Factors Setting the Tone for FEMSA (FMX) in Q4 Earnings

Fomento Economico Mexicano, S.A.B. de C.V. FMX or FEMSA is slated to report fourth-quarter 2018 results on Feb 27.

The company has a dismal earnings surprise trend, having missed estimates in three of the trailing four quarters. Also, it witnessed average four-quarter negative earnings surprise of 44.5%.

Factors Likely to Impact Q4

FEMSA witnesses soft operating margin at the Proximity division on higher operating expenses due to the gradual shift of store teams to employee-based, higher transportation costs, higher electricity tariffs and organic growth of OXXO’s international operations.

Furthermore, FEMSA remains prone to the rising raw material costs that have plagued the beverage industry. Higher tariff on steel and aluminium by the Trump administration leading to an increase in costs for producing cans and packaging is an added concern. Escalating industry-wide freight costs and increase in other input costs, which is impacting the bottling system and some of the company’s finished products, have been resulting in higher product prices. These price increases can be disruptive as consumers may refrain from buying colas and other drinks. Consequently, the company’s top and bottom-lines performances might be hampered in the to-be-reported quarter.

The company had earlier notified about macroeconomic uncertainty that is likely to prevail in many of its markets including Mexico and Brazil going forward.

Nevertheless, FEMSA’s strategic efforts to expand the store base, diversify the business portfolio and focus on the core business activities are encouraging. The company has been taking strategic actions to diversify its product portfolio while expanding in the small-box retail segment, particularly across Latin America. This was evident from its recent entry in Ecuador through the Health Division. Further, the company announced the entry in Peru with the opening of its first OXXO store in the city of Lima.

FEMSA’s vast exposure in various industries through Coca-Cola FEMSA, which operates as the world’s largest franchise bottler for Coca-Cola products, remains an added positive. Apart from these, FEMSA provides logistics, point-of-sale refrigeration solutions and plastics solutions to its business units and third-party clients through its FEMSA Strategic Businesses subsidiary.

Stocks Likely to Deliver Earnings Beat

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:

Turning Point Brands, Inc. TPB has an Earnings ESP of +11.11% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Abercrombie & Fitch Co. ANF has an Earnings ESP of +2.28% and a Zacks Rank of 2.

Nu Skin Enterprises, Inc. NUS has an Earnings ESP of +0.34% and a Zacks Rank #2.

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