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A Tale Of 2 FEMSAs

Stephen Simpson profile picture
Stephen Simpson


  • FEMSA produced on-target second quarter results, though holiday timing and a mix shift pressured OXXO comps.
  • Although OXXO saw higher wage and store opening expenses, Health margins improved nicely.
  • Coca-Cola FEMSA has more work to do, as the Brazil recovery program is working, but the Filipino operation needs work.
  • FEMSA shares look undervalued below $100.

All in all, Mexico’s FEMSA (NYSE:FMX) continues to perform relatively well, though there has certainly been a sharper distinction lately between the strong performance of the retail operations and the lackluster-to-disappointing results of Coca-Cola FEMSA (KOF). With improved profitability in the drugstore business, a good long-term growth plan for the core OXXO operations, and opportunities for Coca-Cola FEMSA to do better, I continue to believe this is a good core holding for investors who want exposure to Mexican/Latin American consumers.

A Little Noise, But A Largely In-Line Quarter

All in all, FEMSA’s overall second quarter results were basically on target (within 1% to 2% of sell-side targets on revenue and EBITDA). Ongoing weakness at Coca-Cola FEMSA is a concern, but there are long-term plans in place to drive better performance, and the company’s retail strategy looks like it's working well.

Revenue rose almost 9% as reported and roughly 9% on an organic basis. Revenue at Coca-Cola FEMSA was up a little less than 5% on an organic basis and closer to 8% on the company’s self-reported “comparable” basis. Volume was sluggish (down 1.4% on a comparable basis), but pricing was strong. Volume continues to improve in Brazil, as the restructuring program proceeds, while volume in the Philippines (down 4%) was weaker than expected.

OXXO revenue rose nearly 10%, as a 3% same-store comp improvement complemented greater than expected store openings. Although same-store sales growth was a little sluggish (traffic up 1%, ticket up 2%), some of that was due to the timing of Holy Week this year (which boosted first quarter comps) and some was to due to a greater mix of services (which have smaller ticket values). Relative to the Mexican retail sector as a whole (as reflected in ANTAD numbers), OXXO comps were lackluster (3% vs. 4.5% ANTAD growth), and OXXO lagged

This article was written by

Stephen Simpson profile picture
Stephen Simpson is a freelance financial writer and investor. Spent close to 15 years on the Street (sell-side, buy-side, equities, bonds); now a semi-retired raccoon rancher. That last part isn't entirely true. Probably.

Analyst’s Disclosure: I am/we are long FMX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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