Fomento Economico Mexicano S.A.B. de C.V. FMX, alias FEMSA, reported first-quarter 2024 net majority earnings per ADS of 49 cents (Ps. 0.82 per FEMSA unit). The company posted adjusted net majority earnings per ADS of 47 cents, down from $1.16 earned in the year-ago quarter.
Net consolidated income was Ps. 5,884 million (US$355.4 million), reflecting a decrease from Ps.50,329 million from the year-ago quarter.
Total revenues were $10.8 billion (Ps. 178,204 million), which improved 11.3% year over year in the local currency. Revenue growth was driven by gains across FMX’s business units.
Fomento Economico Mexicano S.A.B. de C.V. Price, Consensus and EPS Surprise
Fomento Economico Mexicano S.A.B. de C.V. price-consensus-eps-surprise-chart | Fomento Economico Mexicano S.A.B. de C.V. Quote
Shares of the current Zacks Rank #4 (Sell) company have lost 12.9% in the past three months against the industry’s 3.7% growth.
Margins
FEMSA’s gross profit rose 10.9% year over year to Ps. 70,224 million (US$4.2 billion). The consolidated gross margin fell 20 basis points (bps), owing to the gross margin contractions at FEMSA Health and Fuel operations. The decline was partly negated by margin expansions at Proximity Americas, Coca-Cola FEMSA and Proximity Europe units.
The company’s gross margin expanded 170 bps at Proximity Americas, 100 bps at Proximity Europe and 20 bps at the Coca-Cola FEMSA segments. However, the gross margin contracted 80 bps in the Fuel segment.
FEMSA’s operating income (income from operations) was up 14.4% year over year to Ps. 14,767 million (US$891.9 million). The consolidated operating margin increased 20 bps to 8.3%, driven by higher margins at Proximity Europe and stable margins at Coca-Cola FEMSA.
Segmental Discussion
Proximity Americas: Total revenues for the segment rose 15.1% year over year to Ps. 70,085 million (US$4.2 billion). The increase can primarily be attributed to a 9.7% rise in same-store sales on 2.2% growth in store traffic and a 7.3% rise in average tickets. The gains mainly stemmed from robust growth across the entire OXXO categories due to the rising demand for thirst and gathering occasions like beer, snacks and soft drinks.
The Proximity Americas division had 22,290 OXXO stores as of Mar 31, 2024. Operating income improved 1% year over year. The operating margin for the segment declined 20 bps to 7.1% due to higher operating expenses.
Proximity Europe: Total revenues for the segment grew 8.2% to Ps. 10,939 million (US$660.7 million). The segment has been benefiting from the B2B business and retail sales in all countries, backed by robust promotional income and the addition of B2B customers. The Proximity Europe division had 2,789 points of sale as of Mar 31, 2024. Operating income for the segment was up 175% year over year, on solid gains from the B2B business. The operating margin for the segment expanded 210 bps to 3.5%.
Health Division: The segment reported total revenues of Ps. 18,154 million (US$1,096.4 million), down 2.3% year over year. Revenues were impacted by persistent challenges in institutional sales in Colombia, a tough macroeconomic environment in Ecuador, competition in Mexico and a lower number of stores year over year. In the quarter, the store base declined by 34 units, reaching a total of 4,440 locations as of Mar 31, 2024. Same-store sales dipped 0.1% in the quarter. The operating income declined 40% year over year while the operating margin contracted 210 bps to 3.3%.
Fuel Division: Total revenues rose 13.9% to Ps. 14,963 million (US$903.7 million). Average same-station sales improved 6.9%, driven by a 3.4% increase in the average volume and 3.4% growth in the average price per liter. Results also gained from volume growth in its institutional and wholesale customer network. The company had 570 OXXO GAS service stations as of Mar 31, 2024. Operating income rose 1.4% but the operating margin fell 50 bps to 3.5%.
Coca-Cola FEMSA: Total revenues for the segment advanced 11.2% year over year to Ps. 63,803 million (US$3,853.4 million). KOF’s consolidated operating income increased 11.6%. The segment’s operating margin remained flat at 13.5%.
Financial Position
FEMSA had cash and cash equivalents of Ps. 137,530 million (US$8.2 billion) as of Mar 31, 2024. The company’s long-term debt was Ps. 126,303 million (US$7.6 billion). It incurred a capital expenditure of Ps. 7,371 million (US$445.2 million) in first-quarter 2024, reflecting higher investments in business units.
Key Picks
We have highlighted three better-ranked stocks from the Consumer Staples sector, namely The Chef’s Warehouse CHEF, Vita Coco Company COCO and Diageo DEO.
The Chef’s Warehouse (CHEF), which engages in the distribution of specialty food products, currently carries a Zacks Rank #2 (Buy). CHEF has a trailing four-quarter earnings surprise of 3.2%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for The Chef’s Warehouse’s current fiscal year sales and earnings suggests growth of 8.7% and 4.7%, respectively, from the year-ago reported numbers.
Vita Coco currently carries a Zacks Rank of 2. COCO shares have risen 10.6% in the past three months. The company has a trailing four-quarter earnings surprise of 31.3%, on average.
The Zacks Consensus Estimate for Vita Coco’s current financial-year sales and earnings suggests growth of 1.8% and 24.3%, respectively, from the year-ago period’s reported figure.
Diageo currently carries a Zacks Rank of 2. DEO shares have gained 3.4% in the past three months.
The Zacks Consensus Estimate for Diageo’s current financial-year sales suggests growth of 11% from the year-ago period’s reported figures. The consensus mark for the company’s EPS indicates a decline of 8.2% from the year-ago quarter’s actual.
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