Canada: Analysts about Sleeman’s decreased profit outlook

Sleeman Breweries announced on October 24 a decreased profit outlook for this year. The brewer would blame for that the pressures from discounters, including breweries benefiting from provincial tax subsidies, and competitors in the premium segment in Ontario and Quebec for slicing its forecast to between 81 and 85 cents a share for fiscal year 2005.

The analysts have their opinion on this matter. The analyst from Dundee Securities, Robert Silgardo, was not surprised by Sleeman's lowered guidance, saying his firm has had a "market underperform" on its stock after its second-quarter profit fell sharply, and prompted the cutting of 40 jobs. Mr. Silgardo took down his one-year target on Sleeman yesterday to $11 from $13.50. "The competition is coming from discount players, like Lakeport and Brick, but also from [giants] Molson and Labatt," Mr. Silgardo said. "They have a whole line of discount beers now in that buck-a-beer category.

"Both companies Molson and Labatt had a lot of management and ownership changes over the last 12 months, and these guys have renewed their outlook on Canada," the analyst added. "They are trying to really get back that market share that has been dwindling off over the last few years so they have become very aggressive in the discount segment."

Sleeman Breweries, which is based in Ontario still has "one of the strongest brands in the country" but it will have to come up with a strategy focused on premium brands instead of engaging in the discount game with "limited time only" pricing, Mr. Silgardo said.

Michael Palmer the analyst of Veritas Investment Research Corp., said he was surprised Sleeman didn't lower the guidance further, given the declining trend of profit in the first half.

"There was no way it was going to make a $1 [a share]," said Mr. Palmer, who has a "sell" on Sleeman. "The fact that they are going to be up at all in the second half is going to be an achievement given the discounting continues both in Ontario and Alberta."

"What the discounters have done is that they have totally changed the pricing structure of the industry" and consumers are reacting, Mr. Palmer added.

Murray Mateyk, Sleeman's chief financial officer, said Sleeman is hurting from the competitive advantage of small brewers eligible for tax breaks in Ontario and Alberta that allows them to charge cut-rate prices on their beer.

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