Like George Bush the First's assessment of his own memoirs in that classic episode of The Simpsons, the Q4 and full-year earnings from Mexican beverage powerhouse FEMSA
The company enjoyed bigger sales sales in the fourth quarter, but larger commodity costs ate away at its profits. That largely explains why a 13% top-line uptick turned into a 0.3% increase in income from operations. (In addition, this year's period included results from some newer, lower-margin operations, such as Brazilian beer and a greater number of OXXO convenience stores.) On the bottom line, after a higher-than-last-year tax hit, Q4 net income decreased 9.5% to 2.38 billion pesos.
Things look a bit better for the full year, with a 13.2% revenue increase filtering down to a 6% increase in operating income and a 7.3% improvement in net income.
For those who need a refresher, FEMSA is the majority owner of Mexico's biggest Coca-Cola
The best news seemed to come in the latter category. Q4 export volume grew 13.1%, and the Brazilian beer business -- which was purchased with a gradual turnaround in mind -- exhibited some solid growth and even contributed to EBITDA. That exceeded the expectations management had laid out when it made the acquisition last year. But rising aluminum prices put a pinch on beer profits, as they presumably would in the soft-drink biz as well.
The real story in soft drinks was the increasing price of sweeteners -- and also container resins -- which cut 210 basis points from the gross margin. Operating margin tumbled as well, but its decline would have been even worse if the company hadn't readjusted the amortization schedule of its cooler inventory).
In the OXXO segment, yearly same-store sales growth was a respectable 8.2%, benefiting from increased traffic and higher ticket totals. Overall, OXXO revenue increased 18.7%, and it appears that the firm is gaining leverage across that store base, since its operating profits increased 22.4%.
Mix some mediocre results with a bit of the Shanghai flu, and you get yesterday's major market spanking. I wasn't surprised by the reaction, but I don't think it was warranted, either. As when I recommended this company back in our first international report, I think the intrinsic value of its stock is closer to $125 or $130 per share.
That doesn't leave much of a margin of safety at today's prices, and it's less than the going rate a few weeks back. But with a well-run, rising powerhouse like this, I don't mind being patient. In my opinion, it's like getting Coke, Anheuser-Busch
At the time of publication, Seth Jayson had shares of FEMSA but no positions in any other company mentioned here. See his latest blog commentary here. View his stock holdings and Fool profile here. Coca Cola and Anheuser-Busch are Motley Fool Inside Value recommendations. Fool rules are here.