China, as befits the world’s most populous nation, is vital in volumes terms for the brewers. It is the world’s largest beer market, far ahead of the U.S., with almost a quarter of all global beer consumption, according to Bernstein Securities data.
But low beer revenue and market fragmentation means profits in China are nowhere near as big, which will be some comfort to the big brewers impacted by the unusually cold snap, which is seen as China’s coldest winter in almost three decades. Some 21% of SABMiller’s beer volumes come from China, says Bernstein, but the country only accounts for 5% of revenue and 2% of operating profit.
The maker of Castle lager and Miller Lite, which operates in China through a 49% stake in brewer CR Snow, says the recent weather event can be considered exceptional and that its structural position in China remains unaffected. Indeed, a company spokesman told me the group’s market share in the country improved.
Still, Shore Capital analyst Phil Carroll said the China result would likely be seen as “disappointing” to investors.
However, analysts note there is better news elsewhere for the brewer.
Late last year, SABMiller flagged a slowdown in Latin America, its biggest and most profitable region, but third-quarter volumes increased 6%, better than gains in the first half. While rival Anheuser-Busch InBev is dominant in large Latin American economies like Brazil, SABMiller is the key player in smaller nations like Columbia, Peru and Ecuador.
“The performance of Latin America was slightly surprising and it will be interesting to see if the December price increases have an impact in the fourth quarter,” Mr. Carroll said.
Mr. Carroll also said the U.S. beer industry picture, closely tied to employment levels, is improving while Africa is showing strong demand. SABMiller also said its Australian business is recovering.
One other weak spot is Europe, with 1% volume growth a big fall from 9% growth in the first half. The group is slashing beer prices in Europe to tap into the austerity dynamic and keep volumes up, but weaker consumer sentiment in Poland and the Czech Republic brought the numbers back down.
Despite a fragmented volume picture, Mr. Carroll said SABMiller’s revenue performance, up 17% year-on-year, is above expectations.
As long as price increases keep coming through for SABMiller, concerns over volumes will quieten down. At least in the short term.
