Femsa Earnings: Sharper Focus on Retail Expansion and Digital Marketing To Drive Sales Growth

We expect to maintain our $91 fair value estimate for narrow-moat Femsa after absorbing its first-quarter results, with organic revenue up 12% (ahead of our 11% forecast) and operating profits up 5% (below our 6% assumption). We attribute the profit shortfall primarily to a lower-than-expected operating margin of 1% from the newly acquired Valora retail in Europe, while profitability in bottling and other retail units was stable. Our 10-year forecast for 8.5% annual sales growth and operating margins averaging 9.3% remains in place. Shares are fairly valued, and we suggest investors wait for a better entry point as operational risks in a sprawling retail footprint across Latin America call for a wider margin of safety.