SABMiller PLC reached a 21 percent increase in first-half profit worldwide, but the world's third-largest brewer warned about challenges in the second half because of the rising cost of raw materials.
Revenue for the London-based brewer rose 15 percent to $10.78 billion (7.36 billion EUR) from $9.34 billion (6.38 billion EUR) in the for the six months ended Sept. 30. Total lager volumes for the owner of Milwaukee-based Miller Brewing Co. were up 15 percent, including the impact of acquisitions in China and India.
SABMiller, also the maker of Pilsner Urquell and Peroni, reported net profit of $958 million (654.42 million EUR), up from $790 million (539.65 million EUR) a year earlier.
But the news of the rising cost of raw materials sent shares down 3.1 percent, to 1,332 pence ($27.27, 18.63 EUR) ) in trading Thursday in London.
Higher revenue and productivity gains have offset industrywide cost pressures so far, but Chief Executive Graham Mackay acknowledged hurdles in the future.
"We expect to make progress in the balance of the year but face a more challenging environment," he said.
Last month, Anheuser-Busch Cos., maker of top-selling Bud Light, said it expects higher grain prices to squeeze profit margins. The largest U.S. brewer said it will phase in price hikes to keep profit up into 2008.
JPMorgan analyst Mike J. Gibbs said in a note that he expects SABMiller to post single-digit profit growth in the second half of the year because of the rising costs. But he wrote the brewer is better able to deal with these pressures given its size, volume growth and price mix.
SABMiller's North American operations saw sales rise 1.4 percent, slightly outpacing a 1 percent rise in the overall U.S. domestic beer market, excluding imports, in the first half of the year. Revenue for Miller rose 6 percent on strong sales of higher-priced brews to $2.78 billion (1.9 billion EUR) from $2.63 billion (1.8 billion EUR) in the same period last year.
The increase shows Miller's focus on premium brews, including crafts and imports, is working, Mackay said.
North American operations earned $300 million (204.93 million EUR), before interest, taxes and other charges, up 19 percent from $253 million (172.83 million EUR) in the same period last year. This latest half's earns include a $16 million (10.93 million EUR) gain from a settlement with a beverage corporation related to can purchases from 2006.
Flagship brand Miller Lite returned to solid growth in the first half of the year, with a 2.1 percent rise in sales to retailers. The average case pricing was also up 2.1 percent.
Miller High Life saw sales to retailers up 1 percent, while average case prices were up 2.9 percent.
Miller's portfolio of craft and import beers saw the most growth. Craft brand Leinenkugel's saw 27 percent growth, with the success of Sunset Wheat, which went from being a regional beer to one available in 42 states. Peroni, an SABMiller brand from Italy, saw 54 percent growth.
Miller Chill, the brewer's new Latin-inspired lime-infused beer, also saw strong growth since its nationwide launch this summer. At the end of last month, 380,000 barrels had been sold, on track to outpace the brewer's goal of 400,000 barrels for the year. The beer is being introduced this month in Australia.
Sales of economy brews, such as Milwaukee's Best, dropped 4 percent, because of strong pressure in that segment, SABMiller said.
Domestic premium brand Miller Genuine Draft saw volumes go down 9.3 percent, mirroring the market segment, SABMiller said.
In October, Miller and Molson Coors Brewing Co. announced they would combine their U.S. operations to help them compete in a struggling U.S. industry and against Anheuser-Busch, which has about half the U.S. market. Miller has an 18 percent market share and Coors has about 11 percent.
SABMiller said Thursday it expects a definitive agreement between Miller and Coors to be signed next month, but antitrust clearance is not expected before the middle of 2008.
Mackay said the cautious outlook for the second half of the year was partly due to rising commodity costs but also reflected a slowdown in some of the company's key markets such as Columbia. Sales in that country were up 8 percent but slowed late in the first half due to worsening credit costs for consumers.
Europe saw revenue up 26 percent to almost $2.9 billion (1.98 billion EUR) from almost $2.3 billion (1.57 billion EUR) in the same period last year, on strong growth in Poland, Russia and Romania.
Africa and Asia also saw revenue up 26 percent to $1.7 billion (1.16 billion EUR), from nearly $1.4 billion (0.96 billion EUR). Africa saw volume growth of 7 percent, while China's volume grew 22 percent, ahead of the industry. But input costs increased, SABMiller said, which led to increased prices and margin pressure.
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