Foster's orders wine shake-up
 |
Despite a profit hike, falling revenues for Foster's wine business is troubling CEO Ted Kunkel and investors.
Story Tools
YOUR E-MAIL ALERTS
|
Follow the news that matters to you. Create your own alert to be notified on topics you're interested in.
Or, visit Popular Alerts for suggestions.
|
|
SYDNEY, Australia (CNN) -- Leading Australian brewer Foster's will review its global wine business amid thinning profit and margins in the U.S. and Europe, the company's outgoing chief executive, Ted Kunkel, says.
The shake-up comes as Foster's Group Ltd announced Tuesday net income for its fiscal half-year of Aust. $764.1 million ($588 million), an increase of 128 percent.
The stock is down 1.62 percent to A$4.24 in midday Tuesday on the Australian Stock Exchange.
The Foster's result was significantly bolstered by the sale of its Australian Leisure and Hospitality unit, which realised about A$1.5 billion and a pre-tax profit of A$545.5 million.
Operating cash flow rose 51.5 percent to A$320 million. Normalized, it was up 35.4 percent to A$286.9 million. Earnings per share rose 121.6 percent to 35.9c.
Sales revenue for the company and volumes of beer consumption have shrunk in the past six months, Foster's said in its statement.
Net sales revenue dropped 3.8 percent to A$1.959 billion while consumption of Foster's beers fell 1.2 percent in a market segment that contracted 1.6 percent overall.
Foster's Brewing International grew volumes 9 percent, earning A$21.9 million with EBITA of 10.1 percent.
The wine sector is proving Foster's greatest challenge. It bought the American company Beringer for A$3 billion but said it is facing declining volumes and margin.
Its Beringer Blass Wine Estates suffered a 28.1 percent decline to $128 million with the European market delivering significantly lower revenues from both the trade and clubs.
Foster's operating margin for wine in Europe was 22.2 percent, only marginally higher than the competitive US marketplace, where it ran profitability at 23.3 percent. Asia-Pacific was the most profitable region, giving Foster's a 31.7 percent margin.
CEO Ted Kunkel, who announced Monday his retirement after 12 years in the job, said: "Foster's has decided that in light of the severity of recent market conditions in wine, it is appropriate to further review the cost structure and capital usage of the global wine business." (Full story)
Reviews had started and "all aspects of the global wine supply chains, from grape sourcing, procurement and winemaking through to distribution and logistics, will be conducted over the coming months," Kunkel said.
"The aim is to position the business in the strongest possible manner for the recovery of market conditions and to ensure a greater level of operational and capital efficiency."
A bright spot for Foster's is the swing back to premium wine in North America.
Kunkel described the difficult market conditions in California as "behind us", with sales at the cheap end of the market falling and a recovery in premium and luxury wine consumption.
The company said in its statement it wants to continue its share buy-back strategy and will seek investor approval to purchase a total 125 million shares this year.
