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News
Global drinks deals back on the agenda
d=”standfirst”>Analysts were disappointed by Diageo’s update on the first three months of its financial year to the end of September. They had predicted that net sales would be about 3% lower than for the same period in 2008, but the company reported a 6% slide.
The shares, which have gained about 20% since Christmas, fell 20p on the announcement despite Diageo reiterating its guidance that it will generate “low single-digit” growth in net operating profit in the full year.
The reason for the disappointing figures was continued distributor destocking in America, Diageo’s largest market. The company pointed out that the summer of 2008 had been relatively buoyant, the market shakeout not taking place until late October, so comparisons were difficult. But although there has been some trading down by US consumers to budget brands, the overall market for spirits continues to grow (albeit by less than 1% annually), according to Bernstein Research.
The results immediately raised questions about how Pernod Ricard is faring globally. The French group reports its three-month sales on Thursday and its comments will be scrutinised closely for indications as to whose sales are holding up better in the crucial American market. Some analysts predict that Pernod Ricard’s net sales might be as much as 9% down globally.
They are also speculating that Diageo may be looking to take part in a new round of drinks company consolidation. The outright purchase of Moët Hennessy has long been mooted, but now suggestions are surfacing that Diageo, which does not comment on market rumours, could be eyeing Heineken. It already has distribution joint ventures with the Dutch group, notably in Africa.
The speculation has arisen because the expected sale of Femsa, the Mexican brewer, to SABMiller, would leave Heineken as what Credit Suisse dubbed “a distant third player” in the global beer market, which is changing rapidly.
Only this week Anheuser-Busch InBev, the biggest brewer, reduced its debts by US$3bn by selling Eastern European beer brands, including Staropramen, to venture capitalists, a deal that followed closely on its sale of the Busch theme parks for $2.7bn. The disposals had been signalled following InBev’s $52bn takeover of Anheuser last year, but the buoyant prices achieved pleased investors and added weight to the theory that global deals seem to be back on the agenda.
Of possibly even greater significance, however, was a deal also announced this week between Anheuser and PepsiCo. They are pooling their efforts to cut costs by combining the purchase of items such as computers and office supplies. Bulk buying makes sense in any sector, but this could be the precursor to ever-closer relations between the two that could eventually challenge Coca-Cola’s hold on the top spot in world beverage sales. Coke says it is determined not to enter the market for alcohol but Pepsi and Anheuser seem to be moving towards each other, with whispers in the market about an eventual merger.
Whatever the truth (or not) of the rumours, all the big groups, including Diageo, will be watching with considerable interest and at least reviewing their long-term strategies.
Finance on Friday, 16.10.09