20-F: FEMSA Reports 2025 Financial Results Amid Strategic Shifts

Fomento Económico Mexicano, S.A.B. de C.V. (FEMSA) filed its annual Form 20-F for the fiscal year ended December 31, 2025, detailing financial performance across its diverse business units, including Coca-Cola FEMSA, Proximity Americas, Proximity Europe, Health, and Fuel divisions, alongside strategic divestitures and ongoing business transformations.

Summary

• FEMSA's consolidated total revenues increased by 7.6% to Ps. 840,954 million in 2025 compared to Ps. 781,585 million in 2024, driven by growth across all business units and favorable currency translation effects.
• Coca-Cola FEMSA's total revenues grew by 4.3% to Ps. 291,746 million, while Proximity Americas Division saw a 7.0% increase to Ps. 328,839 million, supported by store expansion and improved same-store sales in the latter half of the year.
• Proximity Europe Division's revenues rose by 14.6% to Ps. 57,028 million, attributed to strong retail performance and favorable currency translation effects.
• The Health Division reported a 10.5% revenue increase to Ps. 88,129 million, driven by retail growth in Colombia, Chile, and Ecuador, though impacted by Mexico's challenging environment and store closures.
• The Fuel Division's revenues increased by 2.8% to Ps. 67,195 million, supported by increased mobility and same-station sales growth.
• Consolidated gross profit increased by 6.2% to Ps. 341,576 million, though gross margin decreased by 50 basis points to 40.6% due to various factors including reclassifications and margin contractions in certain divisions.
• Consolidated net income decreased to Ps. 33,053 million in 2025 from Ps. 40,236 million in 2024, primarily due to a foreign exchange loss and higher net interest expense, partially offset by improved operating results and financial instrument gains.
• The company completed several divestitures as part of its FEMSA Forward strategy, including its refrigeration and foodservice equipment operations (Imbera and Torrey) in November 2024, its plastic solutions business in January 2025, and its remaining economic interest in Heineken in May 2025.
• A material weakness was identified in Coca-Cola FEMSA's IT general controls related to ERP systems, impacting internal control over financial reporting, though no material errors were found in the consolidated financial statements.
• Capital expenditures for 2026 are budgeted at approximately Ps. 49,870 million, with significant allocations to Coca-Cola FEMSA and Proximity Americas Division for store expansion and infrastructure improvements.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this filing as mixed, with top-line growth and strategic divestitures being positive, but a significant decline in net income, increased interest expenses, and a foreign exchange loss indicate a more challenging operational and financial environment compared to the previous year.

Positives

• Consolidated total revenues increased by 7.6% to Ps. 840,954 million in 2025.
• Coca-Cola FEMSA's total revenues increased by 4.3% to Ps. 291,746 million.
• Proximity Americas Division revenues increased by 7.0% to Ps. 328,839 million, with a 1.0% increase in same-store sales and the addition of 1,125 net new OXXO stores.
• Proximity Europe Division revenues increased by 14.6% to Ps. 57,028 million, driven by strong retail performance and favorable currency translation effects.
• Health Division revenues increased by 10.5% to Ps. 88,129 million, with strong performance in Chile, Colombia (retail segment), and Ecuador, and an 8.0% increase in same-store sales.
• Fuel Division revenues increased by 2.8% to Ps. 67,195 million, supported by a 6.9% increase in same-station sales.
• Consolidated gross profit increased by 6.2% to Ps. 341,576 million.
• Proximity Americas Division's gross margin increased by 60 basis points to 45.2%.
• Health Division's administrative expenses decreased by 43.5% to Ps. 2,455 million.
• Fuel Division's administrative expenses decreased by 15.8% to Ps. 290 million.
• FEMSA's consolidated average cost of borrowing decreased to approximately 7.0% as of December 31, 2025.
• FEMSA maintains a strong credit rating, with AAA nationally and BBB+ internationally.
• The company completed several strategic divestitures, streamlining its portfolio.
• Capital expenditures for 2026 are budgeted at approximately Ps. 49,870 million, indicating continued investment in growth.

Negatives

• Consolidated gross margin decreased by 50 basis points to 40.6% of total revenues.
• Consolidated net income decreased to Ps. 33,053 million in 2025 from Ps. 40,236 million in 2024.
• A foreign exchange loss of Ps. 5,747 million was recorded in 2025, compared to a gain of Ps. 11,929 million in 2024.
• Net interest expense increased to Ps. 13,641 million in 2025 from Ps. 8,092 million in 2024.
• Coca-Cola FEMSA's total sales volume decreased by 1.8% to 4,150.4 million unit cases in 2025.
• Proximity Americas Division's same-store sales increased by only 1.0% on average, with negative traffic trends in Mexico.
• Health Division's revenues in Mexico remained under pressure, and the Colombian institutional business faced a deteriorating environment.
• A material weakness was identified in Coca-Cola FEMSA's IT general controls related to ERP systems, impacting internal control over financial reporting.
• The company's consolidated average cost of borrowing increased to 7.2% in 2024 from 7.0% in 2025.
• The company's cash and cash equivalents decreased to Ps. 107,980 million in 2025 from Ps. 139,834 million in 2024.

Risks

• Coca-Cola FEMSA's business is dependent on its relationship with The Coca-Cola Company, and changes in this relationship could adversely affect its business.
• Proximity Americas Division may not be able to maintain its historic growth rate due to market saturation and potential decrease in viable new store locations.
• The Health Division's sales and performance may be affected by changes in institutional sales trends and payment by governmental entities.
• The Fuel Division's performance may be affected by changes in commercial terms with suppliers or disruptions to the industry supply chain.
• The company's business expansion strategy may not be successful and could lead to decreased profit margins.
• An erosion of the company's business reputation could have a material adverse effect on its brand and operations.
• Cybersecurity incidents, system disruptions, and breaches of network or information technology security could adversely affect the company's business and reputation.
• Failure to comply with privacy and data protection laws could result in adverse publicity, business disruption, data loss, government enforcement actions, and private litigation.
• Negative publicity, inaccurate information, and ideological activism could adversely affect the company's reputation.
• Regulatory developments in the countries where FEMSA operates may adversely affect its business, financial condition, and results of operations.
• Price controls or voluntary price restraints in operating countries may limit the company's ability to set prices for its products.
• Changes in consumer preferences, health-related and environmental issues could reduce demand for some of Coca-Cola FEMSA's products.
• Competition in the markets where FEMSA operates could adversely affect its business, financial condition, and results of operations.
• Global economic conditions have and may continue to cause an increase in the prices of raw materials, supply chain disruptions or shortages, thus increasing the cost of goods sold.
• Instability in the global trade landscape could affect the company's financial results and operations.
• Water shortages or failure to maintain existing concessions or contracts could adversely affect Coca-Cola FEMSA's business.
• Increases in the cost, disruption of supply, or shortage of energy or fuel could adversely affect the company's business and results of operations.
• Pandemics and public health crises may materially and adversely affect the company's business.
• Climate change and legal or regulatory responses thereto may have an adverse impact on the company's business.
• Weather conditions and natural disasters may adversely affect the company's business, financial condition, and results of operations.
• Adverse economic or political conditions in Mexico and other countries where FEMSA operates could adversely affect its operations.
• Geopolitical conditions could negatively impact the company's financial results.
• Foreign exchange rate volatility of the Mexican peso and other local currencies could adversely affect the company's financial position and results of operation.
• Political, social, and security events and conditions in Mexico and other countries where FEMSA operates could adversely affect its operations.
• A majority of FEMSA's voting shares are held by a voting trust, which effectively controls the management of the company, and the interests of which may differ from those of other shareholders.
• Holders of ADSs may not be able to vote at FEMSA's shareholder meetings.
• Holders of BD Units in the U.S. and holders of ADSs may not be able to participate in any future preemptive rights offering and as a result may be subject to dilution of their equity interests.
• The protections afforded to non-controlling shareholders in Mexico are different from those afforded to non-controlling shareholders in the U.S.
• Investors may experience difficulties in enforcing civil liabilities against FEMSA or its directors, officers and controlling persons.
• The failure or inability of FEMSA's subsidiaries to pay dividends or other distributions to FEMSA may adversely affect FEMSA and its ability to pay dividends to holders of ADSs.
• A material weakness in IT general controls at Coca-Cola FEMSA could impact financial reporting.
• Changes in Mexican tax laws and regulations could adversely affect the company's business, financial condition and results of operations.

Future Outlook

FEMSA's capital expenditure budget for 2026 is approximately Ps. 49,870 million, with significant investments planned for Coca-Cola FEMSA (7.0%-7.5% of revenues) and Proximity Americas Division (Ps. 17,045 million) for store expansion, infrastructure improvements, and IT systems. The company aims for continued growth, digital integration, and sustainability across its core businesses.

Management Comments

• "Our consolidated total revenues increased 7.6% to Ps. 840,954 million in 2025 compared to Ps. 781,585 million in 2024, reflecting growth across all of our business units, favorable currency translation effects, and the consolidation of our U.S. operations."
• "Proximity Americas Division had a challenging first half, impacted by adverse weather conditions and a continuation of a soft consumer environment, which resulted in lower traffic. However, the second half saw an improvement over the first half of the year as the division realigned its execution initiatives to better meet current consumer needs."
• "In 2025, the Proximity Europe Division delivered strong operating results, driven by the positive performance of its retail operations, particularly in Switzerland, despite continued consumer weakness in our foodservice segment."
• "The Fuel Division benefited from a sustained increase in consumer mobility driving solid growth in same-station sales during 2025."
• "The Health Division delivered consolidated revenue growth, reflecting strong performance in our retail business in Colombia, steady profitability in Chile, and positive trends in Ecuador. This was offset by a negative performance in the institutional business in Colombia and results in Mexico reflecting a continuingly challenging competitive environment and the strategic closure of stores."
• "Spin redefined its ecosystem as a model centered on OXXO Mexico, strengthening the alignment between Spin and the store network. This redefinition will enable the integration of digital and physical capabilities, combining payments, loyalty, data, services, consumer lending opportunities and talent into an aligned value proposition embedded directly into the store experience."
• "Management has identified a material weakness related to ineffective ITGCs over systems that support its financial accounting. Despite such material weakness, no material errors were identified in our consolidated financial statements as of that date."

Industry Context

StockSavvy.ai notes that FEMSA's filing reflects a dynamic period for the beverage and retail sectors, marked by ongoing strategic portfolio adjustments, including significant divestitures and acquisitions. The company's performance is influenced by macroeconomic conditions in Mexico and other Latin American countries, as well as global trends in consumer behavior, digital transformation, and sustainability.

Comparison to Industry Standards

• Coca-Cola FEMSA remains the largest franchise bottler of Coca-Cola trademark products globally by sales volume, representing approximately 12.3% of the total sales volume of the Coca-Cola system worldwide in 2025.
• Proximity Americas Division operates the largest small-format store chain in Latin America by number of stores, with 25,587 locations as of December 31, 2025.
• Proximity Europe Division is noted as one of the world's leading producers of pretzels, based on internal information of its main competitors.
• The company's financial performance and strategic initiatives are benchmarked against industry peers in the beverage, retail, and fuel sectors across its operating geographies.

Management Changes

Corporate Governance

Legal Proceedings

• FEMSA and its subsidiaries are parties to various legal proceedings in the ordinary course of business, including tax, labor, and other legal matters.
• The aggregate amount of loss contingencies for which no reserve was recorded as of December 31, 2025, was Ps. 190,305 million, primarily related to tax controversies.
• Coca-Cola FEMSA is involved in tax disputes, mainly in Brazil and Mexico, related to ICMS credits, tax credits on raw materials, amortization of goodwill, and other tax deductions.

Related Party Transactions

• Transactions with The Coca-Cola Company (TCCC) include the purchase of concentrate for Coca-Cola trademark beverages, marketing expenses, and contributions.
• Purchases of baked goods and snacks from Grupo Bimbo, S.A.B. de C.V., and juices from Jugos del Valle, S.A.P.I. de C.V., involve entities with directors or alternate directors in common.
• Donations were made to ITESM and Fundacin FEMSA, A.C., where several directors and senior officers serve on the respective boards.
• FEMSA engaged in financing and insurance coverage transactions with subsidiaries of Grupo Financiero BBVA Bancomer, where a former alternate director was also a director.
• The company's operations are subject to various tax laws and regulations in multiple jurisdictions, including changes in excise taxes on beverages with added sugar and single-use plastics in Colombia, and new tax reforms in Mexico.

Stakeholder Impact

• Shareholders: The company's financial performance, dividend policy, and share repurchase programs directly impact shareholder value. The identified material weakness in IT controls could pose a risk to financial reporting reliability.
• Employees: The company's compensation structure, including the EVA stock incentive plan, and labor relations are detailed. Changes in labor laws, such as reduced workweeks in Mexico, could increase labor costs.
• Customers: The company's business strategy focuses on meeting customer needs through its retail formats (OXXO, pharmacies) and beverage offerings, with efforts to enhance digital and loyalty programs.
• Suppliers: The company relies on approved suppliers for raw materials, particularly for Coca-Cola FEMSA, and manages inventory and purchasing processes across its divisions.
• Creditors: The company's debt levels and financial health are crucial for creditors, with detailed information on debt instruments, interest rates, and covenants provided.

Next Steps

• Continue to focus on core business units: retail, Coca-Cola FEMSA, and digital solutions.
• Accelerate expansion and maximize value creation potential through strategic initiatives.
• Harness technology to increase business efficiency and explore new opportunities through Spin.
• Integrate digital and physical capabilities within the Spin ecosystem, aligning with OXXO Mexico.
• Pursue value-enhancing acquisitions with a disciplined approach.
• De-bottleneck infrastructure and digitize the enterprise to increase manufacturing and distribution capacity.
• Strengthen customer-centric culture and empower leaders.
• Foster a sustainable future by integrating a robust governance framework with social development and environmental stewardship.
• Continue to improve IT systems and cybersecurity measures to mitigate risks.
• Implement remediation plans to address the identified material weakness in IT general controls at Coca-Cola FEMSA.
• Execute the 2026 capital expenditure plan, focusing on growth and operational improvements.

Key Dates

Recommendation

While FEMSA demonstrates resilience with revenue growth and strategic portfolio management, the decline in net income, increased financial costs, and identified IT control weaknesses suggest a cautious approach. The company's significant international presence and ongoing strategic shifts present both opportunities and risks that warrant a 'hold' recommendation pending clearer signs of sustained profit recovery and effective remediation of internal control issues.

Keywords

FEMSA, Fomento Económico Mexicano, Form 20-F, Annual Report, Coca-Cola FEMSA, Proximity Americas, OXXO, Proximity Europe, Valora, Health Division, Fuel Division, Spin, Financial Results, Divestitures, Acquisitions, IFRS, Mexico, Latin America, Beverages, Retail, Cybersecurity, Tax Reforms, Corporate Governance