Foster's Group, Australia's largest brewer, has missed forecasts with a 13.5 per cent slide in first-half profit as it lost market share in beer and wine earnings slumped, but said there were signs US demand was stabilising.
Fosters, which makes Beringer, Penfolds and Lindemans wines, said its cost savings plan was on track and it had completed about half of its planned sale of vineyards.
But its beer volume in Australia declined 1.1 per cent even as industry volume gained 1 per cent as consumers flocked to premium, imported and low-carb beers.
"Probably the biggest weakness is in the beer business, which is surprising. The beer market in Australia is very strong at the moment and yet they show a 1 per cent volume decline. That is disappointing," said Fortis Investment partner Theo Maas.
Maas said the decline likely came from Foster's reluctance to participate in aggressive discounting campaigns by top supermarkets Woolworths and Coles.
Foster's said total global volumes for beer fell 1.8 per cent.
The disappointing profit result pushed Foster's shares down 2.9 per cent to $5.40 in early trade, against a broader market up 0.9 per cent.
For the six months to December 31, Foster's said net profit before one-off items fell to $355.7 million from $411.3 million a year ago. That was well below forecasts of $391.4 million.
Earnings before interest and tax at its beer business, which accounts for about 85 per cent of earnings, rose 6.6 per cent as the company switched back to a dedicated beer sales force, reversing a previous strategy to combine the sales teams for beer and wine.
Foster's has lost market share in beer to rival Lion Nathan, which was bought by Japanese brewer Kirin Holdings last year for $US3 billion, as its flagship brand Victoria Bitter (VB) declines. Foster's Australian beer market share is about 51 per cent, down from 55 per cent a couple of years ago.
Tough conditions
Foster's restructured wine business, which accounted for 40 per cent of earnings as recently as three years ago, saw earnings slump 24.8 per cent in the half amid tough trading conditions, particularly in the United States, Asia and New Zealand.
The brewer, which has the world's second-largest wine business, has been struggling to sell off wine brands and vineyards for more than a year as it battles a wine glut, as has its larger rival Constellation Brands, owner of Robert Mondavi wines. Both have been hit by flagging wine sales in global markets.
"Prevailing economic conditions remain challenging in the Americas, however there are emerging signs of stabilisation," Foster's chief executive Ian Johnston said in a statement.
In the US, wine earnings fell 62 per cent, as the Australian dollar's strength cut $83 million from earnings. On a constant currency basis, earnings dropped 45.3 per cent as consumers traded down to cheaper wines and bought less at bars and restaurants.
Reuters
