Femsa Net Rises Less Than 1% on Higher Beer Costs

Fomento Economico Mexicano SAB (FEMSAUBD), Latin America’s largest beverage maker, said profit rose less than 1 percent as the cost of making beer offset sales gains.

Net income advanced to 2.51 billion pesos ($189 million), or 70 centavos a share, from 2.5 billion a year earlier. Sales climbed 19 percent to 48.2 billion pesos, Femsa, as the Monterrey, Mexico-based beer and Coca-Cola bottler is known, said today in a statement on its Web site.

Beer sales climbed 6.7 percent in the quarter because of price increases, while the cost of sales rose 12 percent. Beer shipments in Mexico, including the Tecate and Dos Equis brands, fell 5.9 percent in a second quarter that “will turn out to be the most challenging of the year,” Chief Financial Officer Javier Astaburuaga said in a conference call with analysts.

Higher grain and aluminum prices contributed to rising costs and foreign-exchange fluctuations trimmed profit compared with a year earlier, the company said. The beer unit lost market share to Grupo Modelo SAB (GMODELOC) during the first half, partly because the economic slowdown in the north, where Femsa has a stronghold, was greater than in central and southern Mexico, Astaburuaga said.

“The situation of the consumer going forward will be better than in the past,” Astaburuaga said.

Grupo Modelo

Grupo Modelo, the maker of Corona Extra, gained share by increasing beer-bottle sizes and reported a second-quarter rise in beer shipments of 3.2 percent. Femsa’s share of the Mexican beer market dropped 1.5 percentage points during the first half, Astaburuaga said, from just below 44 percent at the beginning of the year.

Femsa was projected to report net income of 2.85 billion pesos, by Vanessa Quiroga, a Mexico City-based analyst at Credit Suisse Group AG, according to a July 16 report.

Earnings before interest, taxes, depreciation and amortization -- a measure of cash flow known as ebitda -- rose 15 percent to 9.23 billion pesos.

Sales from the retail unit rose 13 percent to 13.6 billion pesos and ebitda jumped 36 percent to 1.42 billion pesos. The company had 6,811 Oxxo stores in Mexico at the end of June, a net increase of 269 during the quarter. Femsa will probably open more than 850 Oxxo stores this year, Astaburuaga said. The company added 811 in 2008.

Sales at Coca-Cola Femsa, the soft-drink unit, rose 30 percent to 24.2 billion pesos, partly from an acquisition in Brazil. Ebitda at the Coca-Cola (KO) Femsa rose 16 percent to 4.55 billion pesos.

Femsa will probably keep Mexican beer prices stable in the second half after average prices rose 9.7 percent in the second quarter. Beer shipments in Brazil dropped 8.4 percent in the quarter after Femsa raised prices, Astaburuaga said. Femsa is scaling back those increases to help boost shipments, he said.

Femsa rose 81 centavos, or 1.7 percent, to 47.81 pesos at 4:10 p.m. New York time in Mexican stock exchange trading. The shares have climbed 16 percent this year.

To contact the reporter on this story: Thomas Black in Monterrey, Mexico, at tblack@bloomberg.net.

To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net.

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