These Mexican Companies Are Reaping Rewards From a Weak Peso
Airport operators, car-parts makers benefit from depreciation
Mexican peso has fallen 10 percent in last 12 months
While Mexico’s government grapples with how to help the peso recover from its doldrums, some of the nation’s biggest companies are finding ways to benefit from the currency’s woes.
At auto-parts maker Rassini SAB, 90 percent of sales are in dollars, compared with only 80 percent of costs, enough to produce a benefit when the peso underperforms, according to BBVA. Airport operators GAP Airports and Asur are getting a boost from international travelers paying fees in dollars and Mexican vacationers opting to travel inside the country rather than go to a more expensive U.S. Tequila giant Jose Cuervo, with much of its costs in pesos, reported 52 percent revenue growth in the fourth quarter, thanks in part to a 54 percent increase in volume in the U.S. and Canada.
Mexican companies boosted earnings 22 percent in the fourth quarter from a year earlier, compared with a 16 percent increase in revenue, according to data compiled by Bloomberg, in part because sales in dollars helped increase profits for some companies. For companies with some sales in dollars, the currency disparity has helped make up for some of the downside of the peso’s 16 percent decline over the past 18 months, such as higher costs for imports.
That’s especially true for auto-parts makers like Rassini and Nemak SAB — which supply the very companies President Donald Trump has pressured to restore jobs to the U.S. “Most of the improvements we saw in margins last year are partly related to the peso depreciation,” said Jean-Baptiste Bruny, a BBVA research equity analyst, in a phone interview.
“Like all exporting companies, Nemak benefits from a weak peso by becoming more competitive in costs determined in pesos, such as manual labor,” the company said in an email.
The peso has remained stubbornly above 19 to the dollar since Trump’s election escalated fears of trade restrictions between Mexico and the U.S.
But the currency could recover “quite a lot” if Mexico and the U.S. can reach a sensible agreement on renegotiating the North American Free Trade Agreement, U.S. Commerce Secretary Wilbur Ross said Friday on CNBC.
“The peso has fallen a lot, mainly because of the fear of what will happen with Nafta,” Ross said. “I believe that if we and the Mexicans make a very sensible trade agreement, the Mexican peso will recover quite a lot.”
The Commerce secretary said the first trade priority of Trump’s administration is to re-negotiate the agreement, which the president described on the campaign trail as the “worst” trade deal of all time.
The peso surged over 1.5 percent on Ross’s comments, trading at 19.56 per dollar. It was below 16 before the U.S. presidential campaign started heating up in mid-2015.
Still, Mexico is “unequivocally” more competitive now due to its steep peso depreciation, especially compared with economies such as Brazil where the currencies have been stronger, said Benito Berber, a senior economist for Latin America at Nomura Holdings Inc.