Monterrey, Mexico, July 27, 2012 — Fomento Económico Mexicano, S.A.B. de C.V. (“FEMSA”) announced today its operational and financial results for the second quarter of 2012 under International Financial Reporting Standards (“IFRS”).
• FEMSA consolidated total revenues and income from operations grew 22.9% and 13.0%, respectively, compared to the second quarter of 2011, reflecting growth at FEMSA Comercio and Coca-Cola FEMSA. On an organic basis total revenues and income from operations grew 16.3% and 6.9%, respectively.
• Coca-Cola FEMSA total revenues and income from operations increased 27.9% and 7.8%, respectively, compared to the second quarter of 2011. On an organic basis total revenues grew 16.5% and income from operations decreased 0.5%.
• FEMSA Comercio achieved total revenues growth of 17.1% and income from operations growth of 27.2%, compared to the second quarter of 2011, driven by new store openings and 7.8% growth in same-store sales.
José Antonio Fernández Carbajal, Chairman and CEO of FEMSA, commented: “Our performance in the second quarter was mixed. On the one hand, FEMSA Comercio delivered strong revenue growth, driven by dynamic same-store sales and new store openings, while margins continued to expand. On the other hand, Coca-Cola FEMSA faced a challenging environment and made the most of it. Top-line growth was achieved through pricing, but we continued to see short-term pressure on margins, particularly in Mexico, reflecting among other things raw material and FX pressures, difficult weather comparisons, and the expenses related with the integration of our new territories in Mexico.
On the strategic front, we are excited about Jugos del Valle's recently announced acquisition of Santa Clara, a well-known premium Mexican dairy company, building on the positive learnings from our Estrella Azul dairy operation in Panama, and Coca-Cola FEMSA continues to advance on the due diligence process in the Philippines. So all in all, we have reason to be optimistic about the second half of this year, and beyond.”
Total revenues increased 22.9% compared to 2Q11 to Ps. 59.586 billion in 2Q12. Coca-Cola FEMSA and FEMSA Comercio drove the incremental consolidated revenues. On an organic basis total revenues increased 16.3% compared to 2Q11. For the first half of 2012, consolidated total revenues increased 24.4% compared to the same period in 2011 to Ps. 113.854 billion. On an organic basis, total revenues for the first half of 2012 increased 18.5% compared to the same period in 2011.
Gross profit increased 24.7% compared to 2Q11 to Ps. 24.993 billion in 2Q12. Gross margin increased 50 basis points compared to the same period in 2011 to 41.9% of total revenues, driven by FEMSA Comercio and by the acquisition-driven growth of Coca-Cola FEMSA which has higher margins than FEMSA Comercio.
For the first half of 2012, gross profit increased 25.8% compared to the same period in 2011 to Ps. 47.189 billion. Gross margin increased 40 basis points compared to the same period in 2011 to 41.4% of total revenues, again driven by FEMSA Comercio and by the acquisition-driven growth of Coca-Cola FEMSA which has higher margins than FEMSA Comercio.
Income from operations increased 13.0% as compared to 2Q11 to Ps. 6.686 billion in 2Q12. On an organic basis income from operations increased 6.9% compared to the same period in 2011. Consolidated operating margin decreased 100 basis points compared to 2Q11 to 11.2% of total revenues in 2Q12, reflecting additional expenses at Coca-Cola FEMSA including among others: (i) Acquisition-related expenses in Mexico, (ii) higher labor costs in Venezuela and Argentina, iii) higher freight costs in Argentina and Brazil and iv) development of information systems.
For the first half of 2012, income from operations increased 14.1% compared to the same period in 2011 to Ps. 11.965 billion. Our consolidated operating margin year-to-date was 10.5% as a percentage of total revenues, a decrease of 100 basis points as compared to the same period of 2011.
The effective income tax rate was 23.5% in 2Q12 compared to 32.4% in 2Q11 resulting from a tax shield related to interests on capital, included in a dividend declared in the South America Division of Coca-Cola FEMSA.
Net consolidated income increased 28.8% compared to 2Q11 to Ps. 5.437 billion in 2Q12, as a result of (i) growth in FEMSA’s income from operations, (ii) the effect of the devaluation of the Mexican Peso on the US Dollar-denominated component of our cash position, and (iii) a lower effective income tax rate.
For the first half of 2012, net consolidated income increased 22.3% to Ps. 9.229 billion compared to the same period of 2011, primarily as a result of growth in income from operations.
Net majority income for 2Q12 was Ps. 1.09 per FEMSA Unit1. Net majority income per FEMSA ADS was US$ 0.81 for the second quarter of 2012. For the first half of 2012, net majority income per FEMSA Unit1 was Ps. 1.75 (US$ 1.30 per ADS).
Capital expenditures amounted to Ps. 3.164 billion in 2Q12, reflecting incremental investments at Coca-Cola FEMSA and FEMSA Comercio.
Our consolidated balance sheet as of June 30, 2012 recorded a cash balance of Ps. 27.494 billion (US$ 2.050 billion), an increase of Ps. 324 million (US$ 24.2 million) compared to December 31, 2011. Short-term debt was Ps. 1.910 billion (US$ 142.4 million), while long-term debt was Ps. 25.574 billion (US$ 1.907 billion). Our consolidated net cash balance was Ps. 10 million (US$ 0.7 million).
Coca-Cola FEMSA’s financial results and discussion thereof are incorporated by reference from Coca-Cola FEMSA’s press release, which is attached to this press release or may be accessed by visiting www.cocacolafemsa.com
Total revenues increased 17.1% compared to 2Q11 to Ps. 22.209 billion in 2Q12, mainly driven by the opening of 290 net new stores in the quarter reaching 1,026 total net new store openings for the last twelve months. As of June 30, 2012, FEMSA Comercio had a total of 9,989 convenience stores. Same-store sales increased an average of 7.8% for the second quarter of 2012 over 2Q11, reflecting a 3.7% increase in store traffic and a 3.9% increase in average customer ticket.
For the first half of 2012, total revenues increased 17.6% compared to the same period in 2011 to Ps. 41.242 billion. FEMSA Comercio’s same-store sales increased an average of 7.9% compared to the same period in 2011, driven by a 4.8% increase in store traffic and a 3.0% increase in average customer ticket.
Gross profit increased by 18.9% in 2Q12 compared to 2Q11, resulting in a 60 basis point gross margin expansion to 34.5% of total revenues. This increase reflects (i) a positive mix shift due to the growth of higher margin categories, (ii) a more effective collaboration and execution with our key supplier partners combined with a more efficient use of promotion-related marketing resources, and (iii) a better execution of segmented pricing strategies across markets. For the first half of 2012, gross margin expanded by 70 basis points compared to the same period in 2011 to 33.5% of total revenues.
Income from operations increased 27.2% over 2Q11 to Ps. 1.830 billion in 2Q12. Operating expenses increased 16.5% to Ps. 5.822 billion, reflecting the growing number of stores as well as incremental expenses relating to, among other things, the continued strengthening of FEMSA Comercio’s organizational structure and a rise in electricity tariffs. Operating margin expanded 60 basis points compared to 2Q11, to 8.2% of total revenues in 2Q12. For the first half of 2012, income from operations increased 27.2% compared to the same period in 2011 to Ps. 2.630 billion, resulting in an operating margin of 6.4%, which represents a 50 basis point expansion from the same period in the prior year.
CONFERENCE CALL INFORMATION:FEMSA is a leading company that participates in the beverage industry through Coca-Cola FEMSA, the largest bottler of Coca-Cola products in the world; in the retail industry through FEMSA Comercio, operating OXXO, the largest and fastest-growing chain of stores in Latin America, and in the beer industry, through its ownership of the second largest equity stake in Heineken, one of the world’s leading brewers with operations in over 70 countries.
The translations of Mexican Pesos into US Dollars are included solely for the convenience of the reader, using the noon day buying rate for pesos as published by the Federal Reserve Bank of New York for June 30, 2012, which was 13.4110 Mexican Pesos per US Dollar.
This report may contain certain forward-looking statements concerning our future performance that should be considered as good faith estimates made by us. These forward-looking statements reflect management’s expectations and are based upon currently available data. Actual results are subject to future events and uncertainties, which could materially impact our actual performance.
Five pages of tables and Coca-Cola FEMSA’s press release follow.
Our Second Quarter of 2012 Conference Call will be held on: Friday July 27, 2012, 11:00 AM Eastern Time (10:00 AM Mexico City Time). To participate in the conference call, please dial: Domestic US: (800) 500-0920 International: (719) 325-2336, Conference Id: 5082934. The conference call will be webcast live through streaming audio. For details please visit www.femsa.com/investor.
If you are unable to participate live, the conference call audio will be available on http://ir.FEMSA.com/results.cfm.