KOF: Impressive Results for Latin Coke

Jul.24.09 | About: Coca-Cola FEMSA, (KOF)

Before market opened, Coca-Cola FEMSA S.A. de C.V. (NYSE:KOF), producer and distributor of Coca-Cola trademarked products in Latin America, posted positive results for the second quarter 2009.

During the quarter, total revenues increased 30.4% to MXN$24,184 million (US$1,181.5 million) versus MXN$18,544 million in the year ago quarter due to positive exchange rate translation effect and the consolidation of REMIL in Brazil and Brisa in Colombia, which contributed approximately 30% and 20% of incremental revenues in the quarter. Total sales volume also increased 9.8% to reach 607.0 million unit cases in the quarter in comparison to the second quarter of 2008.

Operating income grew 16.0% to MXN$3,677 million (US$275.4 million) from MXN$3,169 million in the second quarter of 2008, mainly driven by double-digit operating income growth in the Latincentro and Mercosur divisions. Thus, Consolidated majority net income in the quarter reached MXN$2,161 million (US$161.9 million), up 17.2% from MXN$1,844 million in the second quarter of 2008.

Comprehensive financing results in the second quarter of 2009 recorded a gain of MXN$23 million (US$1.7 million) compared to an expense of MXN$51 million in the same period of 2008, mainly due to lower interest expenses as a result of lower net debt. NET debt decreased to MXN$9,418 million (US$711.9 million) from MXN$12,382 million in the year ago quarter.

The company was once again able to post positive operating numbers within a very competitive market. Even though the weak economic situation is grim since U.S. and Mexican economies have very strong ties, we still believe KOF is trading at an attractive valuation, and has a strong presence in the Latin American soft drink business, which is one of the most attractive markets for this kind of industry because of positive demographics. Thus, we are keeping our current Buy recommendation on KOF as we believe that short-term operating results will remain strong.