The rising cost of raw ingredients, such as sugar and malt, is giving the beverage industry a headache. With margins already tight and competition fierce, beer and soft drink producers are coming up with innovative new products to put the fizz back in their bottom line.
Chilean beverage company Compania Cervecerias Unidas (CCU), which has local licenses for products from Heineken (HINKY), Anheuser-Busch InBev (BUD), and PepsiCo (PEP), amongst other brands, has done a better job than most at keeping its books balanced.
That’s mainly because Chileans are drinking more beer — almost a liter more per capita every year — as new premium products have boosted sales.
CCU’s consolidated volumes grew 6.1 percent to 5 million hectoliters in the first quarter of 2011, led by a 9.6 percent jump in its Beer Chile business segment and a 6.9 percent increase in Beer Argentina. That helped drive up total sales by 13.4 percent to $517.7 million.
Spirits sales were also up 6.6 percent and non-alcoholic beverages grew 3.7 percent, which together more than compensated the 1.7 percent decrease in wine volume.
CCU’s net profit rose 35.2 percent in the first quarter to $97.2 million mainly due to the higher sales volume and a one-time insurance payout after last year’s February earthquake, which damaged inventories and equipment.
Operating costs, however, rose 16.7 percent in the quarter due to increased prices for raw materials, higher energy costs and fuel prices.
CCU has increased prices of its beer and non-alcoholic products to offset the higher costs and it plans to continue to raise prices to protect margins. “Although there is uncertainty if the contingency plan will compensate in full the adverse effects, we expect to bridge a significant part of the negative effects on the margins,” said CCU CEO Patricio Jottar in early May.
Analysts were also upbeat about CCU’s results. “We believe the results were positive since in most business segments it was possible to pass on the increase in costs to prices, and even then we saw higher sales volumes in all segments except wine,” said Chilean investment firm BICE Inversiones in a report.
CCU plans to invest $914 million between 2011 and 2014, mainly to strengthen its beer and non-alcoholic business units in Chile and Argentina. In late 2010, CCU acquired a cider business in Argentina and is planning to expand its operations elsewhere in Latin America.
CCU is Chile’s largest brewer by volume, its third-largest soft drink producer, its second-largest wine producer and its largest mineral water producer. It also distills grape brandy and rum.
Over the last 52 weeks, its ADR has traded at a high of $61.70 and a low of $40.16, having gained 47 percent in that same period.
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