Mexico Q4 earnings seen hit by weak economy, peso

www.forbes.com Reuters, 01.29.03, 2:23 PM ET By Noel Randewich

MEXICO CITY, Jan 29 (Reuters) - Corporate Mexico's fourth quarter earnings are likely to be marred by a sluggish economy as well as weakness in the peso at the end of 2002, although some companies, like beer giant Grupo Modelo and financial group Banorte, could impress investors.

"In general we can see that it's not going to be a very favorable quarter, for a number of reasons," said Jesus Viveros, an analyst in Mexico City's Bursametrica consulting company.

The reporting period, which stretches on to Feb. 27, started on a gloomy note last week when giant global cementcompany Cemex (nyse: CX - news - people) <CEMEXCPO.MX> reported a weak fourth quarter due to poor sales in the United States and Venezuela.

Final figures are yet to be released, but Mexico's central bank expects the economy to have grown by about 2 percent in the fourth quarter of 2002, compared with shrinkage in the fourth quarter of 2001.

"Although there was a certain recovery in the data, companies are still not going to report very favorable numbers," Viveros said. Analysts agreed that increasing weakness in the peso also harmed corporate results.

After strengthening to highs that led it to be coined the "super peso" in 2001, Mexico's currency lost 12 percent of its value against the dollar in 2002, damaging the profits of import-reliant businesses and companies with large dollar-denominated debts to service.

Top wireless telecom America Movil's <AMXL.MX> (nyse: AMX - news - people) net profits are expected to come in 22.5 percent lower at 1.31 billion pesos, the result of increased costs associated with servicing dollar-denominated debt as Mexico and Brazil's currencies weakened, according to a Reuters survey.

Mexico's rival television broadcasters TV Azteca <TVAZTCACPO.MX> and Televisa <TLEVISACPO.MX> will both probably announce lower earnings as a result of the weakening peso.

UBS Warburg predicted Televisa's earnings per American Depositary Receipt (ADR) (nyse: TV - news - people) would come in at $0.33, down from $0.64 a year before, as a result of the peso impact and higher tax rates.

TV Azteca's earnings per ADR (nyse: TZA - news - people) will likely be $0.16, down from $0.37 a year earlier, also because of the weak peso, said UBS Warburg.

PESO SUPPORTS MODELO But Grupo Modelo <GMODELOC.MX>, the maker of Corona, the No. 1 imported beer in the United States, will gain from the peso's weakness, analysts said.

"Modelo is going to see significant growth in operation and net earnings because a large part of its revenues are in dollars," said Rogelio Gallegos, a fund manager at Mexico City's Actinver. "They're among the few to benefit from the weaker peso."

Mexico's two widely traded banks, BBVA-Bancomer <GFBBB.MX> and Banorte <GFNORTEO.MX>, are both likely to report increased earnings -- largely the result of higher interest rates in the fourth quarter that improved the banks' interest margins, or the difference between what banks pay on deposits and the rate they collect on loans.

While analysts said both banks are likely to show some loan growth over the prior quarter, JP Morgan analyst Yolanda Courtines predicted that the growth in Banorte's credit portfolio would outpace BBVA-Bancomer's thanks to its "more aggressive" lending program.

The earnings of Mexico's largest telecom Telefonos deMexico (Telmex) <TELEMXL.MX> (nyse: TMX - news - people) are expected suffer after 18 months of frozen local and long-distance rates.

"There is not enough traffic volume to compensate for rates being frozen," said Vector brokerage telecom analyst Manuel Jimenez. Telmex, expected to report its fourth quarter results in early February, will probably show a 4 percent decline in earnings over the year-ago period, according to a Reuters poll of analysts.

Fourth-quarter earnings of Wal-Mart de Mexico (Walmex) <WALMEXV.MX>, the country's top retailer, will almost certainly suffer from the loss of an important Mexico City government gift voucher program that in previous years guaranteed a steady flow of government employees at its cash registers.

Walmex is likely to report earnings per share of 0.42 pesos, flat with the year-earlier period, forecast Credit Suisse.