Fitch Ratings on Sept. 25 affirmed the long-term foreign and local currency issuer default ratings of Coca-Cola FEMSA SAB de CV at A-, citing the company's strong business position as a Coca-Cola Co. bottler and well-developed distribution network.
The agency also changed the outlook on the ratings to positive from stable.
Fitch said the affirmation reflects Coca-Cola FEMSA's low leverage metrics, steady free cash flow and ample liquidity across the business cycle. It added that the company's strategic initiatives to drive growth, such as improvements to its product portfolio and footprint, should contribute to long-term development.
Meanwhile, the rating agency said the outlook reflects its view that the company will be able to maintain its net leverage adjusted by rents below 1.5x in the next 12 to 24 months because of debt reduction. It noted that Coca-Cola FEMSA operates in a sector that is relatively less exposed to negative economic cycles than other industries, despite growing competition and rising taxes on sugary beverages.
Fitch expects the company's consolidated revenue to grow around 5% and EBITDA margin to be around 19% in 2019 and 2020. It also expects net debt to EBITDA and adjusted net debt to EBITDAR around 1.2x and 1.3x, respectively, by 2020.
The agency said it could downgrade the ratings if adjusted net leverage becomes higher than 1.5x in the next 12 to 24 months, which will also lead to the outlook being changed to stable. A downgrade in Mexico's sovereign ratings or Coca-Cola's ratings can also lead to a negative ratings action, Fitch added.
Fomento Económico Mexicano SAB de CV owns 56% of Coca-Cola FEMSA's voting rights while U.S. soft-drinks giant Coca-Cola owns 33%.
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.
