First-quarter results for FEMSA
The company's bottling operations, Coca-Cola FEMSA
Overall company revenue increased more than 8% year over year, and operating income increased almost 20%. After suffering through excuses for compressed margins in many consumer products company earnings, I was pleasantly surprised to see an improvement in the operating margin, which expanded 60 basis points.
Strength was seen across all three of the company's main operations. FEMSA Cerveza had a startling 36% increase in operating income, as operating cost savings more than offset commodity cost inflation. This was a stark contrast to Mexican beer duopoly competitor Grupo Modelo; it could not handle commodity cost inflation and that hurt the first-quarter performance of part-owner Anheuser Busch
Almost as impressive was the performance of FEMSA's crown jewel, the convenience store chain, Oxxo. It makes the stock a compelling long-term holding. This quarter's results did nothing to dissuade me of that -- revenue grew 16% and operating margin expanded 60 basis points. The number of Oxxo stores increased 13% to a very impressive 5,636. Oxxo continues to redefine retailing in Mexico, and the concept has a great deal of growth still to come.
Coke FEMSA was not left out of the action. The company delivered revenue growth of 6.4% and increased operating margin 15.7%. FEMSA's broad-based growth in the quarter was quite encouraging, and I believe this bodes well for the coming year.
FEMSA's American depositary receipts represent a smart way for investors to get international exposure, specifically to growing South American economies, without taking on the risk of a company operating in a single country or a single product line. Owning a few shares might help investors' declining dollar hangovers.
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