Mexico: Modelo, Mexico's top brewer, announced on February 18 it expects its fourth-quarter net profit to rise more than 35 %, above analysts' expectations, due in part to one-time tax gains. Modelo, maker of Corona beer, also said fourth-quarter operating profit, or earnings before interest and tax, should grow more than 12 %, according to Reuters. "Operating margins could expand more than 300 basis points," said the brewer, which is half owned by U.S.-based Anheuser Busch Cos. Inc.

Modelo's shares ended 1.03 percent higher at 32.22 pesos on the Mexican bourse on Friday, just below 12-month highs that they touched earlier in the session. Modelo is up more than 5 percent so far this year, but has consistently lagged the gains of the market's main index.

Many Mexican companies are benefiting from a recent reduction in the rate of corporate income tax.

Analysts hailed the preliminary forecasts from Modelo ahead of formal fourth-quarter results scheduled for Feb. 24. "It is very good news and quite a surprise," said Credit Suisse First Boston analyst Tufic Salem. "The stock has under performed the stock market for the last 12 months."

Salem said Credit Suisse First Boston had expected a 9 percent increase in operating profit in the quarter and a 150 basis point expansion for margins. "Cost reductions could explain the difference in our view," Salem said. "We believe that efficiencies, controlled marketing expenses, head count reduction and the first benefits from the changes at its distribution network could be kicking in."

Modelo is seen by most analysts as a defensive stock with steady, but undramatic growth under one of the most conservative managements in Mexico. Modelo has around $1.1 billion in cash on its debt-free balance sheet. Putting out guidance publicly for the first time also went down well. "This could help increase trading activity in the stock," said Interacciones analyst Jorge Lagunas. A recent Reuters survey of analysts forecast Modelo would report a 9.5 percent increase in net profit in the fourth quarter from the October-December period in 2003. The survey also forecast a mere 2.5 percent rise in operating profit and a 40-basis point expansion in operating margins.

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