Mexico's Femsa posts jump in profits, Oxxo outlook hits shares

MEXICO CITY (Reuters) - Mexico’s Femsa notched a 55% rise in third-quarter net profit to 7.27 billion pesos ($369 million), the bottler and retailer said on Monday, but its shares fell on growth concerns with its Oxxo convenience store chain.

The Monterrey-based conglomerate said its revenue increased by 10.2% from a year earlier to 130.5 billion pesos during the July-September period, but worries about Mexico’s economic prospects weighed on sentiment over Femsa.

“We’re still cautious given that some indicators are pointing to a slowdown of the Mexican economy,” said Marisol Huerta, an analyst at financial group Ve Por Mas.

The economy has stagnated since leftist President Andres Manuel Lopez Obrador took office in December, and a member of the central bank said on Monday he was worried gross domestic product may have shrunk in the third quarter.

Femsa's FEMSAUBD.MX stock price fell as much as 3.3% and ended the trading day down 1.8% at 71.46 pesos per share.

Oxxo has long been a principal engine of Femsa’s growth, making up about a third of company sales.

One financial sector analyst, who requested anonymity, said new openings of Oxxo stores across the company’s markets were substantially behind expectations for 2019.

The company reported 841 openings through September, down from 901 in the same period last year. The analyst said the market had been expecting around 1,500 this year.

Femsa’s sales figures included a one-off tax-related boost from its bottling unit Coca-Cola Femsa in Brazil, taking some of the shine off the spike in revenues.

During a call with analysts to discuss results, Juan Fonseca, Femsa’s chief of investor relations, said labor costs at the division that operates Oxxo were likely to be one of the main headwinds facing the company in coming months.

Fonseca pointed to efforts to lift the minimum wage, which rose by 16% in 2019 but is still barely $5 per day in Mexico, as well as a push to double the minimum wage in the U.S.-Mexico border region made by Lopez Obrador to curb migration.

Moreover, Mexico’s government is under pressure from U.S. lawmakers debating the ratification of a new North American trade deal to boost wages in order to stop jobs moving south.

“The main challenge for 2020 will be to keep Oxxo’s operations in positive terrain, given the outlook on labor,” analysts from financial group Monex said in a note.

Reporting by Noe Torres and Abraham Gonzalez; Editing by Dave Graham and David Gregorio