All posts from Zacks
Zacks in Our Research. Your Success.,

FEMSA (FMX) Loses Ground After Soft Q4: Down to Rank #5

On Apr 9, 2016, Zacks Investment Research downgraded Mexico-based beverage company, Fomento Económico Mexicano, S.A.B de C.V FMX to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Fomento Económico Mexicano or FEMSA recently posted fourth-quarter 2015 results, wherein the company’s net majority income came in at 88 cents per ADS (Ps. 1.52 per FEMSA Unit), which fell short of the Zacks Consensus Estimate of $1.01. Shares of the company have dropped 4.2% since the earnings announcement.

Further, quarterly net consolidated income slumped 14.4% to Ps. 7,304 million (US$436.1 million) from Ps. 8,536 million (US$509.7 million) in the year-ago quarter. The fall was due to greater interest costs at Coca-Cola FEMSA Brazil coupled with weakness noted in Heineken’s performance, in which FEMSA holds 20% participation interest.

In fact, a look at FEMSA’s earnings history does not give us a positive picture. The company’s bottom line has underperformed the Zacks Consensus Estimate for the last three consecutive quarters, by an average of 14.8%.

Moreover, FEMSA saw its margins contract in the fourth quarter due to the incorporation of the OXXO Gas operations and addition of lower margin businesses, mainly drugstores.

We believe that all the aforementioned factors led to the downward revisions in FEMSA’s earnings estimates as analysts have become less constructive on the stock’s future performance. The Zacks Consensus Estimate plunged 8.9% to $3.29 for 2016 and 8.6% to $3.63 for 2017 over the past 60 days.

Apart from this, continued regulatory pressure can lead to significant attrition in the Mexican soda market, which may have a material impact on FEMSA’s business. Also, the company faces intense competition in the beverage segment from local and regional players. To retain the existing market share, the company may have to reduce its sales prices, which could dent margins further.

Stocks to Consider

Some better-ranked stocks in the Beverages-Soft Drinks industry include Primo Water Corporation PRMW, with a Zacks Rank #1 (Strong Buy), and Cott Corporation COT  and REEDS, Inc. REED, both carrying a Zacks Rank #2 (Buy). 

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. blog">Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
FOMENTO ECO-ADR (FMX): Free Stock Analysis Report
PRIMO WATER CP (PRMW): Free Stock Analysis Report
COTT CORP QUE (COT): Free Stock Analysis Report
REEDS INC (REED): Free Stock Analysis Report
To read this article on click here.
Zacks Investment Research