Beer profit fall brewing
FOSTER’S Group faces a decline in beer profitability for the first time since 2001 as volumes stall and price increases slow, according to Citigroup.
Foster’s brewing profit margin, which measures earnings before interest and tax as a proportion of sales, for the first half ended December 31, may have fallen to 38 per cent from 38.5 per cent a year earlier, according to a Citibank note.
Foster’s spokesman Troy Hey declined to comment on the report.
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First-half beer sales volumes at Foster’s may have dropped 5 per cent and declining demand means the brewer can no longer raise prices in excess of inflation, analysts led by Andy Bowley wrote.
Citigroup said a cool start to summer and a shift in consumer tastes towards pre-mixed drinks and spirits were curbing beer demand, while gains in the Australian dollar were making imported brews cheaper than Foster’s labels.
"the beer industry is experiencing its toughest volume environment in living memory," mr Bowley wrote.
Foster’s share price was unchanged at $5.65 yesterday, while the S&P/ASX 200 Index lost 0.6 per cent.
Citigroup maintained its "hold" rating on Foster’s and cut its 12-month share price estimate by 3.5 per cent to $5.55.
The brokerage estimates that each 1 degree change in temperature affects consumption by about 2 per cent.
Australia’s average temperatures in November were 2.1 degrees lower than a year earlier and, in December, it was 0.8 degrees cooler, according to the Bureau of Meteorology.
"This would suggest that in November 2010 beer volumes were [affected] by 4 per cent due to temperature," mr Bowley said. "This doesn’t bode well for the rest of the summer."
Foster’s, which generates more than half its revenue from beer, will announce next month whether it plans to spin off its wine unit to focus on brewing.
The company is scheduled to report its first-half earnings on February 15.
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