April 28, 2017 / 2:21 PM / a year ago

UPDATE 2-Femsa 1st-quarter profit rises, but electricity costs took a bite

(Adds comments from company representatives)

MEXICO CITY, April 28 (Reuters) - Mexican bottler and retailer Fomento Economico Mexicano on Friday said its first-quarter net profit rose 9.7 percent year-on-year, below market expectations as a spike in electricity prices ate into a surge in sales.

The Monterrey-based holding company, known as Femsa , said it earned 3.291 billion pesos ($175.7 million) in the quarter. Analysts had forecast 3.894 billion pesos, according to Thomson Reuters I/B/E/S.

But the company said it did better than it thought it would, describing the January-March period as particularly challenging because there were fewer weekend and vacation days to boost sales.

At the end of 2016, Femsa had forecast a modest rise in investments for 2017 and flagged potential risks due to uncertainty over the North American Free Trade Agreement, foreign direct investment and the peso.

“Fortunately, consumption trends in Mexico remained solid,” chief financial and corporate officer Eduardo Padilla said on a conference call with investors.

Femsa owns the world’s biggest Coke bottler, Coca-Cola Femsa , a chain of Oxxo convenience stores and a stake in beer company Heineken NV.

Femsa posted a nearly 30 percent surge in first-quarter revenue, led by Coca-Cola Femsa and its fuel division. Conditions in South America - where operations include Venezuela, Argentina and Brazil - remained difficult, it said.

A 40 percent surge in electricity prices at its Oxxo chain fueled an acceleration of operating costs that hurt margins, said Padilla.

Energy costs were “almost as big as rent” for Oxxo in the first quarter, he said.

The “unusually high” opening of 176 Oxxo stores, many of which had been slated for late 2016, also increased costs, Padilla said.

The company said it expects energy prices to stay about where they are going forward, but other operating costs would likely be short term.

Femsa noted that it has been passing any price increases from suppliers onto consumers and that it has been reducing the size of its service crews at gas stations.

The company has “high expectations” for April, when the Easter holiday likely boosted sales, said Padilla, adding that results for the first half of 2017 would be more representative of growth trends.

Shares in Femsa were down about 0.58 percent in midday trading.

$1 = 18.7275 on March 31 Reporting by Noe Torres and Mitra Taj; Editing by Lisa Von Ahn and Leslie Adler

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