Fomento Economico Mexicano S.A. (FMX) – also known as FEMSA – reported lower-than-expected bottom-line results for the first quarter of 2013. This largest franchise bottler for The Coca-Cola Company (KO) posted net majority income of 59 cents (Ps. 0.73) per share, lagging the Zacks Consensus Estimate of 95 cents.
However, quarterly earnings of this Zacks Rank #3 (Hold) company jumped nearly 15.7% from the comparable year-ago quarter’s earnings of 51 cents per share, primarily driven by robust performance at its FEMSA Comercio segment.
Quarter in Detail
Total revenue grew 4.6% year over year to Ps. 56.203 billion ($4.440 billion), mainly aided by improvements in revenue at FEMSA Comercio. On an organic basis, total revenue climbed 3.2% from the prior-year comparable quarter. Moreover, it surpassed the Zacks Consensus Estimate of $3.994 billion.
FEMSA’s gross profit rose 6.0% year over year to Ps. 23.255 billion ($1.837 billion), and gross margin expanded 60 basis points (bps) to 41.4%. The increase was primarily driven by gross profit improvements at Coca-Cola FEMSA and FEMSA Comercio segments.
FEMSA’s operating income dropped 1.8% to Ps. 5.119 billion ($0.404 billion) from Ps. 5.215 billion ($0.401 billion) in the year-ago period as increased operating income at FEMSA Comercio was offset by higher operating expenses at Coca-Cola FEMSA. On an organic basis, operating income declined 3.4% year over year. Consequently, consolidated operating margin contracted 60 bps to 9.1%.
Segmental Discussion
Total revenue at Coca-cola FEMSA was almost flat year over year at Ps. 33.561 billion ($2.651 billion) in the quarter, as the high single-digit revenue growth in Mexico & Central America division was offset by the negative impact from currency devaluation in Venezuela, Argentina and Brazil. However, on a currency neutral basis, total revenue escalated 10.8%.
The segment’s operating income for the quarter declined 5.6% to Ps. 4.074 billion ($0.322 billion) from the year-ago quarter, primarily due to increased labor and freight expenses in Venezuela, Argentina and Brazil. Consequently, Coca-Cola FEMSA’s operating margin contracted 80 bps to 12.1%.
FEMSA Comercio registered revenue growth of 14.0% year over year to Ps. 21.703 million ($1.714 billion), mainly attributable to the opening of 135 net new stores in the quarter along with a 4.8% upside in same-store sales. The growth in same-store sales was primarily driven by an increase of 6.1% in average customer ticket, partially offset by a 1.2% decline in customer traffic. The company opened 1,037 net new stores in the last 12 months, bringing the total store count to 10,736.