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FEMSA (FMX) to Report Q1 Earnings: What's in the Offing?

Zacks Equity Research

Fomento Economico Mexicano, S.A.B. de C.V. FMX or FEMSA is slated to report first-quarter 2019 results on Apr 29.

The company has a dismal earnings surprise trend, having missed estimates in seven of the trailing 10 quarters. Also, it witnessed average four-quarter negative earnings surprise of 34%. Further, sales missed estimates in fourth-quarter 2018, which marked a sales lag after two straight quarters of recording a beat.

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

Factors Likely to Impact Q1

FEMSA has been delivering soft operating margins over the past few quarters. Declines in the margins at Coca-Cola FEMSA and FEMSA Comercio’s Fuel Division mainly hurt operating margin in fourth-quarter 2018. Notably, margins at the Fuel division were impacted by higher wages, provisions associated with some profitable institutional clients, increased marketing efforts, and escalated remodeling and installation expenses. Persistence of these headwinds may continue to impact margins in the first quarter of 2019.

Although operating margin at Proximity Division remained flat in the fourth quarter, management expects the segment’s margins to remain slightly pressurized in 2019 due to the acceleration in store-growth efforts in South America.

Additionally, FEMSA remains prone to rising raw material costs that have plagued the beverage industry. Higher tariff on steel and aluminum by the Trump administration has led to an increase in costs for producing cans and packaging, which can deter the company’s top line and margins. Further, escalating industry-wide freight costs and increase in other input costs, which is impacting the bottling system and some of the finished products, is concerning investors. This may impact the company’s top and bottom-line performances in the to-be-reported quarter.

The company earlier notified about macroeconomic uncertainty that is likely to prevail in many of the markets, including Mexico and Brazil in the months ahead.

Nevertheless, FEMSA’s efforts to expand the store base, diversify the business portfolio and focus on the core business activities might offset some of the declines due to aforementioned headwinds. The company has been taking actions to diversify the product portfolio while expanding the small-box retail segment, particularly across Latin America. This should boost top-line performance in the to-be-reported quarter.

What the Zacks Model Unveils

Our proven model does not conclusively 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.

FEMSA currently has a Zacks Rank #5 (Strong Sell) and an Earnings ESP of 0.00%. The company’s negative Rank and Earnings ESP of 0.00% makes surprise prediction impossible.

We caution against stocks with a Zacks Ranks #4 (Sell) or 5 going into an earnings announcement, especially when the company is seeing a negative estimate revision.

Stocks Likely to Deliver Earnings Beat

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

The Estee Lauder Companies Inc. EL has an Earnings ESP of +1.16% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Amazon.com, Inc. AMZN has an Earnings ESP of +10.65% and a Zacks Rank of 2.

Altria Group, Inc. MO has an Earnings ESP of +0.27% and a Zacks Rank #3.

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Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Fomento Economico Mexicano S.A.B. de C.V. (FMX) : Free Stock Analysis Report
 
The Estee Lauder Companies Inc. (EL) : Free Stock Analysis Report
 
Altria Group, Inc. (MO) : Free Stock Analysis Report
 
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