Fomento Economico Mexicano S. A. B. de C. V.

The stable outlook reflects our expectation that FEMSA will maintain its solid operating and financial performance in the next two years, despite softer economic conditions in Mexico, supported by its resilient operations, manageable debt levels, and ample liquidity. We expect the company to continue posting adjusted leverage ratios consistently below 1.5x and adjusted discretionary cash flow (DCF) to debt above 25%, although the company might seek potential acquisitive growth opportunities that could require the use of part of its current cash balance. We could take a negative rating action in the next 12 to 18 months if FEMSA's credit metrics significantly worsen, with adjusted debt to EBITDA consistently above 1.5x and DCF to debt below 25%. This scenario could emerge

...Flexibility to focus on capital allocation in a disciplined manner. By the end of this September, FEMSA will have the flexibility to use the 2.5 billion of cash it holds in its balance sheet from selling 5.24% of its combined interest in the Heineken Group in September 2017. As a result, we believe that in the medium term, FEMSA could seek selective acquisitive growth opportunities to expand its core and complementary businesses. Although FEMSA hasn't announced anything yet, we expect the company to keep its disciplined capital deployment and prudent financial policies, with an adjusted leverage ratio below 1.5x, even if it enters into M&A activities. Sustained organic growth, with attractive growth in new complementary businesses and a medium term plan to expand internationally. FEMSA delivers sustained revenue growth, mainly driven by its organic expansion strategy in terms of new store openings. From 2014 to 2018, it increased the number of OXXO stores at an annual compound growth rate...

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