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Factors Likely to Decide FEMSA's (FMX) Fate in Q3 Earnings

Zacks Equity Research

Fomento Economico Mexicano, S.A.B. de C.V. FMX or FEMSA is slated to report third-quarter 2019 results on Oct 28. The company reported positive earnings surprise of 2.5% in the last reported quarter. However, it has average negative earnings surprise of 25.1% for the trailing four quarters.

The Zacks Consensus Estimate for the company’s third-quarter earnings has remained unchanged over the past 30 days at $1.19, which suggests 65.3% growth from the year-ago quarter’s reported figure.

Fomento Economico Mexicano S.A.B. de C.V. Price and EPS Surprise


Fomento Economico Mexicano S.A.B. de C.V. Price and EPS Surprise

Fomento Economico Mexicano S.A.B. de C.V. price-eps-surprise | Fomento Economico Mexicano S.A.B. de C.V. Quote

Let’s see how things are shaping up for this announcement.

Factors at Play

FEMSA delivered strong top line in the last reported quarter, owing to growth across all segments, a trend which is likely to have continued in the third quarter. The FEMSA Comercio – Proximity division is likely to have benefited from store openings as well as rise in average customer ticket in the third quarter. Meanwhile, steady trends in Mexico and Chile are likely to have contributed to the top line of FEMSA Comercio’s Health division. Also, the FEMSA Comercio Fuel division is expected to have gained from robust pricing.

The top line for the Coca-Cola FEMSA segment is expected to have gained from robust price increases, revenue-management initiatives across regions, and volume growth in Brazil, Central America and Colombia. Further, these factors are likely to have driven the company’s top line in the third quarter.

However, soft operating margin performance remains concerning for the company. Margins decline across Coca-Cola FEMSA and FEMSA Comercio’s Health division hurt the overall operating margin in the last reported quarter. Restructuring severances in Argentina, Central America, Colombia and Mexico hurt Coca-Cola FEMSA’s margins in the second quarter. Meanwhile, a soft gross margin and operating expense deleverage impacted the Health division in the last reported quarter. These factors are likely to get reflected in the company’s third-quarter operating margin.

What the Zacks Model Unveils

Our proven model does not conclusively predict earnings beat for FEMSAA this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although FEMSA carries a Zacks Rank #3, its Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks Likely to Deliver Earnings Beat

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

The Boston Beer Company Inc SAM has an Earnings ESP of +7.04% and a Zacks Rank #3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Molson Coors Brewing Company TAP currently has an Earnings ESP of +4.56% and a Zacks Rank #3.

Altria Group, Inc MO presently has an Earnings ESP of +1.75% and a Zacks Rank #3.

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