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Business Momentum & Diversification to Support FEMSA (FMX)

Fomento Economico Mexicano S.A.B. de C.V. FMX, alias FEMSA, appears to be a lucrative pick with solid growth prospects. The company has been in investors’ good books, owing to its strategy of creating a national distribution platform in the United States through the expansion of its footprint in the specialized distribution industry. It is poised for growth through investments in digital and technology-driven initiatives. The company also displays strong financial flexibility.

FEMSA boasts a robust revenue surprise trend, with the top line surpassing the Zacks Consensus Estimate for the fifth straight quarter in second-quarter 2022. Revenues also improved year over year. Revenue growth was driven by gains across all business units, resulting from effective growth strategies and robust market demand. FEMSA’s digital initiatives and business expansion endeavors have also been aiding its results.

Let’s take a sneak peek into the factors positioning FEMSA for growth.

Diversified Business

FEMSA has exposure in various industries, including beverage, beer and retail, which gives it an edge over its competitors. The company participates in the beverage industry through Coca-Cola FEMSA KOF, the world’s largest franchise bottler for Coca-Cola KO products. In the beer industry, it enjoys a notable position, with its 14.76% stake in Heineken, a leading brewer with operations in 70 countries. The company operates in the retail space through the FEMSA Comercio subsidiary.

Coca-Cola FEMSA is the flagship segment, engaged in the production and distribution of carbonated beverages. The division is the largest Coca-Cola bottler in Latin America and the second-largest Coca-Cola bottler globally in terms of sales volume.

Coca-Cola is on track with its strategy of becoming a total beverage company through last year’s streamlining of its portfolio, focusing on the core brands and investing in its portfolio of brands to meet the evolving consumer need. KO is diversifying its portfolio to tap into the rapidly growing RTD category. The company’s expansion initiatives are likely to aid Coca-Cola FEMSA’s results.

Digital Initiatives

FEMSA continues to focus on offering customers more options to make contactless purchases by intensifying digital and technology-driven initiatives across operations. The company’s Coca-Cola FEMSA is leading the way with its omni-channel business, while FEMSA Comercio is progressing with the adoption of digital initiatives.

Within its OXXO store chains, the company is on track with investing in digital offerings, loyalty programs and fintech platforms to evolve stronger after the pandemic and over the long term. Its OXXO digital wallet, OXXO Premia and loyalty program have been performing well. In the second quarter, the company made progress on its digital efforts, with customer acquisition surpassing 15 million users. The users are part of the company’s digital ecosystem, either through Spin by OXXO, OXXO Premia or both.

Anheuser-Busch InBev BUD, alias AB InBev, is another beverage company focused on investing in new capabilities for several years to better connect with customers and consumers. BUD has been rapidly growing its digital platform, leveraging technology such as B2B sales and other e-commerce platforms.

AB InBev is witnessing an acceleration in the B2B platforms, e-commerce and digital marketing trends, which has been aiding growth in the past few months. BUD’s proprietary B2B platform, BEES, is live in 18 markets and has reached 2.9 million monthly active users. BEES captured $7.4 billion in gross merchandise value in the second quarter, reflecting a year-over-year improvement of more than 60%.

Expansion in the Specialized Distribution Industry

FEMSA has been on track with its strategy of creating a national distribution platform in the United States through the expansion of its footprint in the specialized distribution industry. The company’s venture in the specialized distribution industry relates to its plan of investing in adjacent businesses, which can leverage capabilities across different markets, providing an opportunity for attractive growth and risk-adjusted returns.

With the presence of its OXXO business and other retail operations, the company has become an expert in the organization and management of supply chains and distribution systems. Notably, FEMSA serves large numbers of businesses and retail customers through millions of interactions in different industries.

Conclusion

Although the company continues to witness gross margin pressures due to contractions in the Proximity, Health, Fuel and Coca-Cola FEMSA segments, it is well-poised for growth in the long term, backed by its expansion and growth plans.


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CocaCola Company The (KO) : Free Stock Analysis Report
 
Fomento Economico Mexicano S.A.B. de C.V. (FMX) : Free Stock Analysis Report
 
AnheuserBusch InBev SANV (BUD) : Free Stock Analysis Report
 
Coca Cola Femsa S.A.B. de C.V. (KOF) : Free Stock Analysis Report
 
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