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01/11 11:29
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call highlights a strong performance in South America, particularly Chile and Colombia, and positive trends in OXXO's market share and traffic. Despite challenges in Mexico, the optimistic outlook for the fourth quarter and strategic initiatives in Brazil and Bara are promising. The Q&A section supports this with positive sentiment towards growth prospects and margin improvements, despite some uncertainties in restructuring details. Overall, the positive elements outweigh the negatives, suggesting a positive stock reaction.
Proximity Americas Same-Store Sales Increased by 1.7%, with average ticket rising 4.9% and average traffic contracting 3.1%. This marks an improvement versus the first half of the year, attributed to adjustments addressing category and channel-specific challenges, improving competitive position in key categories like beer, soft drinks, and snacks.
Total Revenues (Proximity Americas) Grew 9.2%, or 4.8% on an organic and currency-neutral basis. Growth was driven by network expansion (1,370 stores year-on-year), strong performance in Latin American markets, consolidation of OXXO USA, and favorable exchange rate effects.
Gross Margin (Proximity Americas) Expanded by 80 basis points to 45%, reflecting continued expansion in Mexico and Latin America despite affordability efforts in Mexico and the consolidation of U.S. operations with lower-margin fuel.
Operating Income (Proximity Americas) Increased by 7.1%, with operating margin contracting 20 basis points to 8.8%. This was due to the consolidation of U.S. operations and flat margins in Mexico, while OXXO Latin America reduced operating income losses relative to revenues.
Net Consolidated Income Decreased by 36.8% to MXN 5.8 billion, driven by a noncash foreign exchange loss of MXN 1.3 billion, higher interest expense (MXN 5.5 billion compared to MXN 4.8 billion last year), and lower interest income (MXN 1.9 billion compared to MXN 2.6 billion last year).
Total Revenues (Health Division) Increased by 2.9% in pesos, with same-store sales growing 0.8%. Growth was driven by strong performance in Chile and Colombia, offset by Mexico. On a currency-neutral basis, total revenues grew 4.5%.
Operating Income (Health Division) Declined by 4%, or 1.3% on a currency-neutral basis, resulting in an operating margin dilution of 30 basis points to 4%. This was due to operating deleverage in Mexico and higher labor expenses in South America, particularly in Colombia.
Total Revenues (Coca-Cola FEMSA) Delivered gradual sequential improvement despite a challenging environment. Total volume declined slightly, driven by Mexico, while South America showed resilient performance with volume growth across most territories.
Gross Margin (Coca-Cola FEMSA) Protected margins through mitigation actions, controlling expenses, and generating efficiencies amid a challenging 2025.
Spin digital ecosystem: Continued growth in user base and engagement, aiming to improve financial lives in a digital world. This is a long-term investment aligned with OXXO Mexico's digital capabilities.
OXXO USA: Conversion of DK stores into OXXO banner continues, with 50 stores converted in Midland-Odessa and Lubbock. Testing stand-alone non-fuel OXXO stores in certain locations.
Bara: Accelerated store expansion with 40 new stores opened in the quarter, achieving a 30% growth rate in 2025. Focus on private label strategy and 10.8% same-store sales growth.
OXXO Mexico: Focus on affordability in core categories like beer, soft drinks, snacks, and tobacco. Positive same-store sales growth of 1.7% after adjustments to category and channel-specific challenges.
OXXO Brazil and Colombia: Higher growth opportunities ready to be scaled up, with potential to create billions of dollars in value over the next decade.
Health in Europe: Focus on organic growth and improving returns on invested capital.
Mexico: Continued investment of over $1 billion annually in CapEx, with Mexico playing a significant role in FEMSA's value creation.
Fit-for-purpose corporate overhead efficiency program: Initiatives to streamline corporate overhead, achieve significant cost savings, and reduce SG&A expenses.
Affordability initiatives: Efforts to improve assortment and price package architecture in core categories, supported by promotional campaigns and data-driven strategies.
Coca-Cola FEMSA: Ambitious multi-year investment phase to increase production and distribution capacity, while navigating challenges like tax increases in Mexico.
FEMSA Forward strategy: Focused on maximizing long-term value creation by divesting $11 billion in assets and concentrating on core verticals of retail and beverages.
Capital allocation framework: Guiding actions to distribute $7.8 billion in capital through dividends and share buybacks between March 2024 and March 2027.
Leadership transition: Smooth transition to new CEO, emphasizing strategic continuity and long-term growth opportunities.
Tax Increase in Mexico: The recently announced tax increase in Mexico will present challenges, requiring adjustments to balance return on investment capital while pursuing growth opportunities.
Challenging Environment in Mexico: The sluggish economic environment in Mexico has impacted operations, including same-store sales and traffic, and remains a concern for future performance.
Inflationary Effects on Costs and Expenses: Inflation has increased costs and expenses, impacting operating income and requiring efficiency efforts to mitigate its effects.
Foreign Exchange Losses: A noncash foreign exchange loss of MXN 1.3 billion was reported, driven by the appreciation of the Mexican peso, negatively affecting the U.S. dollar-denominated cash position.
Higher Interest Expenses: Interest expenses increased to MXN 5.5 billion, reflecting higher debt at Coca-Cola FEMSA and higher lease obligations across the retail network.
Decline in Traffic and Same-Store Sales: Traffic declined by 3.1% in Proximity Americas, and same-store sales growth has been modest, indicating challenges in consumer behavior and competitive positioning.
Underperforming Stores in Health Division: 423 underperforming stores were closed in Mexico, reflecting operational challenges in the Health division.
Labor Cost Pressures: Higher labor expenses, particularly in South America, have impacted profitability in the Health division.
Operational Deleveraging in Health Division: Operating income in the Health division declined, with operating margin dilution due to challenges in Mexico and expansion-related costs in Colombia.
Currency Headwinds: Currency headwinds in Ecuador and Chile have affected revenue growth in the Health division.
Retail Expansion: OXXO Mexico is expected to continue its store growth for at least a decade at the current pace. Expansion opportunities in OXXO Brazil, OXXO Colombia, and Bara are highlighted as high-growth areas with potential to create billions of dollars in value over the next decade. OXXO USA is in the early stages of development.
Digital Ecosystem Development: The Spin digital ecosystem is being developed to enhance financial navigation for users in an increasingly digital world. This is considered a long-term investment with significant value creation potential.
Coca-Cola FEMSA Investments: Coca-Cola FEMSA is undergoing a multiyear investment phase to increase production and distribution capacity, as well as long-term growth capabilities. Adjustments will be made to balance return on investment capital amidst challenges like the recently announced tax increase in Mexico.
Affordability Initiatives: Efforts are being made to pursue affordability in core categories such as beer, soft drinks, snacks, and tobacco. This includes introducing new product sizes and lower-cost brands, supported by promotional campaigns and improved store execution.
Operational Efficiency: A fit-for-purpose corporate overhead efficiency program has been launched to streamline operations and achieve significant cost savings over the next several quarters, reducing SG&A expenses.
Strategic Continuity: The new CEO emphasizes strategic continuity, focusing on long-term value creation and sustaining a realistic path to return on invested capital (ROIC) over weighted average cost of capital (WACC).
Market Outlook: The company is cautiously optimistic about 2026, expecting improvements in the Mexican market and additional tailwinds from the FIFA World Cup. However, challenges in the macro environment persist.
Capital Distribution Plan: Between March 2024 and March 2027, FEMSA plans to distribute approximately $7.8 billion of capital through ordinary and extraordinary dividends, as well as share buybacks.
Dividend Distribution in Q3 2025: During the third quarter, FEMSA distributed a total of MXN 11.8 million in a combination of ordinary and extraordinary dividends.
Share Buyback Activity: FEMSA was not active in share buybacks during the third quarter of 2025, but plans to resume activity in the future as per their capital allocation framework.
The earnings call highlights a strong performance in South America, particularly Chile and Colombia, and positive trends in OXXO's market share and traffic. Despite challenges in Mexico, the optimistic outlook for the fourth quarter and strategic initiatives in Brazil and Bara are promising. The Q&A section supports this with positive sentiment towards growth prospects and margin improvements, despite some uncertainties in restructuring details. Overall, the positive elements outweigh the negatives, suggesting a positive stock reaction.
The earnings call indicates strong financial performance with high single-digit revenue growth, stable operating margins, and significant shareholder returns. Despite a 10% volume decline due to weather and demand challenges, management's strategies in digital, store expansion, and cost initiatives show promise. The Q&A highlights optimism for the second half of the year, with positive traffic data from loyalty programs and strategic partnerships. While some uncertainties remain, the overall sentiment is positive, suggesting a 2% to 8% stock price increase over the next two weeks.
The earnings call shows strong financial performance with a 56.7% increase in EPS and an 11.1% increase in total revenues. Despite some traffic challenges, management remains optimistic about growth opportunities and store expansion. The Q&A section reveals positive sentiment towards financial services and commercial income growth, and strategic initiatives for cost savings and margin expansion. The shareholder return plan, including increased dividends and share repurchases, adds to the positive outlook. However, some concerns about traffic and management's unclear responses slightly temper the overall sentiment.
The earnings call reflects positive sentiment with strong financial performance, including an 11.1% revenue increase and a significant net income rise. Despite some challenges, such as traffic slowdown and operating income decline in Proximity Americas, management remains optimistic about growth opportunities, particularly in digital capabilities and store expansion. The shareholder return plan, with significant dividends and buybacks, further boosts sentiment. Concerns about market share and traffic are acknowledged but not seen as major deterrents. Overall, the positive elements outweigh the negatives, suggesting a likely stock price increase in the short term.
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