Coca-Cola Femsa Misses Estimates as Peso Dips, Costs Rise

Coca-Cola Femsa SAB, Latin America’s biggest Coke bottler, fell the most in two weeks after posting a second-quarter profit that trailed analysts’ estimates.

The shares slid 7.2 percent to 152.96 pesos in Mexico City, the largest drop since July 11. Net income declined to 2.71 billion pesos ($198 million), the company said late yesterday. Analysts expected a 2.96 billion-peso profit, based on the average of four estimates compiled by Bloomberg.

Coca-Cola Femsa absorbed blows from a weaker Mexican peso, rising labor costs and more expensive high-fructose corn syrup. The peso slid 12 percent against the dollar during the year ended June 30, and Chief Financial Officer Hector Trevino said the weakening currency magnified the Mexico City-based company’s dollar-based materials costs.

“The first read-through is pretty weak across the board,” said Alan Alanis, an analyst at JPMorgan Chase & Co. in New York who has a neutral rating on Coca-Cola Femsa. “Flat volumes, contracting margins and shrinking earnings per share: Those are the highlights of the quarter.”

While three acquisitions in Mexico over the past year boosted sales 28 percent to 36.3 billion pesos, beverage volume excluding the new units was little changed, Coca-Cola Femsa said. The company’s operating income as a percentage of sales fell to 13 percent from more than 15 percent a year earlier.

Net Income

Net income amounted to 1.35 pesos per share, down 9 percent from a year earlier, Coca-Cola Femsa said in a statement to the Mexican stock exchange.

Higher labor costs in Venezuela and Argentina and steeper freight costs in Argentina and Brazil helped push operating expenses up 38 percent from a year earlier. Trevino said the company would benefit from steadier costs in the second half of the year, especially if the peso stabilizes.

“Should currency volatility recede, we look forward to a more stable cost environment for the second half of 2012,” he said on a conference call with analysts and investors. “All in all, I do see a second half of the year that will be better on the margins than what we are presenting in this quarter.”

Coca-Cola Femsa closed transactions in 2011 to buy Grupo Tampico for 9.3 billion pesos and Grupo Cimsa for 11 billion pesos, including debt. It completed the purchase of Grupo Fomento Queretano for 6.6 billion pesos in May.

‘On Track’

Chief Executive Officer Carlos Salazar said in a statement that the company is “fully on track to meet our previously announced net synergy targets.”

Teams of Coca-Cola Femsa employees are studying the operations and finances of Coca-Cola Co.’s Philippines unit, as the Mexican company evaluates whether to make its first foray outside Latin America, Trevino said.

In February, Coca-Cola Femsa entered a 12-month exclusive agreement with Atlanta-based Coca-Cola to discuss buying a controlling stake in the Filipino unit. The U.S. company owns about 30 percent of Coca-Cola Femsa, which is majority-owned by Monterrey, Mexico-based Fomento Economico Mexicano SAB.

While Trevino said in April that a decision could come by the end of September, he said yesterday that it might take until the end of the year.

“We feel enthusiastic about this idea,” he said on the conference call. “During the second half of the year, we should be able to reach a decision.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE