Today I am assessing the earnings outlook for drinks giant SABMiller (LSE: SAB) (NASDAQOTH: SBMRY.US) for 2014.
Developing markets delivering the goods
Like countless firms across the consumer goods space, SABMiller faces the prospect of fresh pressure on customers’ wallets — particularly in the bombed-out economies of Europe — as we enter the new year. This weakness in its established markets prompted group revenues to flatline at $17.6bn in March-September.
Organic revenues from the continent dropped 1% during the six-month period, the firm noted in November’s financial update, while sales in North America remained flat.
Still, the company continues to defy slowing consumer activity in developing regions, helped by selective price increases and favourable brand mix which includes the likes of Miller, Peroni and Grolsch. Organic sales in its main market of Latin America rose 5% in March-November, while growth of 11% in Africa, 2% in Asia Pacific and 7% in South America also gave reason for cheer.
As well, the firm success in delivering significant operational improvements have proved extremely effective in moving margins higher — these rose 60 basis points to 23.7% during March-September — and chief executive Alan Clark said that the firm is focussing on “strengthening our premium propositions across the group and evolving our high-end brand portfolios” to boost margins further.
In particular, Clark told the Financial Times that the firm is ramping up its exposure to the lucrative US premium beer market in order to realise this aim. SABMiller estimates that between 25%-28% of all beer sales come from this segment, but that it currently holds a modest 9% market share here, representing massive upside for the firm.
SABMiller has an exceptional record of rolling earnings growth over many years, having reported robust double-digit percentage growth in each of the past four years. And City analysts expect growth to continue next year, albeit at a lower rate — earnings growth of 4%, to 152.3p per share, is anticipated for the year concluding March 2014, before accelerating 11% in the following 12 months to 168.7p.
These projections leave the beverages firm dealing on P/E ratings of 19.7 and 17.8 for these years, roughly in line with the industry average. I believe that SABMiller’s striding progress in developing regions bodes well for strong earnings growth next year and beyond, and with the firm hinting at more acquisition activity in the near future, I expect exposure to these lucrative regions to move significantly higher in coming years.
