Australia: Foster’s first half earnings up 10.5% thanks to beer sales

Foster's Group Ltd., Australia's biggest alcoholic drinks company, announced on February 14 a 10.5 percent rise in first-half normalised net profit thanks to strong domestic beer sales and cost savings from its Southcorp wine acquisition, according to Reuters.

The company's net profit for the six months to Dec. 31 was A$333.3 million, up from A$307.1 million, excluding discontinued businesses, significant items, amortization and an accounting charge.

But it warned of intense competition, especially in wine sales in Britain and Australia, where producers are battling an oversupply caused by recent record grape harvests, and its shares fell 3 percent even though it maintained its full-year forecasts.

Investors were worried by weakness in the Rosemount brand, acquired last year when Foster's paid A$3.2 billion ($2.4 billion) for Australia's Southcorp, becoming the world's second-largest wine company after U.S.-based Constellation Brands Inc.

"The Australian wine industry remains a problem spot for Foster's and that won't be resolved for a little while yet. Apart from that, most of the other commentary was in line with previous commentary from the company," Shaw Stockbroking analyst Scott Marshall said.

Southcorp added the Penfolds, Rosemount Estate and Lindemans brands to Foster's existing wine range, led by Beringer and Wolf Blass. The company's beers include its flagship Foster's Lager, Victoria Bitter, Carlton Draught and Cascade Premium.

"Despite the significant integration effort underway, and the difficult trading conditions in some of our markets, Foster's has achieved double-digit earnings growth in the first half," the company said in a statement on February 14. Foster's reaffirmed its forecast of a 12-to-14 percent increase in fiscal 2006 normalised earnings per share.

The headline result fell 62.4 percent to A$291.1 million, including A$37.9 million of one-off costs, down from A$773.5 million a year before when earnings were boosted by the sale of its Lensworth property division.

Market forecasts centred on A$330.4 million, based on five analysts surveyed by Reuters, although not all of the one-off charges were included in the forecasts.

Foster's said its domestic beer and other beverage division, the cash flow engine room for the company, posted an 18 percent rise in earnings to A$371.6 million as consumers turned to higher-priced premium beers that deliver stronger profits. Earnings from the company's international beer division fell 11 percent to A$20.2 million.

It said it had first-half cost savings from the Southcorp acquisition of A$23 million and was on track for full-year savings of A$50 million. It forecast savings would be at the high end of its previously targeted range of A$130 million to A$145 million in fiscal 2008.

Wine trade earnings increased 59 percent to A$204.4 million, as volumes and revenue grew in the Americas, Europe and Asia, offset by softness in Australia, Britain and New Zealand.

Foster's said that on a proforma basis, adjusting for the Southcorp acquisition and on constant exchange rates, global wine volumes increased 2.0 percent and revenue declined 0.2 percent. It said Rosemount volumes declined by more than 20 percent, but the Lindemans and Penfolds brands were stabilising.

Foster's major competitor in the domestic beer market is Lion Nathan Ltd., 46 percent owned by Japan's Kirin Brewery Co. Foster's shares were down 3.4 percent at A$5.41 in morning trade. The wider market was up 0.5 percent.

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