How the Weaker Mexican Peso Supercharged Femsa’s Q1 Profits—A Deep Dive into Currency Tailwinds

The Mexican peso’s decline has become a double-edged sword for businesses, but for Femsa—a multinational beverage and retail giant—it’s been a tailwind. In Q1 2025, Femsa reported a 12% year-on-year surge in operating income to MXN 18.2 billion, driven in part by favorable currency movements. Let’s unpack how the weaker peso amplified profits while also highlighting the challenges that remain.

The Peso’s Role in Femsa’s Q1 Surge

Femsa’s results are a masterclass in leveraging geographic and currency diversification. Here’s how the peso’s weakness translated into gains:

1. Coca-Cola FEMSA: South American Tailwinds Mask Mexican Headwinds

• Reported Revenue Growth: 10% (vs. 5.9% on a currency-neutral basis).
• Currency Boost: A 4.1% tailwind from stronger currencies in Brazil, Argentina, and Uruguay. These gains offset a 1.8% decline in same-store sales at OXXO (Femsa’s retail arm) due to Mexico’s “soft consumer environment.”

Brazil’s Coca-Cola Zero Sugar sales jumped 65%, while Argentina’s volume rose 9.1%—both markets benefiting from currency stabilization and improved macro conditions. However, the peso’s weakness also amplified costs: operating margins narrowed due to rising freight, labor, and maintenance expenses.

2. Proximity Europe: Euro Strength Fuels a Paper Profit

• Reported Revenue Growth: 18% (vs. 0.9% on a currency-adjusted basis).
• Currency Impact: A staggering 17.1% boost from euro strength against the peso. Yet, operational challenges lingered: income from operations dropped 14.6%, signaling that currency gains alone can’t mask poor execution.

3. Proximity Americas: Caught in the Crossfire

• Reported Revenue Growth: 6.8% (vs. 1.4% when adjusted for currency).
• Headwinds: Currency and other factors shaved 5.4 percentage points off growth, likely due to weaker currencies in Mexico and Central America. Income from operations fell 11.8%, underscoring labor cost pressures and stagnant demand.

4. Health Division: Currency Drag on Growth

• Reported Revenue Growth: 21% (vs. 7% on a currency-neutral basis).
• Currency Impact: A 14% drag from weaker currencies in key markets. Despite this, the division’s expansion into healthcare products and services remains a strategic bright spot.

Hedging: A Partial Shield Against Volatility

Femsa’s hedging strategies mitigated some risks but couldn’t fully counterbalance exposure:
- Foreign Exchange Hedging: Delivered a 0.5% favorable impact on operating income.
- Non-Hedged Exposures: Dented profits by 0.6%, reflecting the complexity of managing currencies across 22 countries.

Meanwhile, currency fluctuations reduced net sales by 2%, highlighting the tightrope Femsa walks between revenue growth and cost inflation.

What This Means for Investors

The Q1 results underscore two critical truths:
1. Currency is a wildcard: Femsa’s profit growth hinges on external factors like the peso’s movements, which are beyond its control.
2. Operational execution is key: While currency tailwinds provided a lift, divisions like Proximity Europe and Americas still grapple with margin pressures and weak demand.

Conclusion: A Mixed Bag with Upside Potential

Femsa’s Q1 performance demonstrates the power of currency tailwinds in a globalized business model. The weaker peso acted as a catalyst, boosting reported profits even as underlying operational challenges persisted.

The data paints a clear picture:
- Net currency impact on operating income: -1.1% (0.5% favorable from hedging vs. 0.6% adverse from non-hedged exposures).
- Top-line growth: +10% at Coca-Cola FEMSA, but -1.8% same-store sales at OXXO, reflecting Mexico’s economic slowdown.

Investors should monitor two key metrics moving forward:
1. Peso stability: A further decline could amplify profits in export-heavy divisions but exacerbate costs.
2. Operational improvements: Margins must stabilize in Proximity Americas and Europe to justify Femsa’s valuation.

In short, Femsa’s Q1 success is a reminder that currency can be both ally and enemy. For now, the weaker peso is a windfall—but sustainable growth will require more than just a favorable exchange rate.

Stay tuned to Femsa’s Q2 results, where the real test will be whether its cost-cutting and geographic diversification can outpace macroeconomic headwinds.