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Foster’s H1 profit loses fizz on beer, wine

Foster’s H1 profit loses fizz on beer, wine
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First Published: Tue, Feb 16 2010. 05 18 PM IST
Updated: Tue, Feb 16 2010. 05 18 PM IST
Melbourne: Foster’s Group Ltd, Australia’s largest brewer, posted its weakest first-half profit in four years due to market share losses in beer and a slump in wine earnings, but promised a renewed focus on its main beer business.
The maker of Beringer, Penfolds and Wolf Blass wines, said a cost-saving plan was on track and it was seeing the benefits of separating its beer and wine businesses.
Chief executive Ian Johnston said the company had been distracted by the overhaul, adding it contributed to a 1.1% fall in its Australian beer volume, while industry volume overall rose 1% as consumers flocked to premium, imported and low-carb beers.
“Probably the biggest weakness is in the beer business, which is surprising,” said Fortis Investment partner Theo Maas. “The beer market in Australia is very strong at the moment and yet they show a 1% volume decline. That’s disappointing.”
Maas also noted Foster’s reluctance to take part in aggressive discounting campaigns by top supermarkets Woolworths and Coles.
Foster’s shares closed down 2.2% at A$5.44, a 2-week low, in a broader market that was up 0.5%. Nearly 30 million Foster’s shares changed hands, almost four times the average daily traded volume over the past 90 days.
“Reduced promotional activity in the first half ... and a small degree of disruption from bedding down the new sales structure led to a small loss in market share,” Johnston told an analysts’ briefing.
Analysts have speculated the restructuring will lead to an eventual sale of the wine business. Johnston said he was focused on improving wine performance and keeping his options open.
Earnings from wine, which accounted for 40% of group earnings as recently as three years ago, slumped by nearly a quarter amid tough trading conditions.
Johnston said Foster’s had completed about half its planned sale of vineyards and eliminated 39 non-core wine brands.
“We take this period as the opportunity to overhaul the way we do things and be positioned to benefit as the industry comes to grips with the supply surplus ... and consumer behaviours return to more normal patterns,” he said.
Wine Glut
The world’s second-largest wine business has been struggling to sell off brands and vineyards for more than a year as it battles a wine glut, as has larger rival Constellation Brands, owner of Robert Mondavi wines.
US wine earnings slumped 62% as a stronger Australian dollar cut A$83 million from earnings and consumers traded down to cheaper wines and bought less at bars and restaurants. On a constant currency basis, wine earnings dropped 45.3%.
But the worst may be over there in terms of demand, the company said.
“We are cautiously optimistic that the wine industry is pretty close to hitting the bottom edge in the US market,” managing director for the Americas Stephen Brauer told a media briefing.
July-December net profit fell 13.5% to A$355.7 million ($316 million), well below forecasts for A$391.4 million, according to a Reuters poll. It was Foster’s weakest first-half profit since the six months to December, 2005. Revenue was down 4.4%.
Earnings before interest and tax at its beer business, which now accounts for 85% of earnings, rose 6.6% as the brewer switched back to a dedicated beer sales force, reversing a previous strategy to combine sales teams for beer and wine.
Foster’s has lost share to rival Lion Nathan, which was bought by Japanese brewer Kirin Holdings last year for $3 billion, as its flagship brand Victoria Bitter (VB) declines. Foster’s Australian beer market share is about 51%, down from 55% a couple of years ago.
Its beer unit, Carlton & United Breweries, will soon get its sixth managing director in seven years, former Diageo Plc executive John Pollaers.
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First Published: Tue, Feb 16 2010. 05 18 PM IST
More Topics: Foster's Group | Beer | Loss | Ian Johnston | Wine |