FEMSA Earnings Call: Recovery Strengthens Amid Persistent Risks
Fomento Economico Mexicano S.a.b. De C.v. ((FMX)) has held its Q1 earnings call. Read on for the main highlights of the call.
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Fomento Económico Mexicano’s latest earnings call painted a cautiously optimistic picture, with a strong operational rebound at core retail banners and solid comparable growth offset by weak net income, health‑care headwinds, and currency pressures. Management struck a confident but measured tone, stressing cost discipline, capital prudence, and a realistic view of macro and security risks.
OXXO Mexico Revenue and Same-Store Sales Recovery
OXXO Mexico returned to healthy top-line growth, with revenues rising 8.3% year on year on the back of 6.0% same-store sales growth and 158 net new stores opened in the quarter. Customer traffic improved meaningfully versus last year, though it remained slightly negative overall, suggesting further upside if mobility and sentiment continue to normalize.
OXXO Mexico Margin and Operating Income Expansion
Profitability at OXXO Mexico improved even faster than sales, as gross margin expanded 140 basis points to 46.2% and operating income grew 20.9%, lifting the operating margin to 7.6%. Management credited better supplier cooperation, higher distribution income, and warehouse efficiencies, reinforcing the chain’s role as FEMSA’s profit engine.
Americas & Mobility Strong Top-Line Growth
The Americas & Mobility segment delivered robust revenue growth to 25 billion pesos, up 12.9% year on year or 10.5% on a comparable, currency‑neutral basis. Same-store sales were particularly strong in OXXO LatAm ex‑Brazil, with Chile, Peru and Colombia collectively up 13.1%, while Brazil grew 6.9% in local currency and the U.S. posted a 1.7% gain.
Fuel Division and Americas Margin Improvements
FEMSA’s fuel business was another bright spot, as division margins widened 120 basis points to 13.0%, supported by a favorable mix of higher retail volumes at OXXO Gas and elevated fuel prices. At the segment level, Americas & Mobility posted operating income of 281 million pesos and a 1.1% margin, more than doubling on a comparable basis despite Brazil’s drag.
Bara Performance and Private Label Traction
Discount banner Bara continued to scale, reporting double-digit same-store sales growth driven by both higher traffic and larger tickets, while opening 38 net new stores in the quarter. Private label products now represent roughly 30% of Bara’s revenue mix, enhancing margins and strengthening its value proposition in a price-sensitive consumer environment.
Europe (Valora) Operating Income Growth
In Europe, Valora posted operating income of 356 million pesos, up 7.4% year on year, even as reported revenues were broadly stable in peso terms and up 1.5% on a currency‑neutral basis. The improvement highlights effective cost containment, which helped offset softer traffic outside the core Swiss network and the impact of accounting reclassifications.
Coca-Cola FEMSA Comparable Growth
Coca‑Cola FEMSA contributed steady performance, with comparable revenues up 6.3% and operating income rising 2.1%, underlining the benefits of its geographic and product diversification. Growth was supported by initiatives in packaging, including refillables, as well as digital tools and revenue growth management that helped navigate mixed consumer conditions.
Spin Rapid User and Transaction Growth
Fintech platform Spin is scaling quickly, reaching around 11 million active users and surpassing 100 million monthly transactions in the quarter, while tender share crossed the 50% threshold. Importantly for investors, losses narrowed materially and Spin is becoming a more meaningful contributor to FEMSA’s omnichannel reach and retail media monetization strategy.
Consolidated Revenue and Operating Income (Comparable Basis)
At the consolidated level, FEMSA’s total revenues increased 6.1% year on year, or 8.5% on a comparable, currency‑neutral basis, reflecting broad-based growth across OXXO Mexico and international operations. Operating income rose 5.5%, or 12.1% on a comparable basis, as early benefits from cost restructuring started to flow through despite pockets of underperformance.
Capital Allocation and Shareholder Returns
Capital allocation remained shareholder-friendly but more measured on growth spending, with 6.2 billion pesos of CapEx in Q1, equivalent to about 3% of sales and down nearly 30% year on year. At the same time, FEMSA approved ordinary and extraordinary dividends totaling roughly 41 billion pesos and advanced a 300 million‑share repurchase, underscoring confidence in cash generation.
Health Division Underperformance
The Health division was a clear weak spot, with revenues up just 0.9% in pesos, or 6.5% in constant currency, but gross profit falling 10% and margins compressed partly by a sizable cost reclassification. Operating income declined 14.9%, reflecting soft margins in Chile, ongoing losses in Mexico, and operational and funding challenges in Colombia’s institutional segment.
Net Income Distorted by One-Time Gain
Headline net income almost doubled to 17.6 billion pesos due to a one‑time non‑cash accounting gain related to a prior transaction, inflating reported results. Stripping out that effect, underlying net income would have been about 5.7 billion pesos, a 36.4% decline driven mainly by higher net financing costs and reduced interest income.
Colombian Institutional Health Exposure and Receivables Risk
Management called out growing risk in Colombia’s institutional health business, where funding gaps are driving a buildup in receivables and raising concerns about counterparties. FEMSA decided not to renew a key agreement with a major payer when it expires and is actively reducing exposure to this segment to limit potential write‑offs and protect capital.
OXXO Brazil Consolidation and Profitability Drag
OXXO Brazil’s full consolidation, for two of the three months in the quarter, is adding scale but currently diluting margins as the operation remains loss‑making. FEMSA highlighted that Brazil still lags other Latin American markets on gross margin and will require further commercial and efficiency improvements before it becomes accretive.
Traffic and Security Disruptions
Despite overall recovery, OXXO Mexico’s average traffic remained slightly negative, partly due to security incidents in February in states such as Jalisco that forced temporary closures. Some stores remain shut, and management acknowledged that security and mobility issues continue to weigh on performance in certain regions, even as the broader network normalizes.
Financing and FX Headwinds
Net financing expenses rose sharply as FEMSA swung from a foreign exchange gain last year to a loss of 883 million pesos, compounded by unfavorable valuation effects and lower interest income. These financial headwinds significantly pressured the bottom line, offsetting much of the operating progress and reminding investors of the group’s exposure to currency volatility.
Reclassification Impacts and One-Offs Masking Trends
Accounting reclassifications, particularly shifting some distribution expenses from SG&A to cost of sales in Europe and Health, mechanically reduced reported gross margins without affecting operating income. Together with one‑time gains, these changes complicated year‑over‑year comparisons, prompting management to emphasize underlying trends and comparable metrics.
Guidance and Outlook
Looking ahead, FEMSA expects CapEx to accelerate toward a more typical 5–6% of sales over the year, while maintaining leverage just below a 2.0x net debt to EBITDA target absent major deals. Cost‑reduction benefits should build over the next three quarters, Spin losses are expected to keep narrowing, and management remains cautiously positive on the second half amid macro uncertainty.
FEMSA’s quarter showcased strong execution in its core convenience, fuel, and beverage businesses, alongside promising traction in digital finance, but also exposed vulnerabilities in health care and Brazil and the impact of FX. The overall message to investors was one of disciplined growth: leveraging solid operating momentum while managing risk and returning significant capital, yet staying realistic about the challenges ahead.
