segment reported total revenues of Ps. 18,526 million (US$915.3 million), up 1.1% year over year. Revenues benefited from favorable trends across Colombia and Ecuador, offset by an unfavorable comparison base in Chile and Mexico, as well as negative currency translations. On a currency-neutral basis, total revenues increased 13.2%, whereas same-store sales increased 6.3%. The segment had 3,971 points of sales across all regions as of Sep 30, 2022. The operating income declined 2.6% year over year, while the operating margin contracted 20 bps to 5.1%.

Logistics and Distribution: Total revenues for the segment were Ps. 19,986 million (US$987.5 million), up 14.6% year over year. On an organic basis, revenues advanced 14.6%. Revenues reflected positive demand trends across several categories in the United States, as well as strong growth of warehouse management operations in Latin America. The segment’s operating income increased 66.8% and the operating margin contracted 10 bps to 5%. Organic operating income declined 14.8%.

Coca-Cola FEMSA: Total revenues for the segment advanced 18.2% year over year to Ps. 57,093 million (US$2,820.8 million). KOF’s revenues were mainly aided by improved volume, pricing initiatives, and a positive price mix, offset by unfavorable currency translation effects and a decline in beer revenues related to the transition of the beer portfolio in Brazil.
 
On a comparable basis, Coca-Cola FEMSA’s revenues improved 19.3% year over year. KOF’s consolidated operating income increased 13.3% and comparable operating income rose 13.1%. The segment’s operating margin contracted 60 bps to 12.8%.

Financial Position

FEMSA had cash and cash equivalents of Ps. 101,067 million (US$5,024 million) as of Sep 30, 2022. Long-term debt was Ps. 153,322 million (US$7,622 million). The company incurred a capital expenditure of Ps. 8,118 million (US$401.1 million) in the third quarter, reflecting higher investments in most businesses.

Other Stocks to Consider

We highlighted some better-ranked stocks from the broader Consumer Staples space, namely Constellation Brands STZ and Dutch Bros BROS.

Constellation Brands currently has a Zacks Rank #2 (Buy) and an expected long-term earnings growth rate of 11.1%. STZ has a trailing four-quarter earnings surprise of 10.5%, on average. The company has gained 1.2% in the past three months.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Constellation Brands’ current financial-year sales and earnings suggests growth of 8.2% and 8.7%, respectively, from the year-ago reported numbers. The consensus mark for STZ’s earnings per share has moved up 14.9%% in the past 30 days.

Dutch Bros currently has a Zacks Rank of 2. BROS has a trailing four-quarter earnings surprise of 53%, on average. It has a long-term earnings growth rate of 32%. The company has declined 3.8% in the past three months.

The Zacks Consensus Estimate for Dutch Bros’ current financial-year sales suggests growth of 46.1% from the prior-year reported number, whereas the same for earnings suggests a decline of 26.7%. The consensus mark for BROS’ earnings per share has moved down by a penny in the past 30 days.


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Fomento Economico Mexicano S.A.B. de C.V. (FMX) : Free Stock Analysis Report
 
Constellation Brands Inc (STZ) : Free Stock Analysis Report
 
Coca Cola Femsa S.A.B. de C.V. (KOF) : Free Stock Analysis Report
 
Dutch Bros Inc. (BROS) : Free Stock Analysis Report
 
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