FEMSA Stock Declines 20.8% YTD: Is a Recovery on the Horizon?
Fomento Economico Mexicano S.A.B. de C.V. FMX alias FEMSA shares have witnessed a pullback from the beginning of 2024, with the stock declining as much as 20.8% in the year-to-date period. This pullback in share price relates to the challenges in the Health division that have impacted its performance in recent quarters.
FEMSA’s Health division is in a weak spot due to its operations in diverse and often challenging macroeconomic and commercial environments. The Health division is facing complex, competitive, and regulatory issues in several markets, particularly Mexico. This led to disappointing top-line results and soft operating income for the segment in second-quarter 2024.
The segment’s revenues in the second quarter were pressured by a persistent negative competitive landscape in Mexico and tough macroeconomic conditions in Ecuador, partially offset by growth in Chile and Colombia. These disappointing revenue trends also led to weaker operating results, with operating income down 14.8% year over year and operating margins contracting by 70 basis points to 4.1%.
Despite these challenges, the company is focused on turning around the Health division by quickly adapting country-specific strategies to counter and reverse these negative trends. However, while these efforts are underway, the timing for the near-term recovery of the segment remains uncertain.
In the year-to-date period, FEMSA’s shares have lagged the broader industry’s growth of 13.1% and the Consumer Staples sector’s gain of 10.9%. The stock also underperformed the S&P 500 indices 18.1% return for the period.
FEMSA's One-Year Stock Price Performance
Image Source: Zacks Investment Research
Is a Turnaround Possible for the FEMSA Stock?
Although FEMSA’s Health division looks far from witnessing a recovery in the near-term, the company’s progress with its FEMSA Forward Strategy, launched in February 2023, bodes well. The plan focuses on creating long-term value in its core businesses: retail (including the Health Division), Coca-Cola FEMSA, and Digital@FEMSA.
The strategy also includes exploring alternatives for its strategic businesses, including potential divestments. As part of this initiative, the Zacks Rank #3 (Hold) company sold 13.9% of its outstanding shares in Heineken in 2023, reducing its stake to less than 1%. The company also plans to divest its interests in Solística and other non-core businesses by April 2025, reducing its impact on consolidated results. Additionally, in 2023, FEMSA merged Envoy Solutions with BradyIFS, retaining a 37% ownership stake in the combined entity.
FEMSA’s Proximity and Health retail businesses present strong potential for long-term growth and value creation. The company is set to accelerate earnings growth through organic expansion and by enhancing consumer value across formats and markets.
OXXO Mexico remains a core part of FEMSA’s retail operations, focusing on refining its value proposition and expanding its reach. OXXO’s network in Mexico now exceeds 1,000 stores, with rising productivity. In the Health division, FEMSA is leveraging its multi-country presence to optimize purchasing, pricing, supply chain, and other key areas.
FEMSA is rapidly expanding OXXO stores in South America, surpassing 500 locations in Brazil and approaching that in Colombia. The company aims for South American OXXO to match Mexico’s scale. It is also growing its Proximity discount format with Bara stores and developing new formats like coffee drive-throughs. In Europe, FEMSA is expanding with Valora, focusing on retail, food service, and B2B segments.
FEMSA has made a significant move to expand its U.S. retail presence by agreeing to acquire Delek US Holdings' retail business for $385 million. The deal, set to close in the late third quarter or fourth quarter of 2024, includes 249 DK-branded convenience stores, mainly in Texas and New Mexico, with some in Arkansas. Most stores also have gas stations under the DK and Alon brands, and the acquisition includes Delek's small fuel transportation fleet. FEMSA sees this as a strategic entry into the U.S. convenience and mobility market, aligning with its long-term growth strategy to boost shareholder value.
FEMSA is accelerating its digital efforts through Digital@FEMSA, its tech and innovation unit focused on creating value-added digital and financial ecosystems for consumers and businesses. This unit also enhances and leverages FEMSA's core business assets. Coca-Cola FEMSA leads with its omni-channel strategy, while the Proximity division drives digital initiatives in OXXO stores. FEMSA continues to invest in digital solutions, loyalty programs, and fintech platforms within OXXO to strengthen its long-term position.
FEMSA’s Estimates Show Mixed Trend
For 2024, the Zacks Consensus Estimate for FMX’s sales and earnings per share (EPS) implies a 2.4% and 3.7% year-over-year decline, respectively. The consensus mark for 2025 sales and earnings indicates 2.9% and 2.2% year-over-year growth, respectively.
The Zacks Consensus Estimate for FMX’s EPS increased 6.3% for 2024 and declined 2.3% for 2025 in the last 30 days.
Image Source: Zacks Investment Research
Conclusion
FEMSA’s Health division faces significant challenges due to tough competitive and macroeconomic conditions, particularly in Mexico and Ecuador. While FEMSA is working to address these issues through targeted, country-specific strategies, the path to recovery remains uncertain in the near term.
However, FEMSA's strategic focus on expanding its retail footprint, advancing digital initiatives, and optimizing its core business operations positions the company for sustainable long-term growth. The company is well-equipped to capitalize on new opportunities, strengthen its competitive edge, and deliver enhanced value to shareholders.
3 Consumer Staples Stocks to Consider
We have highlighted three better-ranked stocks from the Consumer Staple sector, namely The Chef's Warehouse CHEF, Coca-Cola KO and Flowers Foods FLO.
The Chef's Warehouse offers specialty food products in the United States. CHEF presently sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter earnings surprise of 33.7%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The consensus estimate for CHEF’s current financial year’s sales and EPS indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported figures.
Coca-Cola, the global beverage giant, currently has a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 4.7%, on average.
The Zacks Consensus Estimate for KO’s current financial-year sales and earnings suggests growth of 0.6% and 6%, respectively, from the year-ago reported figures.
Flowers Foods emphasizes providing high-quality baked items, developing strong brands, making innovations to improve capabilities and undertaking prudent acquisitions. It currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for FLO’s current financial-year sales and earnings indicates growth of 1% and 5%, respectively, from the year-earlier actuals. FLO has a trailing four-quarter earnings surprise of 1.9%, on average.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
CocaCola Company (The) (KO) : Free Stock Analysis Report
Fomento Economico Mexicano S.A.B. de C.V. (FMX) : Free Stock Analysis Report
Flowers Foods, Inc. (FLO) : Free Stock Analysis Report
The Chefs' Warehouse, Inc. (CHEF) : Free Stock Analysis Report