SABMiller beer sale trend worsens in Q2

By Martinne Geller

LONDON (Reuters) – Poor summer weather in China hit SABMiller's lager sales in the second quarter, though higher prices and a jump in soft drink sales helped boost revenues at the world's second biggest beer maker.

The brewer of lagers such as Peroni and Miller Lite has been trying to offset sluggish growth in developed markets with cost cuts, marketing drives and acquisitions, while also putting more emphasis on soft drink sales in emerging markets.

Its strategy is the subject of great interest after an approach to buy Dutch rival Heineken was rebuffed last month, breathing life into long-running speculation SAB could soon be a target for the biggest brewer Anheuser Busch InBev.

SAB said overall revenues rose 3 percent in the three months to the end of September, though the volume of beer sold fell 3 percent, a reversal for its core, high-margin business after a 1 percent increase in the first quarter.

Including soft drinks, such as the ones SAB sells for Coca-Cola, total drinks volume was down 1 percent in the second quarter, with a 9 percent rise in soft drinks partly offsetting the decline in beer sales.

Soft drinks account for 20 percent of SABMiller's sales volumes, but are far less profitable than beer.

"We wonder whether the underperformance of lager versus soft drink volumes will translate into margin pressure when first-half results are reported on Nov. 13," said James Edwardes Jones, an analyst at RBC Capital Markets.

In the Asia Pacific region, overall drinks volume fell 8 percent in the second quarter. Beer volume in China "declined markedly" during July and August because poor weather in most of the central provinces meant people drank less lager.

Total drinks volume in the second quarter also declined 2 percent in North America and 1 percent in Europe. It rose 5 percent in Latin America and 4 percent in Africa.

RBC analyst Edwardes Jones said there was "no sign here of the gradually improving trend we expect for the sector as a whole over the second half of 2014".

WEATHER AND CURRENCIES

Chief Executive Alan Clark called the results "resilient," though they trailed estimates from some analysts such as Barclays, which expected lager volumes to fall just 1.1 percent in the second quarter.

"Our total beverage volume growth was impacted by weaker lager volume performance in the second quarter, balanced by strong growth in soft drinks," Clark said in a statement.

Clark said weaker trading conditions in China and Australia had affected the company's financial performance, as had adverse movements in foreign currencies.

SABMiller, which reports results in U.S. dollars, has been hurt by the relative weakness currencies such as the South African rand in recent months. The dollar was on a bull run throughout the three months to the end of September, rising nearly 8 percent against a basket of currencies.

SAB's stock fell to 3,210.5 pence on Tuesday after the results, down 1.2 percent, or twice as much as the FTSE 100 index. The decline was, however, in line with the Stoxx Europe 600 Food & Beverage Euro Price Index.

SAB's shares had soared to a historic high of 3,857 pence on Sept. 15, the day after the Heineken approach was revealed, as investors saw the move as defensive and a sign that the long-rumoured takeover by InBev might be imminent. SAB shares have fallen 17 percent since then.