just On Call - Coca-Cola FEMSA Faces Cost Pressures Heading into 2012
Coca-Cola FEMSA said it expects pressure from sweetener costs next year
Coca-Cola FEMSA has said that it faces higher operating costs due to raw materials, marketing and wages.
Speaking on the firm's third-quarter earnings call yesterday (27 October), Coca-Cola FEMSA's CFO, Hector Treviño, told analysts that the company expects pressure on profits next year, from sweetener costs in particular.
"In sweeteners we continue to see pressure and we see next year, prices are going to be a bit higher than we have up to this moment," Trevino said. "With PET, it was close to MXN700m (US$53.2m) in additional costs that we have had this year."
However, he added that, so far in 2011, the company had been able to increase its prices significantly in each of its nine operating countries in order to offset the higher costs.
"Obviously we have been able to increase prices in every market, and we are seeing that our competitors are increasing prices because they are obviously feeling the same pressures that we are," Trevino said.
But, cost pressure is likely to increase further over the next year due to marketing investment and a higher wage bill.
"One of our priorities is to really try and structure our expenses in a different way," Trevino told analysts. "In South America, salary increases in Argentina and Venezuela have been very large, in excess of inflation. Not only are we having to pay more for our workers in terms of salaries but also retrain them."
Trevino said that the company is also putting more financial resources into marketing in a number of its markets, in a bid to boost its competitive position in the region, in anticipation of more aggresive competition from a unified PepsiCo bottler.
"You will see some increases in expenses in this quarter and the next few quarters," he said.
Yesterday, Coca-Cola FEMSA reported an increase in profits in the first nine months of 2011, driven by the firm's Mexico and Central America divisions. The company's share price climbed by 2% to $93.96 in afternoon trading yesterday.
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