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21 Oct 2010

Coca-Cola FEMSA Reports Results of the 3Q of 2010


Thursday, 10/21/2010, 10:22:36 am

  • Total revenues reached Ps. 25,675 million in the third quarter of 2010, a decrease of 1.3% compared to the third quarter of 2009 mainly as a result of the devaluation of the Venezuelan bolivar, which was partially compensated by double-digit total revenue growth in our Mercosur division and a low single-digit total revenue growth in our Mexico division. On a currency neutral basis, total revenues grew approximately 13%.
  • Consolidated operating income grew 7.3% to Ps. 4,249 million for the third quarter of 2010, driven by double-digit operating income growth recorded in our Mercosur division. Our operating margin was 16.5% in the third quarter of 2010.
  • Consolidated net controlling interest income remained stable reaching Ps. 2,126 million in the third quarter of 2010, resulting in earnings per share of Ps. 1.15 in the third quarter of 2010.

Mexico City (October 21, 2010), 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 third quarter of 2010.

"Our increased profitability for the quarter highlights the benefits of our balanced, geographically diversified portfolio of franchise territories. Despite tough weather conditions in our Mexico and Latincentro divisions, strong performance from our Brazilian franchise, in combination with our pricing initiatives across our territories, drove our local currency top-line growth for the quarter. We are pleased to have successfully integrated the “Matte Leao” product line in Brazil, adding a strong brand in the tea category to our portfolio. This not only satisfies our consumers’ preferences, but also reinforces the non-carbonated beverage platform that we operate together with our partner, The Coca-Cola Company, and the rest of the Brazilian Coca-Cola system. The financial flexibility we have achieved over the past several years demonstrates our ability to operate our business in challenging environments. As we continue to analyze the opportunities in the beverage industry, we will maintain our disciplined and efficient efforts to grow our business both organically and through acquisitions that create value for our shareholders." said Carlos Salazar Lomelin, Chief Executive Officer of the Company.

CONSOLIDATED RESULTS

Our consolidated total revenues decreased 1.3% to Ps. 25,675 million in the third quarter of 2010, compared to the third quarter of 2009 mainly as a result of the devaluation of the Venezuelan bolivar. On a currency neutral basis, total revenues grew approximately 13%, mainly driven by the strong performance of our Mercosur division, in combination with average price per unit case growth across our territories.

Total sales volume increased 0.1% to reach 616.4 million unit cases in the third quarter of 2010 as compared to the same period in 2009. Strong volume growth across all categories in our Mercosur division, mainly driven by a 10% increase in the Coca-Cola brand, was compensated by volume declines in our Latincentro and Mexico divisions.

Our gross profit increased 0.5% to Ps. 12,129 million in the third quarter of 2010, compared to the third quarter of 2009. Cost of goods sold decreased 2.8%, mainly as a result of the devaluation of the Venezuelan bolivar. In local currency, cost of goods sold increased mainly driven by higher year-over-year sweetener costs across our territories, which were partially offset by the appreciation of the Mexican peso,(1) the Colombian peso(1) and the Brazilian real (1) as applied to our U.S. dollar-denominated raw material costs. Leverage achieved through higher average prices per unit case in local currency resulted in a gross margin expansion of 80 basis points to reach 47.2% in the third quarter of 2010.

Our consolidated operating income increased 7.3% to Ps. 4,249 million in the third quarter of 2010, driven by double-digit operating income growth in our Mercosur division. Operating expenses decreased 2.8% in the third quarter of 2010 mainly as a result of the devaluation of the Venezuelan bolivar. In local currency, operating expenses grew mainly as a result of (i) continued marketing investment in our Mexico division to support our execution in the marketplace, widen our cooler coverage and broaden our returnable base availability, (ii) higher labor and freight costs in Argentina and (iii) higher labor costs in Venezuela. Our operating margin was 16.5% in the third quarter of 2010, an expansion of 130 basis points compared to the same period in 2009.

During the third quarter of 2010, we recorded Ps. 443 million in the other expense, net line. These expenses mainly reflect the restructuring of certain compensation plans and the recording of employee profit sharing.

Our comprehensive financing result in the third quarter of 2010 recorded an expense of Ps. 512 million as compared to an expense of Ps. 378 million in the same period of 2009.

During the third quarter of 2010, income tax, as a percentage of income before taxes, was 31.7% compared to 30.9% in the same period of 2009.

Our consolidated net controlling interest income(2) remained stable at Ps. 2,126 million in the third quarter of 2010 as compared to the third quarter of 2009. Earnings per share (EPS) in the third quarter of 2010 were Ps. 1.15 (Ps. 11.51 per ADS) computed on the basis of 1,846.5 million shares outstanding (each ADS represents 10 local shares).

BALANCE SHEET

As of September 30, 2010, we had a cash balance of Ps. 11,235 million, including US$ 591 million denominated in U.S. dollars, an increase of Ps. 1,281 million compared to December 31, 2009, mainly as a result of cash generated by our operations, net of debt and dividend payments made during the year.

As of September 30, 2010, total short-term debt was Ps. 2,301 million and long-term debt was Ps. 14,883 million. Total debt increased Ps. 1,259 million. During February we issued a Yankee Bond in the amount of US$ 500 million. We used the proceeds to pay the maturity of our Ps. 2,000 million and Ps. 1,000 million Certificados Bursátiles on February and April, respectively, and to prepay US$ 202 million of bilateral loans. During the third quarter, we increased our debt denominated in Colombian pesos by an amount equivalent to US$ 97 million. KOF’s total debt balance includes U.S. dollar-denominated debt in the amount of US$ 673 million.

MEXICO DIVISION OPERATING RESULTS

Revenues
Total revenues from our Mexico division increased 3.4% to Ps. 9,903 million in the third quarter of 2010, as compared to the same period in 2009. Increased average price per unit case accounted for incremental revenues during the quarter. Average price per unit case reached Ps. 31.22, an increase of 5.0%, as compared to the third quarter of 2009, 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. 36.18, a 4.4% increase as compared to the same period in 2009.

Total sales volume decreased 1.8% to 315.6 million unit cases in the third quarter of 2010, as compared to the third quarter of 2009. Sparkling beverage volume declined 1% and our bottled water and still beverage categories decreased almost 4%, each.
 
Operating Income
Our gross profit increased 3.8% to Ps. 4,886 million in the third quarter of 2010 as compared to the same period in 2009. Cost of goods sold increased 2.9% as a result of higher sweetener costs, which were partially compensated by the appreciation of the Mexican peso(1) as applied to our U.S. dollar-denominated raw material costs. Leverage achieved through higher average prices per unit case resulted in a gross margin expansion of 20 basis points to reach 49.3% in the third quarter of 2010.

Operating income decreased 1.4% to Ps. 1,675 million in the third quarter of 2010, compared to Ps. 1,699 million in the same period of 2009. Operating expenses grew 6.7% mainly due to continued marketing investment to support our execution in the marketplace, widen our cooler coverage and broaden our returnable base availability. Our operating margin was 16.9% in the third quarter of 2010, compared to 17.7% in the same period of 2009.

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

Revenues
Total revenues reached Ps. 7,649 million in the third quarter of 2010, a decrease of 22.3% as compared to the same period of 2009 mainly as a result of the devaluation of the Venezuelan bolivar. On a currency neutral basis, total revenues increased approximately 16% due to selective pricing initiatives implemented over the past several months across the division.

Total sales volume in our Latincentro division decreased 5.3% to 143.8 million unit cases in the third quarter of 2010 as compared to the same period of 2009. Sparkling beverage volume declined 5% and our bottled water and still beverage categories decreased 5% and 9%, respectively.

Operating Income
Gross profit reached Ps. 3,600 million, a decrease of 19.5% in the third quarter of 2010, as compared to the same period of 2009. Cost of goods sold decreased 24.6% mainly as a result of the devaluation of the Venezuelan bolivar. In local currency, cost of goods sold increased mainly as a result of higher year-over-year sweetener costs across the division, which were partially compensated by the appreciation of the Colombian peso(1) as applied to our U.S. dollar-denominated raw material costs. Leverage achieved by higher average prices per unit case in local currency resulted in a gross margin expansion of 170 basis points to 47.1% in the third quarter of 2010.

Our operating income decreased 3.4% to Ps. 1,257 million in the third quarter of 2010, compared to the third quarter of 2009. Operating expenses decreased 26.1% mainly as a result of the devaluation of the Venezuelan bolivar. In local currency, operating expenses grew as a result of higher labor costs in Venezuela and continued marketing investments to support our still beverage platform in Central America. Our operating margin reached 16.4% in the third quarter of 2010, as compared to 13.2% in the same period of 2009.

MERCOSUR DIVISION OPERATING RESULTS (Brazil and Argentina)

Volume and average price per unit case exclude beer results.

Revenues
Total revenues increased 23.4% to Ps. 8,123 million in the third quarter of 2010, as compared to the same period of 2009. Excluding beer, which accounted for Ps. 819 million during the quarter, revenues increased 23.0% to Ps. 7,304 million. Higher average prices per unit case and volume growth accounted for the majority of incremental revenues. On a currency neutral basis, our Mercosur division’s revenues increased approximately 23%.

Total sales volume in our Mercosur division increased 10.2% to 157.0 million unit cases in the third quarter of 2010 as compared to the same period of 2009. Volume growth was a result of (i) a 9% growth in sparkling beverages, mainly driven by the strong performance of the Coca-Cola brand in Brazil and Argentina, growing 12% and 5% respectively, accounting for approximately 80% of incremental volumes, (ii) a 31% growth in the still beverage category, driven by the Jugos del Valle line of business in Brazil and Aquarius flavored water in Argentina, contributing more than 10% of incremental volumes, and (iii) a 20% increase in our bottled water category, representing the balance.
 
Operating Income
In the third quarter of 2010, our gross profit increased 26.2% to Ps. 3,643 million, as compared to the same period in 2009. Cost of goods sold increased 21.2% mainly due to higher sweetener costs in the division and higher PET costs in Argentina, which were partially compensated by the appreciation of the Brazilian real(1) as applied to our U.S. dollar-denominated raw material costs. Leverage achieved by higher revenues resulted in a gross margin expansion of 100 basis points to reach 44.8% in the third quarter of 2010.

Operating income increased 37.3%, reaching Ps. 1,317 million in the third quarter of 2010, as compared to Ps. 959 million in the same period of 2009. Operating expenses increased 20.7%, mainly driven by higher labor and freight costs in Argentina. Our operating margin was 16.2% in the third quarter of 2010, an expansion of 160 basis points as compared to the third quarter of 2009.

SUMMARY OF NINE-MONTH RESULTS

Our consolidated total revenues increased 2.4% to Ps. 75,097 million in the first nine months of 2010, as compared to the same period of 2009, as a result of revenue growth in our Mercosur and Mexico divisions and despite the devaluation of the Venezuelan bolivar. On a currency neutral basis and excluding the acquisition of Brisa in Colombia, total revenues increased approximately 16% in the first nine months of 2010.

Total sales volume increased 3.5% to 1,839.6 million unit cases in the first nine months of 2010, as compared to the same period in 2009. The sparkling beverage category, driven by a 4% growth of the Coca-Cola brand, contributed approximately 70% of incremental volumes. The consolidation of the Brisa water brand in Colombia drove a 4% growth in our bottled water portfolio, accounting for more than 15% of incremental volumes, and the still beverage category, mainly driven by the performance of the Jugos del Valle line of business across our territories, grew 10%, representing the balance. Excluding the non-comparable effect of Brisa, total sales volume increased 2.4% to reach 1,819.7 million unit cases.

Our gross profit increased 1.6% to Ps. 34,790 million in the first nine months of 2010, as compared to the same period of 2009. Cost of goods sold increased 3.0% as a result of higher cost of sweetener across our operations, which was 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 46.3% for the first nine months of 2010, a decrease of 40 basis points as compared to the same period of 2009.

Our consolidated operating income increased 8.8% to Ps. 11,948 million in the first nine months of 2010, as compared to the same period of 2009. Our Mercosur and Latincentro divisions accounted for this growth. Our operating margin was 15.9% for the first nine months of 2010, a 90 basis points expansion as compared to the same period of 2009.

Our consolidated net controlling interest income(2) increased by 19.0% to Ps. 6,758 million in the first nine months of 2010 as compared to the same period of 2009, mainly as a result of higher operating income. Earnings per share (EPS) in the first nine months of 2010 were Ps. 3.66 (Ps. 36.60 per ADS) computed on the basis of 1,846.5 million shares outstanding (each ADS represents 10 local shares).

RECENT DEVELOPMENTS
  • During the third quarter, Coca-Cola FEMSA completed a transaction with a Brazilian subsidiary of The Coca-Cola Company to produce, sell and distribute Matte Leao branded products. This transaction will reinforce the Company’s non-carbonated product offering through the platform that is operated by The Coca-Cola Company and its Bottling Partners in Brazil. As a part of the agreement, Coca-Cola FEMSA has been selling and distributing certain Matte Leao branded ready-to-drink products since the first quarter of 2010.
  • On October 14th, 2010 our Company announced that it signed a memorandum of understanding by which it could acquire all of the shares of Grupo Industrias Lácteas in Panama. This understanding provides Coca-Cola FEMSA exclusivity for the purposes of this process, which will include the completion of legal, financial, and operating due diligence.  Any resulting transaction would be subject to customary government and regulatory approvals and corporate authorizations. This transaction would allow the Company to enter into the milk and dairy products category. Assuming the transaction is approved and completed successfully, this business would subsequently become part of the non-carbonated beverage platform that Coca-Cola FEMSA shares with its partner, The Coca-Cola Company
  • On October 19, 2010 our Board of Directors approved the anticipated adoption of International Financial Reporting Standards beginning on January 1, 2011.

CONFERENCE CALL INFORMATION
Our third-quarter 2010 Conference Call will be held on: October 21, 2010, 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 October 28, 2010. To listen to the replay, please dial: Domestic U.S.: 888-286-8010 or International: 617-801-6888. Pass code: 96651005.


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Coca-Cola FEMSA, S.A.B. de C.V. produces and distributes Coca-Cola, Sprite, Fanta, Lift 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 (federal capital of Buenos Aires and surrounding areas), along with bottled water, beer and other beverages in some of these territories. The Company has 31 bottling facilities in Latin America and serves over 1,500,000 retailers in the region. The Coca-Cola Company owns a 31.6% equity interest in Coca-Cola FEMSA.


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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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In order to see the complete version of this press release which includes financial charts, we invite you to download our PDF version which you can find in the upper part of this press relase or by going to the Investor Relations section.
 

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