Top Menu

Fosters_Set_To_Be_Under_The_Weather


13 January 2011

Source: Australian Financial Review
Julie-anne Sprague

Beer sales had their largest monthly slump in more than five years in November, casting an ominous shadow over Foster’s Group’s ability to meet profit expectations as poor weather, a high Australian dollar and a shift by consumers to boutique brews depress sales.

The latest Nielsen Company data shows off-premise beer sales fell 10.7 per cent last November, more than double the slide Foster’s had forecast the industry to suffer for the six months to December 31.

The release of the figures comes after Coca-Cola Amatil warned last week its earnings would be lower than expected as the wet weather on the east coast and subdued consumer demand dented its sales.

Coca-Cola operates a beer joint venture with SAB Miller and sells Peroni, Grolsh, Miller and Bluetongue.

Foster’s, which is expected to formally agree to spilt its beer and wine business when it reports its first-half result on February 15, declined to comment.

Citigroup analyst Andy Bowley, who last week cut his 2011 earnings forecast for Foster’s by 4 per cent, said Foster’s October guidance for an industry decline of 4 per cent to 5 per cent now appeared optimistic.

It was likely beer volumes fell 5 per cent to 7 per cent in the first half, Mr Bowley said. He estimated that for every 1 degree fall in temperature, beer sales fell by 2 per cent. Lower than average temperatures were recorded in Australia last November and December.

“Equally worrying is the deceleration in industry pricing,” Mr Bowley said. “Carlton & United Breweries is continuing to realise lower price growth than that of the market.”

The Nielsen figures show a 1.6 per cent increase in beer prices in November that, combined with a slump in volume, saw the value of the beer market fall 9.1 per cent.

Coca-Cola’s Pacific Beverages suffered a 20 per cent slump in beer sales, Lion Nathan sales fell 16 per cent and Foster’s shed 9 per cent.

The market expects Foster’s to produce a fiscal 2011 profit of $725 million. Mr Bowley, however, has forecast $660 million.

White Funds Management portfolio manager Will Seddon said Foster’s was finding it difficult to lift prices because of softer volumes and flat or falling input costs.

“The last few years they were able to pass on those costs but if the costs of goods is flat or coming down and your customers are not that busy, it makes it difficult to increase the price,” he said.

Beer has traditionally been a stable segment but a spokeswoman for Nielsen said the packaged beer market had been in decline since February 2010, after the industry cycled through “abnormal growth” in 2009 following a boost to sales from government stimulus spending and taxes on ready-to-drink goods.

“[Nielsen data] reveals that packaged beer in the Australian off-premise market, for the month of November 2010, is undergoing its deepest volume decline in over five years,” the spokeswoman said.

Foster’s Carlton & United Breweries managing director John Pollaers told investors in October that Australia’s biggest brewer had arrested a five-year slide in market share and that a 2011 first-half slump in sales would be temporary.

MORE STORIES