FEMSA (FMX) Q1 2026 earnings review
OXXO Mexico Turnaround Drives Operations, But Core Earnings Drop 36%
FEMSA delivered a solid 6.1% consolidated revenue growth, propelled by a sharp operational rebound at OXXO Mexico, where operating income surged 20.9% and margins expanded 80 bps. The year-long traffic bleed at OXXO Mexico is finally reversing, coming in at just -0.5% after bottoming at -6.6% last year. However, the headline 97.3% surge in consolidated Net Income is an accounting mirage driven entirely by a one-time non-cash gain from the BradyPLUS/Imperial Dade merger. Excluding this gain, core net income plummeted 36.4% to Ps. 5.68 billion, severely impacted by foreign exchange losses and lower interest income. While the Americas & Mobility segment thrived, the Health division and Coca-Cola FEMSA acted as laggards, both posting operating income declines.
🐂 Bull Case
OXXO Mexico expanded its gross margin by 140 bps to 46.2% and operating margin by 80 bps to 7.6%. Affordability initiatives and revenue growth management are effectively translating stabilizing traffic into massive operating leverage (Op Income +20.9%).
The division posted a 34.0% spike in operating income, driven by robust fuel margins and the successful integration of OXXO Brazil. Same-store sales across Latam remain highly constructive.
🐻 Bear Case
Beneath the headline net income beat lies a 36.4% collapse in core earnings. The company was hit by a negative swing in FX (Ps. 444M loss) and lapped a massive prior-year gain tied to Heineken shares, highlighting below-the-line volatility.
The Health division remains a structural laggard. Operating income fell 14.2% as the segment struggles with ongoing restructuring and store closures in Mexico, alongside labor cost pressures in Chile.
⚖️ Verdict: ⚪
Neutral-to-Bullish. The core retail engine (OXXO Mexico) has successfully reversed its traffic crisis and is generating significant operating leverage. However, the heavy drag from the Health division and extreme below-the-line earnings volatility prevent a purely bullish assessment.
Key Themes
OXXO Mexico Stabilizes Traffic and Expands Margins
OXXO Mexico is reversing its multi-quarter traffic slump. After seeing traffic declines of 6.6% in early 2025, Q1 2026 traffic came in practically flat at -0.5%. Combined with a 6.6% increase in average ticket, same-store sales grew 6.0%. More importantly, the segment demonstrated exceptional pricing power and operational efficiency, expanding gross margins by 140 bps (driven by financial services and commercial income) and driving a 20.9% increase in operating income.
Americas & Mobility Delivering Hyper-Growth
The revamped Americas & Mobility segment (now including OXXO Latam, USA, and Fuel) is accelerating. Total revenues grew 12.9% (10.5% comparable), but operating income skyrocketed 34.0%. The growth was driven by higher fuel margins, wholesale business growth, and the strategic integration of OXXO Brazil, which FEMSA began consolidating on February 1, 2026, following the dissolution of the Grupo Nós joint venture.
Spin Ecosystem Engagement Accelerates
The digital flywheel continues to gain traction. Spin by OXXO reached 11.0 million active users (up 22.3% YoY), while the Spin Premia loyalty program hit 28.4 million active users (up 12.8% YoY). Crucially, the average tender at OXXO Mexico using Spin Premia jumped to 50.6% from 42.5% a year ago, proving the ecosystem's ability to drive in-store loyalty and frequency.
Health Division Continues to Bleed
The Health division remains the most problematic segment. Despite a 7.2% currency-neutral increase in same-store sales (driven largely by Colombia), operating income plummeted 14.2%. Management cited ongoing underperformance in Mexico (where 335 stores have been closed over the last 12 months) and higher labor expenses in Chile as the primary culprits. The turnaround here is structurally lagging the rest of the portfolio.
Below-the-Line Earnings Volatility
FEMSA's core earnings quality was poor this quarter. While reported net income nearly doubled due to an accounting gain from the BradyPLUS/Imperial Dade merger, actual core net income fell 36.4%. The company suffered an Ps. 883 million negative swing in FX (loss of Ps. 444M vs gain of Ps. 439M last year) and lapped a Ps. 1.1 billion gain on Heineken shares from 1Q25, highlighting extreme sensitivity to peso fluctuations and financial instruments.
Coca-Cola FEMSA Gains Share Despite Mexican Weakness
KOF saw a 2.3% decline in operating income, pressured by a 1.6% volume drop in Mexico due to a soft consumer backdrop and excise tax increases. However, this was mitigated by record first-quarter volumes in Brazil, Colombia, and Guatemala. Management expects momentum to build into a strong summer season, catalyzed by the upcoming FIFA World Cup.
Other KPIs
Accelerating. Adjusted EBITDA grew 11.2% YoY, outpacing the 6.1% revenue growth and driving a 60 bps expansion in EBITDA margin to 13.5%. This demonstrates strong operational leverage, primarily driven by OXXO Mexico and Americas & Mobility.
Up significantly from 0.69x in 1Q25. This increase is a direct result of FEMSA's aggressive capital return strategy over the last twelve months, which included Ps. 47.2 billion in dividends and Ps. 16.0 billion in share repurchases. Despite the increase, leverage remains highly manageable and well below the company's 2.0x target limit.
Decelerating. CapEx decreased 29.5% YoY, dropping to 3.0% of total sales. Management attributed this to a cautious approach to investments across OXXO Mexico, KOF, and Health, partially offset by a reactivation of expansion plans in Brazil and Latam.
Guidance
While not explicitly updated in the Q1 release, management's prior target of generating Ps. 1.8 billion in annualized savings through the 'fit-for-purpose' overhead restructuring is beginning to bear fruit, evidenced by the 80 bps operating margin expansion at OXXO Mexico this quarter.
Management expects a 'strong summer season' driven in part by the FIFA World Cup. This qualitative guidance suggests anticipation of accelerating beverage volumes for KOF in South America and increased foot traffic for OXXO stores during the upcoming quarter.
Key Questions
OXXO Mexico Traffic Inflection
With OXXO Mexico same-store traffic improving to -0.5% from deep negative territory last year, do you expect traffic to turn structurally positive in Q2, and how much of this improvement is driven by the Spin Premia loyalty program versus pricing/affordability initiatives?
Health Division Turnaround Timeline
Operating income in the Health division fell 14.2% despite solid revenue growth in South America. With 335 store closures in Mexico over the last year, when do you expect the restructuring drag to end and operating margins to stabilize?
Capital Allocation and Leverage
Net Debt to EBITDA (ex-KOF) has increased to 1.24x following aggressive capital returns. Now that the BradyPLUS/Imperial Dade merger has closed (where FEMSA holds a 19% stake), how does this alter your appetite for further share buybacks versus retaining cash for potential M&A in the US or Brazil?