FEMSA, 2Q 2024 Results

Monterrey, Mexico, July 24, 2024 — Fomento Económico Mexicano, S.A.B. de C.V. (“FEMSA”) (NYSE: FMX; BMV: FEMSAUBD, FEMSAUB) announced today its operational and financial results for the second quarter of 2024.

•   FEMSA: Total Consolidated Revenues grew 12.2% compared to 2Q23.
• FEMSA Retail: Proximity Americas total Revenues increased 8.9% versus 2Q23.
• DIGITAL: Spin by OXXO had 7.9 million active users  representing a 37.0% growth compared to 2Q23 while Spin Premia had 22.8 million active loyalty users representing a 44.3% growth compared to 2Q23 and an average tender of 36.1%.
• COCA-COLA FEMSA: Total volume and revenues grew 7.5% and 13.1%, respectively against 2Q23.

José Antonio Fernandez Carbajal, FEMSA’s Chief Executive Officer, commented:

During the second quarter, we continued to see good momentum and strong performance from our core business units.  Once again, most of our operations, including the two that contribute most to our results, delivered solid numbers.  Proximity Americas saw a deceleration in the pace of same-store sales growth in Mexico against a tough comparison base, due in part to a shift in the timing of Holy Week celebrations, volatile weather, and the restriction of alcohol sales ahead of the national election, but offset by stellar gross margin and solid store expansion.  Despite a challenging expense environment, Proximity Americas generated solid growth in operating income.  For its part, Coca-Cola FEMSA delivered a remarkable set of numbers showing double-digit increases across its own income statement, driven once again by strong volume and revenue growth in its major markets.

We continued to see good results at Valora and OXXO Gas, with both businesses delivering double-digit growth in operating income.  However, at our Health division we again faced competitive headwinds in Mexico offset by a stable performance in Chile and continued solid results in Colombia retail, and we are laser-focused with our plans to change the trajectory in Mexico to bring it in line with the positive dynamics we see elsewhere at FEMSA.  Finally, at Digital, we continued to add users and advance towards our ecosystem objectives.

During the quarter, we also made strides on the execution of our capital allocation framework, actively utilizing both the dividend and share buyback levers to return capital to shareholders.  And in early July, we received the remaining payments for the divestiture of our stake in Jetro Restaurant Depot, and we signed agreements to divest our refrigeration and foodservice equipment operations, as we continue to act on our stated objectives.

I want to thank our entire team for yet another quarter of excellent effort and results.  We are maintaining the push into the second half of the year, confident that we can further maintain our positive momentum.

FEMSA CONSOLIDATED

2Q24 Financial Summary

Total revenues increased 12.2% in 2Q24 compared to 2Q23, driven by growth across most of our business units and despite Holy week holidays having occurred in 2Q23 vs. in 2Q24, and volatile weather conditions.

Gross profit increased 19.1%. Gross margin increased 240 basis points, mainly reflecting margin expansions in Proximity Americas, Proximity Europe and Coca-Cola Femsa; and stable margins in FEMSA’s Health and Fuel operations.

Income from operations increased 15.8% mainly driven by growth in most of our business units, which was partially offset by a decrease in the Health division. The consolidated operating margin was 8.9% as a percentage of total sales, an expansion of 30 basis points, mainly explained by an expansion in the Proximity Europe division and stable margins in Proximity Americas, Coca-Cola FEMSA, and Fuel operations.

Our effective income tax rate was 29.6% in 2Q24 compared to 28.9% in 2Q23.  Our income tax provision was Ps. 6,555 million in 2Q24. 

Net consolidated income was Ps. 15,669 million, compared to Ps. 8,926 million in 2Q23, increasing 75.5%, reflecting: i) a non-cash foreign exchange gain of Ps. 6,131 million related to FEMSA’s U.S. dollar-denominated cash position and derivative financial instruments positively impacted by the depreciation of the Mexican peso;  ii) a non-operating expense of Ps. 137 million compared to an income of Ps. 9,511 million in the 2Q23, mostly reflecting the divestment of FEMSA’s minority stake in Jetro and dividends received from Heineken in 2023; iii) a  higher interest income of Ps. 4,136 million related to an increase in our cash balance; and iv) a higher interest expense of Ps. 5,599 million, compared to Ps. 2,399 million in 2Q23, reflecting a benefit in the 2Q23 from a one-time gain related to the repurchase of debt.

Net majority income was Ps. 3.52 per FEMSA Unit and US$1.93 per FEMSA ADS.

Net Debt / EBITDA. As of June 30, 2024, the cash and investments were Ps. 131,153 million and total debt was Ps. 167,172 million, resulting in a net debt of Ps. 36,019 million. Net Debt / EBITDA ratio ex-KOF was 0.6x.

Capital expenditures amounted Ps. 11,312 million, 5.7% as a percentage of total sales, and an increase of 35.1% compared to the 2Q23, mainly driven by higher investments in Coca-Cola FEMSA and Proximity Americas on ongoing investment initiatives aimed at organic growth and improving our productivity, efficiency, and competitiveness.

FEMSA CONSOLIDATED

Financial Summary for the First Six Months

Total revenues increased 11.6% reflecting growth across most of our operations.

Gross profit increased 14.9%. Gross margin increased 120 basis points to 40.2% of total revenues, reflecting a gross margin expansion at Proximity Americas, Coca-Cola FEMSA and the Proximity Europe Division. This was partially offset by margin contractions at the Fuel, and Health Divisions.

Income from operations rose by 14.9%. Our consolidated operating margin increased 20 basis points to 8.1% of total revenues, reflecting margin expansion at Proximity Europe, flat margins in Coca-Cola FEMSA and Fuel, partially offset by margin contractions at Health and Proximity Americas.

Our effective income tax rate was 31.9% for the six months of 2024, compared to 29.6% in 2023. Our income tax provision was Ps. 9,936 million for the six months of 2024.  

Net consolidated income was Ps. 21,450 million reflecting; i) a challenging comparative base from the first six months of 2023, which included a gain of Ps. 40,606 million from the reclassification of FEMSA’s investment in Heineken to discontinued operations;  ii) a non-operating expense of Ps. 624 million compared to an income of Ps. 9,471 million in the 2Q23, mostly reflecting the divestment of FEMSA’s minority stake in Jetro and dividends received from Heineken in 2023; iii) lower interest income of Ps. 6,837 million compared to Ps. 9,862 million in of 2023 attributable to a gain from the purchase of debt of US$1.7 billion during 2023; and iv) a higher interest expense amounting to Ps. 10,271 million compared to Ps. 5,653 in  million reflecting a benefit in the 2023 from a one-time gain related to debt repurchase. This was partially offset by a non-cash foreign exchange gain of Ps. 5,008 million related to FEMSA’s U.S. dollar-denominated cash position and financial derivatives positive impacted by the depreciation of the Mexican peso.

Net majority income per FEMSA Unit was Ps.4.32 (US$2.37 per ADS).

Capital expenditures amounted to Ps. 18,882 million, an increase of 39.5% compared to 2023, reflecting our store expansion in Proximity Americas and higher investments in core capabilities across our business units.

RECENT DEVELOPMENTS

• In preparing our consolidated financial statements for the second quarter and six months ended June 30, 2024, we identified that certain transactions related to our non-core discontinued operations (Solistica and AlPunto) were incorrectly classified for the first quarter ended March 31, 2024 and the comparable period in 2023.  We have attached to this press release reclassified information for the quarter ended March 31, 2024, that shows the variations from the previously reported information and the 2023 reclassified comparable figures; this can be found on page 23-24. It is important to highlight that these corrections do not impact the consolidated net profit of the Company in either period or the results of the business units which are reported individually for those periods.  

No reclassification is required in our audited financial statements for the year ended December 31, 2023, and the information included in this press release for the second quarter and the six months ended June 30, 2024 reflects the correct classification.

• On June 10, 2024, FEMSA announced that it has entered into a new derivative instrument in the form of an accelerated share repurchase transaction (“ASR”) to repurchase the Company’s American Depositary Shares (“ADSs”). Under the terms of this new ASR, FEMSA has agreed to repurchase up to USD $600 million of its ADSs. The total number of ADSs ultimately repurchased under this ASR will be based on the daily volume-weighted average price of the Company’s ADSs during the term of the ASR and subject to certain limitations. The final settlement of the ASR is expected to be completed, at the latest, in the fourth quarter of 2024.

Additionally, the Company announces the completion of the ASR announced in March 2024, with the final delivery of the shares repurchased thereunder made on May 28, 2024. The Company repurchased a total of approximately 3.2 million ADSs at an average price of USD $123.27 per ADS, for a total amount of USD $400 million.

• On July 1, 2024, FEMSA received all remaining amounts related to the divestment of our stake in Jetro Restaurant Depot corresponding to USD $945 million.
• On July 8, 2024, FEMSA announced that on June 4, 2024, it made a partial buyback offer in international markets (the “Repurchase Offer”), with respect to debt securities denominated in United States dollars, issued previously by FEMSA, through which it agreed to repurchase debt securities due 2050 for a principal amount of US$ 206.7 million. The settlement of the buyback was carried out on June 20, 2024, and simultaneously FEMSA canceled the total amount of securities repurchase.
•   On July 17, 2024, FEMSA announced it has reached a definitive agreement with Mill Point Capital LLC, a US based private equity firm, to divest FEMSA’s refrigeration and foodservice equipment operations, Imbera and Torrey, for a total amount of $8,000 million pesos (approximately USD $450 million), on a cash-free, debt-free basis.

This transaction represents an additional step in the continued execution of the FEMSA Forward plan that was communicated in February of 2023. The transaction is subject to regulatory approvals and other customary conditions, and is expected to close by the end of the year.

ABOUT FEMSA

FEMSA is a company that creates economic and social value through companies and institutions and strives to be the best employer and neighbor to the communities in which it operates. It participates in the retail industry through a Proximity Americas Division operating OXXO, a small-format store chain, and other related retail formats, and Proximity Europe which includes Valora, our European retail unit which operates convenience and foodvenience formats. In the retail industry it also participates though a Health Division, which includes drugstores and related activities and Digital@FEMSA, which includes Spin by OXXO and Spin Premia, among other digital financial services initiatives. In the beverage industry, it participates through Coca-Cola FEMSA, the largest franchise bottler of Coca-Cola products in the world by volume. Across its business units, FEMSA has more than 392,000 employees in 18 countries. FEMSA is a member of the Dow Jones Sustainability MILA Pacific Alliance, the FTSE4Good Emerging Index and the Mexican Stock Exchange Sustainability Index: S&P/BMV Total México ESG, among other indexes that evaluate its sustainability performance.

FORWARD-LOOKING STATEMENTS

This report may contain certain forward-looking statements concerning our future performance that should be considered as good faith estimates made by us. These forward-looking statements reflect management’s expectations and are based upon currently available data. Actual results are subject to future events and uncertainties, which could materially impact our actual performance.