Foster's loves the US
The company has reported a 9.8 per cent rise in the December half net profit to $267.1m. Shareholders will receive a bigger slice of the pie with interim dividend up 0.5c to 7c a share, fully franked.
Folly forgiven
In just three months, the Californian winemaker delivered $63.7m in earnings from its three month ownership of California's Beringer Wine Estates. It is justification for the faith that management has shown in the premium wine industry and because of that we are prepared to forgive them their e-commerce folly which saw the provision of $39.5m for losses in online retailer Wine Planet. (Will we ever see anything on the internet make a buck?).
To put Beringer's performance in perspective, the company's entire Australian beer operations had revenues of $749.9m. That's a nice little earner, as they say, even in a difficult post-GST environment, but it's not the criterion by which we should now judge Foster's. The company wants to be seen – and increasingly should be – as an international wine operator and will continue to expand its presence in the sector.
According to press reports at the time of the announcement, analysts were surprised by the Beringer business's strength because of uncertain demand for wine in the US. Perhaps they should start reading The Intelligent Investor. We pointed out in issue 68 (Accumulate - $4.57) that, while Americans drink less wine per head than we or the Europeans do, they have an awful lot more heads.
Real lesson
The real lesson though – and it's one that holds good for the wine industry as a whole – quality wins out and Beringer is certainly the business in that regard.
The only note of caution we should bring to the picture is gearing. Beringer was expensive and it has pushed gearing to 104%. The company is working towards reducing that to the 70% it has always said it is comfortable with.
Wine may be the growth play for the company, but beer revenues are a cash cow which take the worry out of servicing debt. ACCUMULATE.