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 2013. This largest franchise bottler for The Coca-Cola Company (KO) reported net majority income of US$1.06 per share that was significantly lower than the year-ago quarter figure of US$2.08 and lagged the Zacks Consensus Estimate of US$2.01.
Moreover, quarterly net consolidated income of the company fell nearly 44.2% to Ps. 6,754 million (US$518.4 million) from the comparable year-ago quarter income of Ps. 12,106 million (US$935.0 million). The decrease was primarily due to higher cost of sales and operating expenses, fall in Heineken’s third-quarter 2013 net income in which FEMSA has a 20% participation interest, and increased financing expenses resulting from the recently issued bonds by Coca-Cola FEMSA and FEMSA Comercio.
Quarter in Detail
Total revenue rose 11.1% year over year to Ps. 70,490 million (US$5,410.3 million), mainly aided by improvement in revenues at Coca-Cola FEMSA S.A.B. de C.V. (KOF) and FEMSA Comercio divisions. On an organic basis, total revenue climbed 3.2% from the prior-year comparable quarter.
FEMSA’s gross profit rose 8.3% year over year to Ps. 30,347 million (US$2,329.2 million). However, gross margin contracted 110 basis points (bps) to 43.1% primarily due to margin contraction at the Coca-Cola FEMSA division.
FEMSA’s operating income dipped 0.3% to Ps. 9,705 million (US$744.9 million) from Ps. 9,735 million (US$751.9 million) in the year-ago period. Consolidated operating margin contracted 150 bps to 13.8%, primarily due to margin contraction at Coca-Cola FEMSA resulting from the South American currency devaluation and increased operating expenses. On an organic basis, operating income decreased 5.5% year over year.
Segmental Discussion
Total revenue at Coca-cola FEMSA increased 8.5% year over year at Ps. 43,240 million (US$3,318.8 million). The year-over-year revenue growth at the segment was primarily due to integration of Yoli in Mexico, along with Fluminense and Spaipa in Brazil. However, on a currency neutral basis and excluding the non-comparable effect of Yoli, Fluminense and Spaipa, total revenue rose 12.1% due to increase in average price per unit case at every region and volume growth in Argentina, Columbia and Central America.
The segment’s operating income for the quarter declined 8.5% to Ps. 6,609 million (US$507.3 million) from the year-ago quarter mainly due to higher operating expenses. Consequently, Coca-Cola FEMSA’s operating margin contracted 280 bps to 15.3% in the quarter.
FEMSA Comercio registered revenue growth of 13.5% year over year to Ps. 25,724 million (US$1,974.4 million), mainly attributable to the opening of 511 net new stores in the quarter and a 2.5% upside in same-store sales. The growth in same-store sales was primarily driven by an increase of 2.1% in average customer ticket and 0.3% rise in customer traffic. The company opened 1,120 net new stores in 2013, bringing the total store count to 11,721.
Operating income for the said quarter rose 24.4% year over year to Ps. 2,994 million (US$154.0 million). Moreover, the segment’s operating margin expanded 100 bps to 11.6% primarily due to increased revenues, lower cost of sales and leverage operating expenses as a percentage of sales.
Full-Year 2013 Performance – A Synopsis
The company’s total sales for full-year 2013 came in at Ps. 258,097 million (US$19,737.5), up 8.3% from the 2012 level. The Zacks Consensus Estimate for the year was US$19,866. On an organic basis, FEMSA’s top-line registered year-over-year growth of 4.6%. Net majority income for the year came in at Ps. 4.45 (US$3.40) per FEMSA unit. The Zacks Consensus Estimate for the period was US$3.82 per FEMSA unit.
Financial Position
FEMSA had cash balance of Ps. 27,385 million (US$2,091 million) at the end of 2013. Long and short-term debts were Ps. 71,792 million (US$5,481 million) and Ps. 3,827 million (US$292.2 million), respectively. Moreover, during 2013, FEMSA incurred capital expenditure of Ps. 17,882 million (US$1,372.5 million) toward incremental investments at Coca-Cola FEMSA and FEMSA Comercio.
Currently, FEMSA carries a Zacks Rank #4 (Sell). However, Coca-Cola Enterprises Inc. (CCE) with a Zacks Rank #2 (Buy) is a stock that is worth a look in the beverages-brewers industry.
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