By:
Michael Dennison, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• Fomento Económico Mexicano (NYSE: FMX) operates in the food & beverage
industry. The company produces, distributes and markets its beverages across a
wide range of products including juices, coffees, teas, and milk products. The
company also has a right to produce and sell trademarked Coca-Cola beverages, a
job that gives it the title of the world’s largest Coca-Cola bottler in the
world. FMX was founded in 1890 and is currently located in Monterrey, Mexico.
• FMX saw total revenue
jump 28.2% in 2016, its largest increase in the past five years.
• FMX will release its Q1
earnings this afternoon.
Key
points: FMX splits itself into four primary segments.
Coca-Cola FEMSA, FEMSA Comercio Retail, FEMSA Comercio Health and FEMSA
Comercio Fuel. Total revenues increased in all four divisions with fuel leading
the way at 54.6% YoY Growth.
Coca-Cola FEMSA saw revenue
increases of 16.6% over 2015. The company did however notice adverse effects
due currency fluctuations as well as increases in sugar prices, a primary
component the company’s COGS. Gross profit rose 10.65% during the year.
FEMSA Comercio Retail
witnessed YoY revenue growth of 14.4% in 2016 combined with a 7% increase in
same store sales. The company sees this directly as a result of opening 1,164
new OXXOs, their flagship convenience store. The division saw an increase in
gross profit of roughly 16%.
FEMSA Comercio Health enjoyed
healthy revenue growth of 24% over 2015 with same-store sales growth of 22.4%.
FMX attributes a large portion of the growth in its health division to better
than expected economic conditions in South America.
FEMSA Comercio Fuel takes
the cake for 2016, reporting a 54.6% increase in revenue over 2015.
Same-station revenue growth was up 7.6% over 2015 due to an increase in
volume-per-fill-up and a slight rise in the price of oil.
What
has the stock done lately?
Since releasing its 4Q16
results FMX has seen its share price steadily rise. The company is also seeing
gains from recent good news and upgrades over at Heineken, FMX has a 20% stake
in the world’s most global brewer. On Wednesday the world’s largest coke
bottler released a pre-earnings statement highlighting their Q1 net income for
the division.
FMX says that its Coca-Cola division’s net income increased 146%
during the quarter to $314 million. Revenue for the division saw a 40% increase
while the net income was boosted by favorable currency fluctuations in the
Brazilian real and Colombian peso against the Mexican peso.
FMX has sited
dubious conditions related to the outlook for NAFTA, and any possible policy shifts
from the Trump Administration as sources of concern. The company forecasted a
rise CapEx this year in case of any adverse conditions. At the company’s annual shareholders meeting,
shareholders voted to allow a $0.03 per share dividend as well as a roughly
$400,000 share repurchase program. FMX stock is up 16% YTD.
Past
Year Performance: FMX is down 3.39% over the last 52 weeks
yet only sees that as a blip after reporting a fantastic FY 2016. The stock is
trading at a midpoint between its 52 week high and low of $100.57 – $73.45.
Source:
FactSet
My
Takeaway
Improving economic trends
and more favorable Trump Administration policies should be great news for FMX.
On Wednesday night the White House revealed that President Trump, on a call
with his Canadian and Mexican counterparts, surprised everyone and backed off on
his “withdraw from NAFTA” platform, now just promising smaller tweaks. As
Heineken and Coca-Cola sales continue to rise FMX should benefit from having strategic
partnerships with these two brands. All in all the state of FMX is sound and I
would expect a further price increase in the stock throughout FY 2017.
Source:
FactSet
