Mexico Companies See Disappointing Second Quarter Results

| Jul. 22, 2011 |

Published by Minyanville

It has been a disappointing week for a number of Mexico’s heavyweights, as second-quarter results were lower than expected.

Wal-Mart de Mexico
(WMT) saw second-quarter profits down 3.4% to $385m. The giant supermarket chain has beefed up its presence in the region with 132 new stores opening during the quarter, compared to 52 in the same period in 2010. However, this sharp increase is thought to have been too much.

“The pace of store openings has been too fast,” Raul Ochoa, an analyst at Interacciones Casa de Bolsa in Mexico City, told Bloomberg. “The stores are starting to get very close to one another. Aside from that, the competition is fierce.” Ochoa added that the competition was beginning to match Wal-Mart’s prices, having been forced to learn to compete.

Shares in Wal-Mart dropped 3.2% on the news. Analysts had been expecting net profit to be up around 3%.

Cemex (CX) released results on Friday morning. The cement manufacturer saw net loss during the period of $294 million, up from its $306m loss in the second quarter of 2010 but much lower than analysts’ predictions of around $64m.

Alfa (ALFA), on the other hand, has seen net profits triple in the second-quarter thanks to acquisitions over the past year as well as recoveries in its multiple markets. The conglomerate reported net profits of $182m in the second quarter, compared to $61m in the same period last year.

Focus, as usual, is on world’s richest man Carlos Slim. His América Móvil (AMX) has seen a 14.1% rise in second-quarter earnings to $2.1 billion, compared to the same period last year. Revenue was up 7.8% thanks to the company’s 5.1m new clients during the period across Latin America, with 40% of them in Brazil.

His fixed line telephone company Telmex, however, saw second-quarter net profits down 11.8%. Revenue from local and domestic long-distance calling fell from the same period last year. International long-distance revenue rose as the growth in traffic offset lower rates.

Slim’s companies have had a tumultuous year, having fallen out of favor with the Mexican government on a number of counts. Analysts believe that Mexican president Felipe Calderón is keen to keep rival operators and broadcasters on side as elections loom next year.

Telmex has suffered repeated pummeling by competitors and regulators on its interconnection charges. Criticism of the companies took a farcical turn in April when rivals took out full-page advertisements in many Mexican newspapers entitled “The Slimsons," parodying The Simpsons. The comedic ads slammed the cost, reliability and general services of Slim’s companies operated by América Móvil.

Telmex itself was last month denied a license to enter the television market, which Slim has cited as his real ambition. The company is now looking to upgrade its broadband network, in an attempt to reach more affluent customers. This, Telmex hopes, will offset declining revenue from normal services.

One of Slim’s biggest critics is rival Ricardo Salinas who owns Totalplay. Slim has some catching up to do on the broadband market with Totalplay already successful in operating combined internet, television and telephone packages with broadband connection speeds of up to 40 megabits per second.

The news has led to a fall in the country’s IPC index of 1.1% to 35,342 points on 274.4m shares worth $501m.

Tuna Wars

The United States has failed to win the backing of the World Trade Organization (WTO) in its 20-year tuna war with Mexico in which the two countries contended over whether the fish were “dolphin safe”. The US essentially blocked imports of yellow-fin tuna in 1991 by not marking them as “dolphin safe,” meaning that the catching of the fish was not friendly to local dolphin populations.

Mexican fleets often catch tuna by encircling dolphin pods within which the tuna often swim. This can lead to the death of the mammals. US ships do not use this method.

The WTO’s decision to side with Mexico means that the country is likely to win its appeal by September, according to the National Aquaculture and Fishing Commission, based in Mexico.