Beverage companies to benefit from EU and US market recoveries, emerging markets a challenge – Moody’s

The recovery in European and US drinks markets, coupled with ongoing premiumisation, innovation and cost cutting, could boost EMEA beverage companies’ profits by up to 5 percent into 2017, Moody’s Investors Service said in a new report.

“We expect the economic recovery in European and US markets to offset beverage companies’ exposure to economies pressured by lower commodity prices, such as Russia and Nigeria, and to the slowdown in China,” said Paolo Leschiutta, Moody’s Vice President — Senior Credit Officer and author of the report , titled “Recovery in Mature Markets, Innovation to Support Credit Strengthening”

“Premium lager, craft and flavoured beers will also grow at the expense of mainstream beer across Western Europe and compensate for ongoing volume decline in Eastern Europe.”

Given its stronger position in the growing premium segment in the US, Moody’s expects Heineken N.V to perform better than SABMiller plc, while stronger momentum in the US spirit market will result in a degree of recovery for Diageo PLC and Pernod Ricard S.A., the report said.

UEFA Euro 2016 is also likely to boost soft drink and beer consumption, benefitting Carlsberg Breweries A/S and Coca-Cola Enterprises, Inc, who are the sole suppliers at venues.

However, Anadolu Efes Biracilik ve Malt Sanayii A.S. and Carlsberg Breweries, which are most exposed to emerging markets, will find profit growth more challenging. Carlsberg, Efes and Remy Cointreau S.A. all have negative rating outlooks resulting from their exposure to weaker markets and their more modest geographic diversification. Their ability to weather volume contractions in Russia and Turkey, the slowdown in China and, in Remy’s case, to maintain growth momentum in the US, could result in the stabilisation of their outlooks, the report said.

 

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