Foster's boosts profit outlook

MELBOURNE - Australia's largest brewer, Foster's Group, boosted its full-year outlook yesterday on a faster-than-expected recovery at its wine unit, after beer sales lifted first-half operating profits 2.6 per cent.

The maker of Beringer and Wolf Blass wines, which will become the world's second-largest wine firm if it wins a A$2.5 billion ($2.73 billion) bid for Southcorp, said wine earnings growth was expected to accelerate for the full year and into next year.

Foster's forecast a return to double-digit growth in earnings per share for its continuing businesses this year, earlier than its previous forecast.

"It seems as though wine is turning the corner," said Berren Asset Management Group Investment manager Rupert Clifton-Bligh.

Foster's shares closed up 2Ac at A$5.42, after gaining 3.7 per cent in the previous five days.

The shares hit a record of A$5.90 in December, before the Southcorp bid.

Foster's wine earnings were hit last year by a grape oversupply in California that led to more cut-price wines and prompted the company to overhaul its wine operations.

Earnings, excluding discontinued businesses, one-off items, goodwill and a grape accounting charge, totalled A$315.4 million for the six months to December 31, against A$307.4 million a year earlier.

Net profit before one-off items dipped to A$295.3 million from A$299.8 million a year ago, in line with analysts' forecasts.

"Foster's global wine trade business is showing clear signs of sustainable improvement," chief executive Trevor O'Hoy said.

Foster's domestic beer division, whose Victoria Bitter and Cascade beers and pre-mixed Cougar Bourbon & Cola compete against products from Lion Nathan, posted a 9.7 per cent rise in operating earnings to A$317.5 million, thanks to higher prices and greater sales of higher-margin premium beers.

Its international beer division, which sells its flagship Foster's brand, boosted profits 5.5 per cent, but volumes fell 1.2 per cent due to aggressive pricing by competitors in Britain.

Earnings from the wine division fell 8.1 per cent to A$167.6 million.

Wine trade volumes rose 12.2 per cent.

Foster's sells about two-thirds of its wine in the United States, but plans to build on its relationship with beer partner Scottish & Newcastle, which also distributes wine, to boost its British business.

"That is clearly a big upside for the future and it will extend beyond the UK, because their network is getting strong into Europe," O'Hoy said.

The world's number-one wine company, Constellation Brands, last month reported healthy growth in its Australian and New Zealand wines and said its quarterly wine division operating earnings rose 13 per cent.

O'Hoy said he expected the Australian Competition and Consumer Commission would decide on the Southcorp bid, pitched at A$4.17 a share, in the first week of next month.

He said analysts forecasting synergy benefits of A$100 million to A$200 million from the Southcorp bid were "reasonable estimaters".

- REUTERS