The strength of the Mexican peso against the dollar has had an impact on the first quarter 2023 results of several companies on the Mexican Stock Exchange (BMV), such as América Móvil, Alsea, Bimbo and Coca-Cola FEMSA.
Alain Jaimes, a stock market analyst at Signum Research, explained that the impact is felt especially by those companies with marketing operations outside of Mexico.
He added that the negative exchange impact occurs, more than anything, in the final phase of the operation of the companies, that is, in the commercialization (final sale).
“When they sell in dollars or some other hard currency, when making the change to the domestic currency, which has appreciated, the pesos they receive are less” which translates into “lower income,” explained the Signum Research analyst.
That was the case of the telecommunications company América Móvil, whose net profit in the first quarter of 2023 suffered a year-on-year drop of 2.1% mainly due to “lower exchange gains”, according to the station’s financial report.
“The drop in net income has to do with a reduction in foreign exchange earnings, (which went from) 22,000 million pesos in the first quarter of 2022 to 13,700 million pesos in the first quarter of this year,” said the financial director of América Móvil, Carlos García Moreno Elizondo in a conference with analysts.
Carlos Slim’s company had a 2.2% decrease in its income from services “due to the appreciation of the peso against almost all of our other operating currencies, which decreased the value of the peso of our international income,” it details in its quarterly report.
In the year, the peso has appreciated 7.79% against the dollar, with parity trading on Friday at 17.9882 units, according to Banco de México. Of the 20 most traded currencies, it is the one that appreciates the most in 2023.
Consumer companies with operations abroad such as Bimbo and Alsea also reported an adverse effect due to the strength of the peso.
Alsea, the largest restaurant operator in Mexico, had a growth in its sales of 16% in the first quarter of 2023, to 17,666 million pesos, but in its report it assured that excluding the exchange rate, said item would have grown 25.7 percent.
In the case of Bimbo, the world’s largest bakery, its net sales amounted to 99,565 million pesos, an interannual increase of 9.9 percent. However, the company assured that without considering the effects of the appreciation of the peso, sales would have grown 18.4 percent.
The bakery indicated that, mainly due to the effect of the exchange rate, the Comprehensive Financing Result fell 7.2%, to 1,616 million pesos, compared to the first quarter of 2022.
Coca-Cola FEMSA had sales growth of 12% compared to 2022, to 57,357 million pesos, but without taking into account the effect of the appreciation of the peso, revenues would have increased up to 21.7%, it said in its quarterly report.
Arca Continental, the second largest Coke bottler in Latin America, was also negatively impacted by the strength of the peso against the dollar. Its sales grew 10% in the first quarter of 2023 at the interannual rate, to 50,684 million pesos, however, they would have rebounded 17.9% without the effect of the exchange rate.
AC’s finance director, Emilio Marcos Charur, explained that they take hedges to face the exchange rate effect. “We begin to cover some of the needs for 2024, since we feel very comfortable with exchange rate levels below 19 pesos per dollar,” he said in a conference call with analysts.
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Bets on the peso are reduced in Chicago
Although bets in favor of the peso remain positive on the Chicago Futures Market, they slowed down for the second week in a row, closing at 54,128 net long contracts, each of 500,000 pesos, between April 19 and 25.
Said amount meant a weekly drop of 3.6% compared to the 56,171 contracts reported between April 12 and 18; however, the positions have remained net long (in favor of the Mexican currency) for seven consecutive weeks.
Janneth Quiroz, deputy director of Analysis at Monex Casa de Bolsa, explained that the lower contracts for the week ending April 25 are explained because there are indicators that show that economic activity is slowing down in the United States.
Added to this, the market is betting that the United States Federal Reserve will only increase the reference interest rate by more than 25 base points, reaching a level of 5.25 percent.
Quiroz said that in addition: “inflation in the first half of April was below expectations, which raised the probability that Banco de México (Banxico) has reached its terminal interest rate.”
Last Friday, the exchange rate closed below 18 units per dollar, at 17.9882 pesos, an appreciation of 0.32% or 5.83 cents, according to data from the Bank of Mexico.
Operations in the foreign exchange market registered a maximum level of 18.1106 units and a minimum of 17.9657, after the data of the Gross Domestic Product (GDP) was released, which reflected a growth of 1.1% in the first quarter of the year compared to the three previous months and 3.9% at the annual rate, reported the National Institute of Statistics and Geography (Inegi).
