HomeMarket NewsEbullient Growth Initiatives Propel FEMSA (FMX) Towards Greener Pastures

Ebullient Growth Initiatives Propel FEMSA (FMX) Towards Greener Pastures

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Flourishing Growth Engines

FEMSA, lovingly known as FMX, finds itself in a sweet spot, thanks to its dynamic strategic maneuvers. The company is riding high on a wave of sturdy growth trends across all business units, buoyed by effective strategies and robust market demand. Notably, its foray into the U.S. specialized distribution segment is shaping up splendidly.

The digital forays spearheaded by FMX, alongside its business expansion initiatives and strong performances from OXXO Mexico and OXXO Gas, are bearing fruit. Moreover, the company flaunts a robust financial standing.

FMX’s adjusted net majority earnings per ADS soared, fueled by robust sales growth, enhanced gross margin, and reduced interest expenses. Organically, total revenues surged by 4.3% year over year, propelled by gains across all its business units.

The Zacks Rank #3 (Hold) company’s shares have surged by an impressive 35.1% over the past year, overshadowing the industry’s 5.1% growth. In comparison, the sector faced a 2.8% dip during the same period, while FMX outperformed the S&P 500’s 28.3% surge.

The Zacks Consensus Estimate for FMX’s current financial-year sales and earnings point to a 4.2% and 0.9% growth, respectively, compared to the figures reported a year ago.

Despite its commendable performance, FMX grappled with a decline in operating margin, attributed to constriction at Proximity Americas, Health, and Fuel divisions. This can be attributed to escalated labor expenses due to labor reforms in Mexico and the addition of Proximity Europe.

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Driving Factors Behind the Surge

FMX has been accelerating its presence in the digital realm through its tech and innovation business unit, Digital@FEMSA, which aims to establish a value-added digital and financial ecosystem for both end consumers and businesses. The company is also keen on leveraging and enabling the strategic assets of FEMSA’s core business verticals.

With Coca-Cola FEMSA taking the lead in omnichannel business, and the Proximity division making headway in digital initiatives for OXXO stores, FMX is investing significantly in digital offerings, loyalty programs, and fintech platforms in its OXXO store chains to fortify its position in the long run.

The OXXO digital wallet, OXXO Premia, and loyalty program have been delivering promising results. FMX is making strides in its digital endeavors, with the accelerated addition of Spin Premia and Spin by OXXO customers. Spin by OXXO has secured definitive authorization for fintech operations in Mexico and garnered 6.9 million active users in the fourth quarter of 2023, while Spin Premia attracted 19.3 million loyal users with an average spend of 31.0%.

Marching in line with its strategy to establish a national distribution platform in the U.S., FMX has been expanding its footprint in the specialized distribution industry. Through its Envoy Solutions subsidiary, the company has completed significant acquisitions in 2022, including OK Market in Chile, ATRA Janitorial Supply Co., Inc. in the U.S., and Sigma Supply of North America Inc. in Hot Springs, AR.

FMX’s venture into the specialized distribution industry ties back to its ambition of investing in complementary businesses, leveraging capabilities across various markets to capitalize on growth opportunities and mitigate risks. Backed by its OXXO business and other retail operations, FMX has honed its expertise in organizing and managing supply chains and distribution networks, catering to a vast number of businesses and retail customers across diverse industries.

Challenges Faced Along the Journey

FMX has been grappling with dwindling operating margins for a while. In the fourth quarter of 2023, operating income slipped by 1.4% year over year, with an organic decline of 0.7%.

The consolidated operating margin shrunk by 60 basis points to 9.2% in the reported quarter due to margin declines at Coca-Cola FEMSA, Proximity Americas, and Health divisions. This was partly offset by margin expansions at the Fuel and Proximity Europe divisions. In the preceding quarter, the consolidated operating margin contracted by 50 basis points year over year to 8.5%.

Optimistic Choices Ahead

Among other stalwarts in the Consumer Staple sector, three stocks shine brighter, namely Vita Coco Company (COCO), Molson Coors (TAP), and Diageo (DEO).

Vita Coco, a player in the coconut water products market across various regions, is currently adorned with a Zacks Rank #1 (Strong Buy). COCO’s shares have surged by 23.9% in the last year.

Molson Coors, a global player in the beer and beverage domain, holds a Zacks Rank #2 (Buy). Despite a trailing four-quarter negative earnings surprise of 37.2% on average, TAP’s shares have soared by 31.3% in the past year.

Diageo, engaged in the production and distribution of spirits, wine, and beer, also boasts a Zacks Rank #2. Although DEO’s shares dropped by 18.6% in the past year, the Zacks Consensus Estimate for its current financial-year sales hints at a 5.6% growth from the previous year’s actuals.

Zacks Names #1 Semiconductor Stock

It’s only 1/9,000th the size of NVIDIA, which surged over +800% since the recommendation. With robust earnings growth and a burgeoning customer base, it’s poised to meet the surging demands for Artificial Intelligence, Machine Learning, and Internet of Things. The global semiconductor manufacturing industry is set to skyrocket from $452 billion in 2021 to a whopping $803 billion by 2028.

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Vita Coco Company, Inc. (COCO) : Free Stock Analysis Report

Fomento Economico Mexicano S.A.B. de C.V. (FMX) : Free Stock Analysis Report

Molson Coors Beverage Company (TAP) : Free Stock Analysis Report

Diageo plc (DEO) : Free Stock Analysis Report

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The expressed perspectives of the author are personal opinions and may not necessarily align with those of Nasdaq, Inc.

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