FEMSA(FMX) - 2019 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenues during the first quarter increased by 5.6%, while income from operations increased by 0.4% on an organic basis, excluding operations in Guatemala and Uruguay [9] - Net income increased significantly due to an easy comparison base from a foreign exchange rate loss in the first quarter of 2018 [10] - Consolidated net debt decreased by approximately Ps. 20 billion compared to the previous quarter, reaching a net debt of Ps. 40 billion at the end of March [11] Business Line Data and Key Metrics Changes - FEMSA Comercio Proximity Division opened 234 net new wholesale stores, reaching 1,416 net store openings over the last 12 months [12] - Revenues for the Proximity Division increased by 9.3% on an organic basis, with same-store sales up by 3.2% driven by a 2% increase in average customer ticket and nearly 1% growth in store traffic [13] - FEMSA Comercio Health Division added 23 drug stores, reaching 2,384 units, with revenues increasing by 2.4% and same-store sales up by 1.3% [16] - The Fuel Division added one gas station, reaching 540 units, but same-station sales decreased by 7.5% due to disruptions in the fuel distribution chain [19] Market Data and Key Metrics Changes - Coca-Cola FEMSA delivered top and bottom-line growth in Mexico and Central America, with strong volume growth in Brazil [7][20] - Positive consumption trends were noted across many operations despite adverse calendar effects and macro headwinds in some markets [21] Company Strategy and Development Direction - The company aims to leverage its consumer confidence in Mexico to navigate market uncertainties and allocate capital to high-return opportunities [21] - The adoption of IFRS 16 is expected to increase operating and EBITDA margins while reducing return on invested capital [8] - The company is focusing on digital transformation and fintech opportunities to enhance customer engagement and adapt to changing consumer behaviors [30][51] Management Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the quarter, highlighting the resilience of the business and the ability to execute strategies amid market uncertainties [21] - The company remains committed to evolving its brand image and proposition to meet changing consumer needs, particularly in the digital space [88] Other Important Information - The company is experiencing a structural margin expansion in the Proximity Division, driven by growth in financial services and improved supplier interactions [25] - The average ticket size has contracted due to increased service transactions, which are smaller in value compared to traditional purchases [45][57] Q&A Session Summary Question: Can you expand on the OXXO gross margin performance? - Management noted that the Modelo arrangement is not yet reflected in numbers, but structural margin expansion is expected due to growth in financial services and improved supplier interactions [24][25] Question: What is the impact of regulatory changes in Colombia on growth plans? - Management indicated that while there are new regulations affecting certain SKUs, the overall growth outlook for Colombia remains positive [33][34] Question: How is the shift from commission-based to employee-based stores progressing? - Management stated that employee-based stores execute better, and the current ratio is approximately 55% employees to 45% commission-based [36][37] Question: Can you clarify the differences in revenues reported last year versus this year? - Management explained that the difference is due to operations being shifted from the Retail Division to the Proximity Division, affecting reported revenues [41] Question: What is the expected impact of renewable energy on energy costs? - Management confirmed that the transition to renewable energy is expected to provide cost predictability and savings starting from the second quarter [76] Question: How will the company evolve its brand image with new product offerings? - Management emphasized the importance of understanding consumer needs and leveraging partnerships with suppliers to enhance product offerings and drive traffic [84][88]