Fomento Economico Mexicano Q1 Earnings Call Highlights

Key Points

• New reporting structure: FEMSA separated OXXO Mexico as its own segment and created an Americas & Mobility segment (OXXO outside Mexico plus fuel) to give investors clearer visibility into growth markets like Brazil and Colombia.
• Consolidated profit picture masked by one‑time gain: Q1 revenue rose 6.1% (8.5% comparable) and operating income rose 5.5% (12.1% comparable), but net income of MXN 17.6bn was driven by a one‑time non‑cash gain; excluding that gain, net income would have been MXN 5.7bn, down 36.4% year‑over‑year due to higher financing costs and lower interest income.
• OXXO Mexico recovery with margin expansion but traffic concerns: OXXO Mexico delivered 8.3% revenue growth (6% same‑store sales), gross margin expanded 140 bps to 46.2% and operating income rose 20.9%, though management warned the margin gain may not repeat and said "profitable traffic growth" remains a priority.

Fomento Economico Mexicano NYSE: FMX executives emphasized a continued recovery at OXXO Mexico, early benefits from cost restructuring and a new segment reporting structure as the company reviewed first-quarter 2026 results and took analyst questions.

New segment reporting highlights OXXO Mexico and international growth

Executive Chairman José Antonio said the company has changed its disclosure to provide greater visibility into key businesses. FEMSA is now reporting OXXO Mexico as its own segment, and created a new Americas & Mobility segment that includes OXXO operations outside Mexico along with the company’s fuel business in markets where it participates in fuel, “namely Mexico and the United States.”

He said the changes are intended to help investors better track progress in growth markets such as Brazil and Colombia, while Europe, Health, and Coca-Cola FEMSA remain as previously reported.

Consolidated results: revenue up, operating income up, and a large one-time gain

CFO Martín Arias Yániz reported first-quarter 2026 consolidated revenue increased 6.1% year-over-year and operating income rose 5.5%. On a “comparable and currency neutral” basis, he said total revenues and operating income grew 8.5% and 12.1%, respectively.

Net consolidated income was MXN 17.6 billion, up 97.3% from the prior year, driven by what Arias described as a “one-time non-cash accounting gain” related to the BradyPLUS and Imperial Dade combination. Excluding the non-cash gain, net consolidated income would have been MXN 5.7 billion, a 36.4% decline year-over-year. Arias attributed the decline primarily to higher net financing expenses, including a foreign exchange loss versus a gain last year, expenses tied to financial instruments, and lower interest income due to a lower cash position and lower interest rates. He also noted that discontinued operations contributed MXN 2.5 billion in the first quarter of last year, but not this year.

The effective tax rate was 17.1% including the one-time gain. Excluding it, Arias said the effective tax rate would have been 37.9%, which he said was influenced by non-deductible items such as labor-related expenses in OXXO Mexico and losses at Spin that “currently do not generate a tax shield.” Arias added the company expects Spin losses to decline beginning next quarter.

OXXO Mexico: sales rebound, margin expansion, and continued focus on traffic

José Antonio called OXXO Mexico one of the quarter’s main highlights, citing 8.3% revenue growth and a continued recovery from trends seen in the fourth quarter of last year. He said results came despite disruptions in late February that led to store closures, “a few of which remain today.”

Arias said OXXO Mexico revenue growth was driven by 6% same-store sales growth and 158 net new store additions during the quarter. OXXO Mexico gross margin was 46.2%, expanding 140 basis points year-over-year, which he attributed to “solid income from key suppliers” and “the resilient performance of financial services.” Operating income grew 20.9%, with operating margin expanding 80 basis points to 7.6%.

Management repeatedly tied performance to affordability initiatives and supplier-driven benefits. José Antonio said tobacco and soft drink categories grew as excise taxes were passed through, and that promotional activity and “price package initiatives” helped support traffic. He also said gross margin expansion reflected cooperation with suppliers, increased distribution income, and warehouse cost savings.

On the durability of the margin expansion, investor relations VP Juan Fonseca cautioned that the 140-basis-point increase was “a big number” and may not repeat in the second half, citing items such as long-term supplier agreements and World Cup-related dynamics.

In Q&A, José Antonio told analysts he was “still not satisfied with traffic” and framed the company’s goal as “profitable traffic growth.” He said traffic dynamics varied by region, pointing to better trends in the north and Bajío, contrasted with a “much difficult” scenario in Jalisco and nearby areas following disruptions. Arias added that states exposed to remittances have been affected as remittances are “coming down” and generating fewer pesos. José Antonio also cited a “relatively soft” Holy Week and said international tourism may have been discouraged by news in Jalisco, while a stronger peso affected Cancun.

Asked what will drive traffic beyond the FIFA World Cup, José Antonio said affordability helped OXXO regain share in key impulse categories, but argued that longer-term relevance will require progress in food and beverages. He highlighted a “foodvenience” agenda and said coffee cups sold per store increased from 28 in first-quarter 2025 to 30 in first-quarter 2026, while calling coffee a product that OXXO “should promote… more.” He also described pilots in Chihuahua and Veracruz aimed at daily replenishment needs, and noted traditional trade still represents about “50% of the basket” in Mexico.

Americas & Mobility: strong growth, but profitability still developing

José Antonio said the Americas & Mobility segment showed “strong growth across most of its income statement,” noting it includes two months of the recently consolidated OXXO Brazil operations. He highlighted same-store sales growth in Latin America excluding Brazil of more than 20% in local currency, while Brazil posted 6.9% and the U.S. business delivered 1.7% local-currency same-store sales growth.

Arias reported Americas & Mobility revenues of MXN 25 billion, up 12.9% (or 10.5% on a comparable and currency neutral basis). He said the segment benefited from OXXO LatAm performance and the consolidation of Brazil. Operating income was MXN 281 million with a 1.1% operating margin, and he said the margin reflects operating losses at newly consolidated OXXO Brazil, partially offset by strong fuel performance and narrowing losses across the rest of OXXO LatAm.

On margins, José Antonio said Brazil “still has a long way to go” to match gross margins in Chile, Peru and Colombia, though he said the company is encouraged by its margin expansion ambition in Brazil and noted that food is a larger mix in South America. He also discussed the role of scale and growth in improving supplier terms over time.

Health challenges, Colombia institutional exposure reduced, and capital returns outlined

Health results were weaker, with José Antonio describing a “lackluster” quarter. Arias reported Health Division revenues of MXN 22.2 billion, up 0.9% year-over-year (or 6.5% currency neutral). Operating income was MXN 657 million, down 14.9% year-over-year, with an operating margin of 3%. Arias said strength in Colombia and Ecuador was more than offset by a decline in Chile and “continued losses” in Mexico. José Antonio cited margin pressure in Chile due to mix shifting toward lower-margin pharma products such as GLP-1 treatments and noted continued losses in Mexico.

José Antonio also provided an update on the institutional component of the health business in Colombia, where FEMSA distributes medicine and provides specialized services on behalf of EPS intermediaries. He said the institutional business represents “a bit more than half” of the Colombia operation, has grown more slowly than retail, and is “significantly less profitable.” Due to funding gaps and growing receivables, he said FEMSA has been reducing exposure. He added that at the beginning of April the company notified EPS Sanitas, its largest counterparty, that it will not renew the agreement when it expires in September.

On capital allocation, Arias said first-quarter CapEx was MXN 6.2 billion, about 3% of revenue and 29.5% lower than last year, reflecting a slower start to OXXO Mexico openings and a conservative approach to capacity investments at Coca-Cola FEMSA. He said CapEx should accelerate through the year toward a more typical 5%–6% of sales ratio.

Arias also outlined shareholder returns approved at the annual general meeting, including MXN 15.2 billion in ordinary dividends (a 4.5% per-share increase) and an extraordinary dividend of MXN 25.8 billion. Combined, he said expected capital distributions total about MXN 41 billion from March 2026 to March 2027. He added that a 300 million share repurchase program is expected to be completed in the second quarter and is incremental to the MXN 41 billion figure.

Looking ahead, Arias said the company is optimistic heading into a “busy summer” that includes the FIFA World Cup, while also expressing caution about a challenging and uncertain macro environment in the second half of the year.

About Fomento Economico Mexicano NYSE: FMX

Fomento Económico Mexicano, SAB. de C.V. (FEMSA) is a Mexican multinational company active primarily in the retail and beverage sectors. Headquartered in Monterrey, Mexico, FEMSA's operations span convenience store retailing, beverage bottling and distribution, and related logistics and consumer services. The company's business model combines high-frequency retail outlets with large-scale beverage production and a regional supply chain network.

FEMSA Comercio, the company's retail arm, operates a large chain of convenience stores under the OXXO brand and has expanded its retail footprint with complementary formats and services.

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