Mexico's Femsa says Q3 net consolidated income rose 16.6% year-over-year to almost 5.90B Mexican pesos, comparable total revenues grew 18.8% year-over-year to nearly 50.81B Mexican pesos
October 28, 2011
Fomento Económico Mexicano, S.A.B. de C.V. (“FEMSA”) announced today its operational and financial results for the third quarter of 2011.
Third Quarter 2011 Highlights:
• FEMSA comparable consolidated total revenues and income from operations grew 18.8% and 16.0%, respectively, compared to the third quarter of 2010, reflecting double-digit growth at Coca-Cola FEMSA and FEMSA Comercio.
• Coca-Cola FEMSA total revenues increased 18.1% as a result of double-digit total revenue growth in each division and driven by average price per unit case growth in most of their operations, in combination with volume growth mainly in Mexico, Colombia and Argentina. Income from operations increased 10.0%.
• FEMSA Comercio achieved total revenues growth of 19.7% with a continued pace of strong floor space expansion by opening 1,137 net new stores in the last twelve months. Income from operations increased 20.6%.
José Antonio Fernández Carbajal, Chairman and CEO of FEMSA, commented: “We have completed another strong quarter for our business, one where we saw good growth across our operations as well as very encouraging developments on the strategic front. Operationally, demand for our products remained healthy and we were able to convert that demand into robust financial results. However, we have to be cautious given the delicate economic environment that we continue to face. Strategically, Coca-Cola FEMSA´s merger with the beverage division of Grupo Tampico moved forward successfully, and we were also able to announce an agreement to merge Coca-Cola FEMSA with Grupo CIMSA. These are very important transactions that should allow us to create significant value for the shareholders of all the companies involved. We are honored to be entrusted with these new challenges and we are also very enthusiastic about the future.”
On April 30, 2010, FEMSA announced the closing of the strategic transaction pursuant to which FEMSA agreed to exchange 100% of its beer operations for a 20% economic interest in the Heineken Group (“the transaction”). For more information regarding this acquisition, please refer to the transaction filings available at www.femsa.com/investor. FEMSA’s consolidated results for the third quarter and for the first nine months of 2011 reflect the transaction effects and are presented on a comparable basis.
Comparable total revenues increased 18.8% compared to 3Q10 to Ps. 50.807 billion in 3Q11. Coca-Cola FEMSA and FEMSA Comercio drove the incremental consolidated revenues. For the first nine months of 2011, comparable consolidated total revenues increased 16.9% to Ps. 144.529 billion.
Comparable gross profit increased 17.8% compared to 3Q10 to Ps. 21.223 billion in 3Q11 driven by FEMSA Comercio and Coca-Cola FEMSA. Gross margin decreased 30 basis points compared to the same period in 2010 to 41.8% of total revenues, reflecting i) the effect of the faster growth of lower-margin FEMSA Comercio, which tends to compress FEMSA’s consolidated margins over time, and ii) the fact that FEMSA Comercio’s gross profit improvement in the quarter only partially offset raw-material-driven cost pressures at Coca-Cola FEMSA.
For the first nine months of 2011, comparable gross profit increased 16.4% to Ps. 59.769 billion. Gross margin decreased 10 basis points compared to the same period in 2010 to 41.4% of total revenues, reflecting the effect of the faster growth of lower-margin FEMSA Comercio, which tends to compress FEMSA’s consolidated margins over time.
Comparable income from operations increased 16.0% to Ps. 6.459 billion in 3Q11 as compared to the same period in 2010. Consolidated operating margin decreased 30 basis points compared to 3Q10 to 12.7% of total revenues, mainly due to raw-material-driven cost pressures at Coca-Cola FEMSA.
For the first nine months of 2011, comparable income from operations increased 15.9% to Ps. 17.801 billion. Our consolidated operating margin year-to-date was 12.3% as a percentage of total revenues, a decrease of 10 basis points as compared to the same period in 2010.
Net income from continuing operations increased 16.6% to Ps. 5.896 billion in 3Q11 compared to 3Q10, reflecting the net effect of i) a foreign exchange gain driven by the devaluation of the Mexican Peso on the US Dollar-denominated component of our cash position, ii) the growth in comparable income from operations, iii) a swing from other income to other expenses given the tough comparison base in 3Q10, when we recorded several non-recurring items including the sale of our Mundet brand to The Coca-Cola Company, and iv) the variation in FEMSA’s 20% participation in Heineken’s 3Q11 net income, versus the figure reported for 3Q10. The effective income tax rate on continuing operations was 26.4% in 3Q11 compared to 29.8% in 3Q10.
For the first nine months of 2011, net income from continuing operations increased 17.1% to Ps. 13.462 billion compared to the same period in 2010, primarily as a result of growth in income from operations.
Net consolidated income increased 16.6% compared to 3Q10 to Ps. 5.896 billion in 3Q11, reflecting the increase in FEMSA’s net income from continuing operations. Net majority income for 3Q11 resulted in Ps. 1.18 per FEMSA Unit1. Net majority income per FEMSA ADS was US$ 0.86 for the quarter. For the first nine months of 2011, net majority income per FEMSA Unit1 was Ps. 2.70 (US$ 1.96 per ADS).
Capital expenditures decreased to Ps. 2.928 billion in 3Q11 as Coca-Cola FEMSA deployed a lower amount of investment in capacity-related projects than in the comparable quarter of last year.
Our consolidated balance sheet as of September 30, 2011, recorded a cash balance of Ps. 35.386 billion (US$ 2.570 billion), which represents an increase of Ps. 9.544 billion (US$ 693.1 million) compared to the same period in 2010. Short-term debt was Ps. 4.900 billion (US$ 355.8 million), while long-term debt was Ps. 23.407 billion (US$ 1.700 billion). Our consolidated net cash balance was Ps. 7.079 billion (US$ 514.1 million).
Coca-Cola FEMSA’s financial results and discussion are incorporated by reference from Coca-Cola FEMSA’s
press release, which is attached to this press release or visit www.coca-colafemsa.com.
Total revenues increased 19.7% compared to 3Q10 to Ps. 19.410 billion in 3Q11 mainly driven by the opening of 185 net new stores in the quarter, reaching 1,137 total net new store openings in the last twelve months. As of September 30, 2011, FEMSA Comercio had a total of 9,148 convenience stores. Same-store sales increased an average of 9.2% for the quarter over 3Q10, reflecting a 4.8% increase in store traffic and a 4.0% increase in average customer ticket.
For the first nine months of 2011, total revenues increased 19.8% to Ps. 54.493 billion. FEMSA Comercio’s same-store sales increased an average of 9.6%, driven by a 4.9% increase in store traffic and a 4.5% increase in average customer ticket.
Gross profit increased by 21.2% in 3Q11 compared to 3Q10, resulting in a 40 basis point gross margin expansion to 34.2% of total revenues. This increase reflects (i) a positive mix shift due to the growth of higher margin categories, (ii) a more effective collaboration and execution with our key supplier partners combined with a more efficient use of promotion-related marketing resources, and (iii) a change in the structure of commercial terms for certain supplier partners; while the impact of these terms used to be skewed towards the fourth
quarter, it is now more evenly spread throughout the year. For the first nine months of 2011, gross margin expanded by 60 basis points to 33.3% of total revenues.
Income from operations increased 20.6% over 3Q10 to Ps. 1.620 billion in 3Q11. Operating expenses increased 21.4% to Ps. 5.023 billion, largely driven by the growing number of stores as well as by incremental expenses such as the strengthening of FEMSA Comercio’s organizational structure, mainly IT-related. As a result, operating margin was stable at 8.3% of total revenues. For the first nine months of 2011, income from operations increased 23.7% to Ps. 3.987 billion, resulting in an operating margin of 7.3%, which represents a 20 basis point expansion from the prior year.
CONFERENCE CALL INFORMATION:
Our Third Quarter Conference Call will be held on: Friday October 28, 2011, 11:00 AM Eastern Time (10:00 AM Mexico City Time). To participate in the conference call, please dial: Domestic US: (866) 831-5605 International: (617) 213-8851, Conference Id 75270135. The conference call will be webcast live through streaming audio. For details please visit www.femsa.com/investor.
If you are unable to participate live, the conference call audio will be available on http://ir.FEMSA.com/results.cfm.
FEMSA is a leading company that participates in the non-alcoholic beverage industry through Coca-ColaFEMSA, the largest independent bottler of Coca-Cola products in the world in terms of sales volume; in the retail industry through FEMSA Comercio, operating the largest and fastest-growing chain of convenience stores in Latin America, and in the beer industry, through its ownership of the second largest equity stake in Heineken, one of the world’s leading brewers with operations in over 70 countries.
The translations of Mexican pesos into US dollars are included solely for the convenience of the reader, using the noon day buying rate for pesos as published by the Federal Reserve Bank of New York on September 30, 2011, which was 13.7701 Mexican pesos per US dollar.