FEMSA (FMX) Q3 Earnings Beat, Revenues Lag Estimates

About this update from Fomento Economico Mexicano Sab De Cv Units Cons. Of 5 Shsb

Fomento Economico Mexicano S.A.B. de C.V. FMX, alias FEMSA, reported third-quarter 2023 net majority earnings per ADS of $1.56 (Ps. 2.72 per FEMSA unit). The company posted adjusted net majority earnings per ADS of $1.75, surpassing the Zacks Consensus Estimate of $1.16.Net consolidated income was Ps. 12,758 million (US$732.9 million), reflecting a 3.8% decrease from Ps. 13,268 million (US$653.3 million) in the year-ago quarter.Total revenues were $10,806.1 million (Ps. 188,095 million), which improved 19.3% year over year in the local currency. Revenues in U.S. dollars missed the Zacks Consensus Estimate of $11,220 million. Revenue growth was driven by gains across its business units. On an organic basis, total revenues rose 11.9%.Shares of FMX have advanced 37.8% year to date against the industry’s decline of 4.5%.FEMSA’s gross profit rose 22.1% year over year to Ps. 72,081 million (US$4,141.1 million) while our model predicted the metric to be Ps. 72,175.4 million. The consolidated gross margin expanded 90 basis points (bps) to 37.6%, owing to the gross margin expansion at Coca-Cola FEMSA, Proximity and the consolidation of Proximity Europe. Growth was partly negated by margin declines in Fuel and Health. Meanwhile, our model estimated gross margin to expand 110 bps year over year.The gross margin contracted 30 and 40 bps in the Health and Fuel segments, respectively. Meanwhile, Proximity Europe delivered a gross margin of 41.8%. However, the company’s gross margin expanded 100 bps at Proximity Americas and 140 bps at the Coca-Cola FEMSA S.A.B. de C.V. (KOF).FEMSA’s operating income (income from operations) was up 12.6% year over year to Ps. 15,929 million (US$915.1 million) and lagged our estimate of Ps. 18,403.9 million. On an organic basis, operating income improved 9.8%. The consolidated operating margin contracted 50 bps to 8.5%, driven by margin contractions at Proximity Americas, Health, Fuel and the inclusion of Proximity Europe. The gains were partly offset by margin expansions at the Coca-Cola FEMSA Division.Segmental DiscussionProximity Americas: Total revenues for the segment rose 20.8% year over year to Ps. 72,099 million (US$4,142.1 million) and came ahead of our estimate of Ps. 67,477.3 million. The increase can primarily be attributed to a 15.1% rise in same-store sales on 8% growth in store traffic and a 6.6% rise in average ticket. Th...

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