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Foster's Group, the world's second-largest winemaker, posted first-half earnings that missed analysts' estimates after a new sales strategy in Australia backfired. The shares had their biggest decline in five months.
Profit excluding the sale of breweries in Vietnam and India rose 11 per cent to A$363 million ($408 million) in the six months ended December 31, compared with a A$402 million median estimate of four analysts surveyed by Bloomberg News.
Chief executive Trevor O'Hoy abandoned specialist wine, beer and spirits marketing teams in favour of a single network selling its full range to customers.
That strategy triggered an 11 per cent plunge in the Melbourne-based company's Australian wine sales volumes in the half, compared with industry-wide growth of 1.4 per cent in the country.
"That rejigging and transformation has caused their problems," said Angus Gluskie, at White Funds Management in Sydney.
"They need to rework their sales strategy aimed at high-end customers, that is restaurants and high-end bottle shops, and offer a special wine sales team in those areas."
O'Hoy yesterday said the company had not received a takeover approach, the third time since an August 28 Sydney Morning Herald report that he has denied the speculation.
Foster's shares fell A35c, or 4.9 per cent, to A$6.79 by the close, erasing their gains for the year. The stock has surged 24 per cent since the Sydney Morning Herald reported it might be a takeover target.
Foster's, seeking to bolster profit growth that's slowed to 2.5 per cent in Australia, will spend more to improve customer service and revive sales to restaurants, O'Hoy said yesterday.
Net income for the half surged 90 per cent to A$553.5 million after the company posted A$190 million in one-time gains from assets sales.
O'Hoy said he expected to meet analyst expectations for annual earnings before items to rise 19 per cent to A$735 million.
O'Hoy expects to save A$165 million a year from annual wine costs as he integrates his 2005 acquisition of winemaker Southcorp. With a glut of Australian wine depressing prices, O'Hoy has fired staff and sold vineyards to reduce debt.
"Eighteen months on from the Southcorp acquisition, the integration is now substantially complete," O'Hoy said.
Foster's will buy back up to A$400 million of its shares, about 3 per cent of the shares on issue.
- BLOOMBERG
