July 25, 2017 / 2:50 PM / a year ago

UPDATE 2-Mexico's Femsa Q2 profit falls, dragging down shares

(Adds comments from executives)

MEXICO CITY, July 25 (Reuters) - Shares in Mexican bottler and retailer Fomento Economico Mexicano (Femsa) fell on Tuesday after it reported a drop in quarterly profits, hurt by rising costs.

Femsa said its second-quarter net earnings fell 4.4 percent year-on-year to 4.657 billion pesos ($257 million).

Sales, however, jumped by 21.4 percent in the quarter to 114.8 billion pesos on the back of revenue growth at its Coca-Coca bottler, stores, and health and fuel divisions.

The Monterrey-based company controls the world’s biggest Coke bottler, Coca-Cola Femsa. It also owns Oxxo convenience stores and has a stake in Dutch beer company Heineken NV.

“Revenue growth was strong during the quarter, not just for our retail formats but across operations, and reflected a resilient consumer environment in Mexico in spite of rising inflation,” said Femsa Chief Executive Carlos Salazar Lomelin.

Shares in Femsa were trading 1.7 percent lower after paring losses from a 2.26 percent fall shortly after the market open.

Coca-Cola Femsa said on Monday it is poised to lose its distribution contract with Heineken in Brazil, sending its shares down 5 percent, even as it reported an 11.5 percent jump in quarterly net profit.

The companies have a multi-layered relationship, as Femsa is also one of Heineken’s largest shareholders. Nevertheless, the current discussions between Coke Femsa and Heineken in Brazil will not affect the larger strategic relationship between the companies, Femsa executives said on a call with investors.

“We are partners with Heineken on one hand,” said Eduardo Padilla, Femsa’s chief corporate officer. “But on the other hand, we have these divisions that have to do whatever they need to do to improve the performance and improve results for the shareholders.”

$1 = 18.143 on June 30 Reporting by Anthony Esposito and Julia Love; Editing by W Simon and Phil Berlowitz

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