FEMSA(FMX) - 2019 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenues increased by 9.4% in Q2 2019, with organic growth at 6.7% [8] - Income from operations rose by 8.3%, while net income decreased by 26% due to foreign exchange losses [8] - Consolidated net debt increased by approximately Ps.6 billion to reach Ps.46 billion at the end of June [9] Business Line Data and Key Metrics Changes - FEMSA Comercio Proximity Division opened 375 new OXXO stores, totaling 1,312 net store openings over the last 12 months [9] - Revenues for the Proximity Division grew by 11.3% on an organic basis, with same-store sales in Mexico up by 6.2% [10] - Health Division revenues increased by 13.9%, but same-store sales decreased by 2.6% due to currency effects [15] - Fuel Division added one gas station, reaching 541 units, with stable same-station sales [17] Market Data and Key Metrics Changes - The Mexican operation of the Health Division performed well, while results in Chile were soft due to unfavorable foreign exchange dynamics [7] - Coca-Cola FEMSA achieved strong topline growth across most markets, benefiting from operational efficiencies [19] Company Strategy and Development Direction - The company aims to focus on executing its strategy across all business units despite a gradually uncertain consumer environment in Mexico [20] - There is an emphasis on leveraging fintech solutions and enhancing the OXXO position in the market [66][70] Management Comments on Operating Environment and Future Outlook - Management noted a cautious consumer environment in Mexico, with potential adjustments in purchasing patterns [11][20] - The company is optimistic about future growth in the services category, despite current challenges [95] Other Important Information - The company is exploring opportunities in M&A across Mexico, Brazil, and the U.S. to enhance competitive positioning [99][100] - The integration of the GPF acquisition in Ecuador is expected to take time but is seen as a strategic move for future profitability [35][38] Q&A Session Summary Question: OXXO same-store sales breakdown and traffic dynamics - Management explained that pricing increases in key categories affected store traffic, leading to cautious consumer behavior [24][26] Question: Health Division profitability outlook - Management indicated that margin pressure is expected to persist due to pricing regulations and promotional activities, with integration costs from the Ecuador acquisition impacting profitability [39] Question: OXXO margins and beer category contribution - Management clarified that while beer sales are expected to increase revenue, they do not anticipate significant margin improvements from this category [42][45] Question: Energy costs and wind energy integration - Management confirmed that energy costs are a significant part of the cost structure, with expectations to cover over 80% of energy needs through wind sources by year-end [82][86] Question: Cash handling and financial transaction opportunities - Management is exploring ways to improve cash handling efficiency and increase transaction sizes while managing risks associated with cash availability [88][91] Question: M&A opportunities in the current environment - Management expressed a continuous effort to identify attractive M&A opportunities in Mexico and Brazil, while also considering the U.S. market [99][101]