USA: Citigroup warns investors to stay out of beer stocks

Citigroup is warning investors to stay out of beer stocks, reiterating its "sell" rating on two of North America's biggest brewers after conducting a survey that determined the industry's costly price war will stretch into next year, Reuters communicated on October 24.

In a research statement on findings of a survey on U.S. wholesalers that own 50 warehouses, Citigroup beverage analyst Bonnie Herzog said 73 % of the beer distributors surveyed believed brewers in the United States were still in the midst of a price war, which is expected to continue into 2006. "We are concerned that the major brewers have conditioned consumers to buy their products when they are on sale. As a result the image of beer has suffered even further," Herzog said.

Herzog added she expects brewers to need to spend more money and time to improve "the flailing image of beer." She reiterated her $41 a share price target on Anheuser-Busch Cos. Inc. and her $60 price target on Molson Coors Brewing Co.

In what concerns Anheuser-Busch, maker of Budweiser and Bud Light, the analyst said that while promotions and discounting were on the rise, volume did not appear to follow.

"Until Anheuser-Busch focuses on implementing revenue enhancement initiatives, we think industry profitability will continue to be at risk," Herzog wrote in the note.

The beer industry of U.S.A suffered in recent years as consumer tastes have shifted toward cocktails and wine, forcing companies such as Anheuser-Busch to offer multiple discounts to try to drive volume higher. The price wars are a worry for an industry already suffering higher costs for glass and can manufacturing that have been cutting into profits.

Earlier this month, London-based SABMiller -- which bought No. 2 U.S. brewer Miller in 2002 -- said its North America business' profits were being hurt by the increased price competition amid higher input costs.On Monday, Sleeman Breweries Ltd. lowered its outlook for fiscal 2005, citing price competition across the Canadian beer market.

Shares of Anheuser-Busch were up 3 cents at $42.19 on the New York Stock Exchange, just above a near four-year low of $41.65 touched earlier this month, while Molson Coors rose 30 cents at $61.13, also on the NYSE.Anheuser-Busch shares have fallen 17 % so far this year and trade at 16.5 times 2005 earnings. Molson Coors' stock has fallen 19.2 % in 2005, and trades at 18 times profits.

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