Australia: Market analysts expect Foster's Group Ltd to report strong beer sales

Market analysts expect Foster's Group Ltd to report strong beer sales in Australia, when the global beverages firm delivers its half-year results next Tuesday, February 14. Brokers Credit Suisse expect Foster's to report a net profit after tax of around A$343 million (US$253.48 million) for the first half, Asia Pulse posted on Friday, February 10.

Foster's booked a net profit of A$757 million for the six months to December 31, 2004, under accounting standrads that have since been changed. That result included a A$454.2 million gain on the sale of Foster's Lensworth property division.

Foster's 2006 half year result will be the first full half to include the performance of winemaker Southcorp, which Foster's acquired for A$3.2 billion in May 2005. The major brands acquired through Southcorp are Penfold's, Rosemount Estate, Lindemans and Wynns. Foster's other main labels are Wolf Blass and Beringer (in the United States).

Credit Suisse analyst Larry Gandler said in a research note last month that Foster's domestic beverage operations were expected to benefit from strong pricing, cost savings associated with the closure of the Kent brewery in Sydney, and a boost in volumes from a warm December.

Foster's major beer brands in Australia include Victoria Bitter and Carlton Draught. Foster's also sells Cougar bourbon and Black Douglas scotch.

Wine operations in North America were expected to show stronger earnings growth as the oversupply of wine in California had become more balanced, and cost savings from restructuring had improved margins. "We have seen Beringer's brands in the US kick into gear since mid-2005," Mr Gandler said.

Wine margins in Australia, where there is still an oversupply of grapes after bumper harvests in 2004 and 2005, are expected to have improved as a result of grape cost savings and efficiency gains.

Citigroup expects Foster's to reported net profit after tax (pre-abnormals) of A$306.4 million. Citigroup said in a research note that it expects an ongoing solid performance from Foster's domestic beverages operations but a flat performance from Foster's Brewing International, which manages the Foster's brand globally and international beer operations. "We expect to see the underlying wine operations in the US improve, with the Australian and UK wine operations reflecting the current wine oversupply," Citigroup said.

An update on the integration of Southcorp was also expected. Foster's has said it can achieve savings from the acquisition of Southcorp of A$40 million to A$50 million in 2005/06, building to A$145 million in 2007/08.

Foster's indicated earlier this month that it expects earnings per share to grow by 12 to 14 per cent this financial year as the company adopts new international reporting standards.

The company had previously indicated that normalised earnings per share for fiscal 2006 would meet its long-term growth target of 10 per cent, based on former accounting standards or AGAAP.

In September 2005, Foster's said it would be investing eight to 10 per cent of revenue in promoting its brands, focusing on the Foster's beer brand, and would relaunch the ailing Rosemount wine label.

E-malt.com, the global information source for the brewing and malting industry professionals. The bi-weekly E-malt.com Newsletters feature latest industry news, statistics in graphs and tables, world barley and malt prices, and other relevant information. Click here to get full access to E-malt.com. If you are a Castle Malting client, you can get free access to E-malt.com website and publications. Contact us for more information at marketing@castlemalting.com .