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22 Jul 2011

2011 Second-Quarter and First Six-Month Results


Friday, 07/22/2011, 9:33:46 am

- Total revenues reached Ps. 28,417 million in the second quarter of 2011, an increase of 12.9% compared to the second quarter of 2010 as a result of double-digit total revenue growth in every division.
- Consolidated operating income grew 12.4% to Ps. 4,596 million for the second quarter of 2011, mainly driven by double-digit operating income growth recorded in our Mexico and Mercosur divisions. Our operating margin was 16.2% in the second quarter of 2011.
- Consolidated net controlling interest income grew 6.0%, reaching Ps. 2,629 million in the second quarter of 2011, resulting in earnings per share of Ps. 1.42 in the second quarter of 2011.

Mexico City (July 20, 2011), Coca-Cola FEMSA, S.A.B. de C.V. (BMV: KOFL, NYSE: KOF) (“Coca-Cola FEMSA” or the “Company”), the largest public Coca-Cola bottler in the world in terms of sales volume, announces results for the second quarter of 2011.

“Our diversified portfolio of franchise territories enabled us to deliver strong results for the second quarter of 2011. Our performance was supported by volume growth across all of our divisions and our ability to implement pricing initiatives over the past several months throughout our main markets. The continued implementation of our commercial model at the point of sale is allowing us to better identify our customer’s value potential, satisfy our consumers’ needs and, at the same time, generate efficiencies for further investment in our marketplace.  We are enthusiastic about the merger with Grupo Tampico’s beverage division in Mexico. This merger will not only reinforce our presence in one of our key markets, but also present the opportunity to integrate with the oldest bottling franchise in the Mexican Coca-Cola system, whose talented team of professionals will help us to drive our future growth. We have significantly advanced our strategy to grow through value-creating transactions during the first half of the year, as exemplified by our acquisition in Panama's dairy segment, completed in March, and the upcoming merger with Grupo Tampico’s beverage division. As we enter the second half of the year, we look forward with renewed optimism, eager to deliver both organic and non-organic growth for our investors through the execution of our business strategy." said Carlos Salazar Lomelin, Chief Executive Officer of the Company.
 
CONSOLIDATED RESULTS

Our consolidated total revenues increased 12.9% to Ps. 28,417 million in the second quarter of 2011, compared to the second quarter of 2010 as a result of double-digit total revenue growth in every division. On a currency neutral basis, total revenues grew approximately 14%, driven by average price per unit case growth in most of our territories, in combination with volume growth mainly in Mexico, Colombia and Argentina.

Total sales volume increased 5.0% to reach 665.6 million unit cases in the second quarter of 2011 as compared to the same period in 2010. The sparkling beverage category grew 5% mainly supported by strong volume growth of the Coca-Cola brand in Mexico and Colombia, contributing 75% of incremental volumes. The bottled water category, including bulk water, grew 5%, representing 15% of incremental volumes. The still beverage category grew 10%, mainly driven by the Jugos del Valle line of business in Mexico and Brazil, representing the balance.

Our gross profit increased 12.2% to Ps. 13,078 million in the second quarter of 2011, compared to the second quarter of 2010. Cost of goods sold increased 13.4%, mainly as a result of higher PET and sweetener costs across our territories, which were partially offset by the appreciation of the Brazilian real,(1) the Colombian peso(1)and the Mexican peso(1) as applied to our U.S. dollar-denominated raw material costs. Gross margin reached 46.0%, as compared to 46.3% in the second quarter of 2010.

Our consolidated operating income increased 12.4% to Ps. 4,596 million in the second quarter of 2011, mainly driven by double-digit operating income growth in our Mexico and Mercosur divisions. Operating expenses increased 12.1% in the second quarter of 2011 mainly as a result of higher labor costs in Venezuela and Mercosur and higher freight costs in Argentina. Our operating margin remained flat at 16.2% in the second quarter of 2011.

During the second quarter of 2011, we recorded Ps. 332 million in the other expenses, net line. These expenses mainly reflect the recording of employee profit sharing.

Our comprehensive financing result in the second quarter of 2011 recorded an expense of Ps. 340 million as compared to an expense of Ps. 364 million in the same period of 2010.

During the second quarter of 2011, income tax, as a percentage of income before taxes, was 30.5% compared to 25.8% in the same period of 2010. This difference was mainly driven by the cancellation of a provision during the second quarter of 2010, that had been recorded in excess during 2009.

Our consolidated net controlling interest income grew 6.0% reaching Ps. 2,629 million in the second quarter of 2011 as compared to the second quarter of 2010. Earnings per share (EPS) in the second quarter of 2011 were Ps. 1.42 (Ps. 14.24 per ADS) computed on the basis of 1,846.5 million shares outstanding (each ADS represents 10 local shares).

BALANCE SHEET

As of June 30, 2011, we had a cash balance of Ps. 16,723 million, including US$ 571 million denominated in U.S. dollars, an increase of Ps. 4,189 million compared to December 31, 2010, mainly as a result of the issuance of Ps. 5,000 million of Certificados Bursátiles in April 2011 and cash generated by our operations, net of the dividend payment made during the quarter.

As of June 30, 2011, total short-term debt was Ps. 5,582 million and long-term debt was Ps. 16,485 million. Total debt increased by Ps. 4,716 million, compared to year end 2010. Net debt increased Ps. 527 million compared to year end 2010. KOF’s total debt balance includes U.S. dollar-denominated debt in the amount of US$ 673 million.

The weighted average cost of debt for the quarter was 5.9%. 


MEXICO DIVISION OPERATING RESULTS

Revenues

Total revenues from our Mexico division increased 10.8% to Ps. 11,802 million in the second quarter of 2011, as compared to the same period in 2010. Volume growth accounted for approximately 60% of incremental revenues during the quarter, and increased average price per unit case represented the balance. Average price per unit case reached Ps. 32.22, an increase of 3.9%, as compared to the second quarter of 2010, mainly reflecting selective price increases across our product portfolio implemented over the past several months. Excluding bulk water under the Ciel brand, our average price per unit case was Ps. 37.56, a 3.6% increase as compared to the same period in 2010.

Total sales volume increased 6.5% to 365.3 million unit cases in the second quarter of 2011, as compared to the second quarter of 2010. Sparkling beverage volume increased 6%, driven by a 7% growth of the Coca-Cola brand and a 5% increase in flavored sparkling beverages, accounting for more than 70% of incremental volumes. Our bottled water portfolio, including bulk water, grew 7% and contributed with close to 25% of incremental volumes. Still beverages grew 6% mainly driven by the Jugos del Valle line of products, Nestea and Powerade, contributing the balance.
 
Operating Income

Our gross profit increased 11.3% to Ps. 5,867 million in the second quarter of 2011 as compared to the same period in 2010. Cost of goods sold increased 10.3% as a result of higher PET costs, which were compensated mainly by the appreciation of the Mexican peso(1) as applied to our U.S. dollar-denominated raw material costs. Gross margin expanded 20 basis points to reach 49.7% in the second quarter of 2011.

Operating income increased 18.6% to Ps. 2,325 million in the second quarter of 2011, compared to Ps. 1,960 million in the same period of 2010. Operating leverage achieved through higher revenues, in combination with controlled operating expenses, resulted in an operating margin expansion of 130 basis points to reach 19.7% in the second quarter of 2011.

 
LATINCENTRO DIVISION OPERATING RESULTS (Colombia, Venezuela, Guatemala, Nicaragua, Costa Rica and Panama)

Revenues

Total revenues were Ps. 8,181 million in the second quarter of 2011, an increase of 11.0% as compared to the same period of 2010 as a result of total revenue growth in every territory. Higher average prices per unit case in Venezuela and Central America in combination with volume growth in Colombia and Central America, were partially offset by lower volumes in Venezuela. On a currency neutral basis, total revenues increased approximately 15%.

Total sales volume in our Latincentro division increased 2.7% to 147.4 million unit cases in the second quarter of 2011 as compared to the same period of 2010. Volumes in Colombia and Central America, which  increased 10% and 8%, respectively, compensated for a 9% volume decline in Venezuela. Our sparkling beverage portfolio grew 4%, mainly driven by a strong performance of the Coca-Cola brand in Colombia and Central America, which grew 18% and 8%, respectively. The still beverage category grew 4% driven by the Jugos del Valle line of business in Central America. These increases compensated for a 6% decline in the bottled water portfolio, including bulk water.

Operating Income

Gross profit reached Ps. 3,752 million, an increase of 9.6% in the second quarter of 2011, as compared to the same period of 2010. Cost of goods sold increased 12.3% mainly driven by higher year-over-year PET and sweetener costs across the division, which were partially offset by the appreciation of the Colombian peso(1) as applied to our U.S. dollar-denominated raw material costs. Gross profit reached 45.9% in the second quarter of 2011 as compared to 46.5% in the same period of 2010.

Our operating income decreased 1.3% to Ps. 1,217 million in the second quarter of 2011, compared to the second quarter of 2010. Operating expenses increased 15.8%, mainly as a result of higher labor costs in Venezuela. Our operating margin was 14.9% in the second quarter of 2011, as compared to 16.7% in the same period of 2010.


MERCOSUR DIVISION OPERATING RESULTS (Brazil and Argentina)

Volume and average price per unit case exclude beer results.

Revenues

Total revenues increased 17.8% to Ps. 8,434 million in the second quarter of 2011, as compared to the same period of 2010. Excluding beer, which accounted for Ps. 850 million during the quarter, revenues increased 18.3% to Ps. 7,584 million. Average price per unit case growth accounted for close to 80% of incremental total revenues. On a currency neutral basis, our Mercosur division’s revenues increased approximately 16%.

Total sales volume in our Mercosur division increased 3.9% to 152.9 million unit cases in the second quarter of 2011 as compared to the same period of 2010. The sparkling beverage category grew 2%, mainly driven by a 7% volume growth in flavored sparkling beverages, accounting for close to 60% of incremental volumes. The still beverage category increased 35%, mainly driven by the performance of the Jugos del Valle line of business and the Matte Leao portfolio in Brazil and the Cepita juice brand in Argentina, representing more than 30% of incremental volumes. The bottled water category, including bulk water, grew 10%, mainly driven by the performance of Aquarius flavored water in Argentina, representing the balance.
 
Operating Income
 
In the second quarter of 2011, our gross profit increased 16.9% to Ps. 3,459 million, as compared to the same period in 2010. Cost of goods sold increased 18.5% mainly due to higher PET and sweetener costs across the division, which were partially offset by the appreciation of the Brazilian real(1) as applied to our U.S. dollar-denominated raw material costs. Gross margin reached 41.0% in the second quarter of 2011, a decrease of 40 basis points as compared to the second quarter of 2010.

Operating income grew 17.8% to Ps. 1,054 million in the second quarter of 2011, as compared to Ps. 895 million in the same period of 2010. Operating expenses increased 16.5% mainly due to higher labor cost in the division and higher freight costs in Argentina. Our operating margin remained flat at 12.5% in the second quarter of 2011.


SUMMARY OF SIX-MONTH RESULTS

Our consolidated total revenues increased 10.5% to Ps. 54,388 million in the first six months of 2011, as compared to the same period of 2010, mainly as a result of double-digit total revenue growth in our Mercosur and Mexico divisions. On a currency neutral basis, total revenues increased approximately 12% in the first half of 2011.

Total sales volume increased 3.9% to 1,270.5 million unit cases in the first six months of 2011, as compared to the same period in 2010. The sparkling beverage category, driven by a 4% growth of the Coca-Cola brand, contributed more than 70% of incremental volumes. Our bottled water portfolio, including bulk water, grew 4% and represented 15% of incremental volumes. The still beverage category grew 11%, mainly driven by the performance of the Jugos del Valle line of business in Mexico and Brazil, and the Cepita juice brand in Argentina, representing the balance.

Our gross profit increased 10.5% to Ps. 24,934 million in the first six months of 2011, as compared to the same period of 2010. Cost of goods sold increased 10.5% mainly as a result of higher PET and sweetener costs across our operations, which were partially offset by the appreciation of the Brazilian real,(1) the Colombian peso(1) and the Mexican peso(1) as applied to our U.S. dollar-denominated raw material costs. Gross margin remained flat at 45.8% for the first six months of 2011 as compared to the same period of 2010.

Our consolidated operating income increased 10.8% to Ps. 8,491 million in the first six months of 2011, as compared to the same period of 2010. Our Mexico and Mercosur divisions accounted for this growth. Our operating margin was 15.6% for the first six months of 2011, remaining flat as compared to the same period of 2010.

Our consolidated net controlling interest income increased 5.5% to Ps. 4,869 million in the first six months of 2011 as compared to the same period of 2010. Earnings per share (EPS) in the first six months of 2011 were Ps. 2.64 (Ps. 26.37 per ADS) computed on the basis of 1,846.5 million shares outstanding (each ADS represents 10 local shares).


RECENT DEVELOPMENTS

On June 28, 2011, Coca-Cola FEMSA and Grupo Tampico S.A. de C.V. and its shareholders agreed to merge Grupo Tampico’s beverage division, one of the largest family-owned bottlers in terms of sales volume in Mexico, with Coca-Cola FEMSA.  The merger agreement has been approved by both Coca-Cola FEMSA’s and Grupo Tampico’s Board of Directors and is subject to the completion of confirmatory legal, financial and operating due diligence and to customary regulatory and corporate approvals, among them, the approval of The Coca-Cola Company and the Comisión Federal de Competencia, the Mexican antitrust authority.

CONFERENCE CALL INFORMATION
Our second-quarter 2011 Conference Call will be held on July 20, 2011, at 11:00 A.M. Eastern Time (10:00 A.M. Mexico City Time). To participate in the conference call, please dial: Domestic U.S.: 866-700-7477 or International: 617-213-8840. We invite investors to listen to the live audiocast of the conference call on the Company’s website, www.coca-colafemsa.com

If you are unable to participate live, an instant replay of the conference call will be available through July 26, 2011. To listen to the replay, please dial: Domestic U.S.: 888-286-8010 or International: 617-801-6888. Pass code: 85154446.

Coca-Cola FEMSA, S.A.B. de C.V. produces and distributes Coca-Cola, Fanta, Sprite, Del Valle and other trademark beverages of The Coca-Cola Company in Mexico (a substantial part of central Mexico, including Mexico City and southeast Mexico), Guatemala (Guatemala City and surrounding areas), Nicaragua (nationwide), Costa Rica (nationwide), Panama (nationwide), Colombia (most of the country), Venezuela (nationwide), Brazil (greater São Paulo, Campiñas, Santos, the state of Mato Grosso do Sul, part of the state of Goias and part of the state of Minas Gerais) and Argentina (Buenos Aires and surrounding areas), along with bottled water, juices, teas, isotonics, beer and other beverages in some of these territories. The Company has 30 bottling facilities in Latin America and serves close to 1,600,000 retailers in the region. The Coca-Cola Company owns a 31.6% equity interest in Coca-Cola FEMSA.

This news release may contain forward-looking statements concerning Coca-Cola FEMSA’s future performance, which should be considered as good faith estimates by Coca-Cola FEMSA. These forward-looking statements reflect management’s expectations and are based upon currently available data. Actual results are subject to future events and uncertainties, many of which are outside Coca-Cola FEMSA’s control, which could materially impact the Company’s actual performance.

References herein to “US$” are to United States dollars. This news release contains translations of certain Mexican peso amounts into U.S. dollars for the convenience of the reader. These translations should not be construed as representations that Mexican peso amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated.

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