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SABMiller Earnings Growth Tops Estimates on Emerging Markets

SABMiller Plc, the world’s second-biggest brewer, reported first-half earnings that exceeded estimates on gains in Latin America and Africa, and said developing markets will continue to drive growth.

So-called organic earnings before interest, taxes and amortization rose 7 percent in the six months through September, the London-based company said today. The median estimate of nine analysts surveyed by Bloomberg was for a 6 percent increase.

Total Ebita gained 4 percent to $3.27 billion, beating the $3.2 billion median estimate. Growth was crimped by the weakness of currencies including the South African rand and Australian dollar.

SABMiller said it expects business conditions to remain “broadly unchanged,” adding that it will focus on selectively increasing prices and steering consumers toward more profitable brands. The brewer generates most of its profit from countries in Latin America, Africa and Asia, giving it a greater exposure to faster-growing emerging markets than competitors.

“It is encouraging to see the margin expansion and pricing trends in the company’s key growth markets,” Pablo Zuanic, an analyst at Liberum, wrote in a note today. “Earnings trends should help support the stock.”

SABMiller fell 0.1 percent to 3,232 pence at 9:35 a.m. in London trading.

Growth Economies

Organic profit in Latin America, the brewer’s largest region, rose 10 percent as cost-cutting and price increases combated economic turmoil in Colombia and tax increases in Peru. Earnings climbed 16 percent in Africa aided by sales of premium brand Castle Lite and savings from increased procurement of local ingredients to make beer.

“We believe the big growth economies of the 21st century will be found in Latin America, Africa and Asia,” Chief Executive Officer Alan Clark said today on a call with reporters. The company has “not seen the specific effect of any slowdown” in markets such as China or in Africa, he said. “The underlying fundamentals of our key developing markets remain intact.”

European profit fell 8 percent as the company sold less beer in Poland and the Czech Republic, which represent about 70 percent of profit in the region, according to the company.

Tough Europe

Europe is proving tough for all the big brewers. Heineken NV last month cut its profit forecast amid weak consumption by beer drinkers in central and eastern Europe. Anheuser-Busch InBev NV, the world’s biggest brewer, said profit in the region fell 38 percent as beer volume tumbled 26 percent in Ukraine.

SABMiller’s Asia-Pacific earnings rose 12 percent as it cut costs and sold more expensive brands of beer such as Snow in China. Foster’s Group Ltd., acquired in 2011 for A$10.5 billion ($9.8 billion), progressed “ahead of schedule in synergy delivery” and focused on premium beer sales.

Organic profit in South Africa, where SABMiller was founded, increased by 8 percent in the half-year.

Currency shifts will “adversely impact reported results in the current financial year,” the brewer said. The South African rand fell about 8 percent in the six months through Sept. 30 against the dollar, and the Australian dollar declined 10 percent.

SABMiller cut expenses by $225 million in the six months through more effective purchasing. Raw material costs this year will rise at a low- to mid-single-digit percentage pace, it said today.

Clark said today he doesn’t think the era of acquisitions in the brewing industry is over, and that the company will keep reviewing assets. Still, “the story of growth for ourselves is clearly organic growth.”

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