Coke Femsa loses key Brazil distribution deal; shares slump

Mexico's Coca-Cola Femsa, the world's largest Coke bottler, said it is poised to lose a key distribution contract in Brazil, sending its shares down 5 percent, even as it reported an 11.5 percent jump in quarterly net profit.

Coke Femsa said Dutch brewer Heineken (HEIN.AS), which holds a stake in its parent company Femsa, had told the company it would end its distribution of products with bottlers of the Coca-Cola system in Brazil from Oct. 31.

Shares in Coke Femsa slumped 5.25 percent to 151.71 pesos as of 1 p.m. local time, and were the biggest drag on Mexico's benchmark stock index.

It was not clear exactly when the distribution contract with Heineken will end, said Hector Trevino, chief financial officer at Coca-Cola Femsa.

Heineken maintains the contract can be terminated with six months' notice, but Coke Femsa disagrees, Trevino said.

"We firmly believe that the contract terminates in 2022," he said.

Heineken acquired the Brazilian breweries of Japan's Kirin Holdings Co Ltd (2503.T) earlier this year. The Dutch company will use Kirin Brazil's distribution routes to bring Heineken products to market in the region going forward, Heineken spokesman John-Paul Schuirink said in a statement.

"As Heineken, Femsa and the Brazilian Coca-Cola bottlers are still in discussions we are not commenting in more detail," Schuirink said.

The loss of the contract represents a blow to Coke Femsa, said Vector Casa de Bolsa analyst Antonio Montañez, who estimates that beer distribution represents about 5 percent of the company's revenue in Brazil.

Negative currency fluctuations in Venezuela and higher interest rates in Mexico took a toll on Coke Femsa's results, Credit Suisse wrote in a note to investors.

Saying it expected the shares to react negatively, Credit Suisse described the performance in Mexico and South America as weak and also saw the Heineken announcement as negative.

The company said net income was 2.232 billion pesos ($123 million) compared with 2.001 billion pesos in the same quarter last year. Revenue for the quarter at Coke Femsa rose 25.5 percent to 50.1 billion pesos.