Mexican beverage and c-store company Femsa (NYSE: FMX) has never had the easiest or cleanest financial reports, but this quarter was a little worse even by that dubious standard. Because of the company's decision to sell its beer operations to Heineken, there are all sorts of charges, expenses, and tax ramifications.
Sorting through all of that, though, it was actually a pretty solid quarter.
Revenue was down ... but it actually was not. If you strip out the Cerveza business, revenue rose 8%. The Coca-Cola Femsa (NYSE: KOF) side showed about 4% revenue growth, while the Oxxo c-store business grew the top-line by 16%. Of that, same-store sales growth was above 5%. Oxxo certainly is not getting a boost from the fact that so many of its stores are in states where drug violence has been especially bad, but it is not as though the Mexican people are hiding in their homes all day.
Margins did all right across the board, and the company posted EBITDA growth of about 7%. Expenses were definitely hurt by the Heineken deal, though, so results are not nearly as stagnant as they seem at first glance.
The next big question for Femsa is how they use their cash. A dividend or buyback is not out of the question, but of course I would rather see the company reinvest it into the business.
Femsa has been a very good stock for me over the years, and I am in no rush to sell now. I accept and expect that the company will never get its full due - not unless it splits itself in two and loses that "conglomerate discount". But that does not mean I cannot continue to expect, and get, solid gains from the stock. The growth profile here is not quite what it once was (there is room to grow Oxxo further, but not as much as before), but it is still certainly good enough given current valuation.
Disclosure - I own shares of Femsa
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