South America's consumer class has made substantial economic strides in the past 20 years, and Compania Cervecerias Unidas (CCU 4.77%) has capitalized on the increased demand for the wide array of beverages that it distributes. Between beer, wine, soft drinks, and other produces, the Chilean company known in the U.S. by its translated name of United Breweries has been able to forge a solid strategic plan to produce substantial growth. Those gains haven't come without occasional bumps in the road, but the beverage specialist has successfully navigated downturns to emerge stronger.
Coming into Wednesday's third-quarter financial report, United Breweries investors were hoping to see continued signs of progress from the company. The beverage maker once again produced encouraging results that gave it more confidence in its long-term future. Let's look more closely at United Breweries and how it did during its home nation's winter months.
Image source: Compania Cervecerias Unidas.
Good gains for United Breweries
United Breweries' third-quarter results continued the positive momentum that the company had generated in the previous period. Net sales climbed 11% in Chilean pesos, which was stronger than the 8% growth that most investors were looking to see. Net income soared 57%, and the resulting earnings of $0.16 per share topped the consensus forecast among those following the stock for $0.15 per share on the bottom line.
Success for United Breweries stemmed largely from solid fundamental performance. Consolidated volumes were up almost 7% to 5.84 million hectoliters, and the company claimed market share gains in all of its domestic operations. Pricing also improved, with United Breweries boasting 3.6% higher average prices for its products during the period.
Most of United Breweries' growth came from outside its home market. The international business operating segment saw huge volume gains of more than 20% that sent revenue higher by 23%. Favorable weather, higher average prices, greater efficiency, and overall growth in the beer industry generally all contributed to the strong performance, and United Breweries called out market share gains in Argentina as a key component of its international success. Segment operating profit jumped nearly fivefold.
In Chile, conditions were less exciting. United Breweries posted a 6% top-line growth on a 2% rise in volume and 4% higher average pricing. Gross margin improved due to internal efforts to boost cost awareness, offsetting higher raw materials costs. The company cited a weak consumption environment but still captured a greater portion of the market. Even so, segment operating profit rose 16% from year-earlier numbers.
The wine segment partially rebounded from weakness earlier in the year. Sales volumes climbed nearly 7%, although average prices declined slightly from year-ago levels. Nevertheless, United Breweries' struggles with wine segment profitability continued, as operating earnings for the unit fell more than 20%.
What's next for United Breweries?
CEO Patricio Jottar kept investors' eyes on the company's prospects. "As we have been able to continue the positive trend for another consecutive quarter," Jottar said, "we reiterate our optimistic view regarding the medium and long-term perspective. We continue to build on our strong brands and execution to preserve our growth path and search for additional revenue management opportunities and efficiencies." The CEO noted that the company will continue to focus on beer and non-alcoholic beverages as its primary core categories.
United Breweries' strength in the past has come from lucrative partnerships with companies that have global exposure. Early on, PepsiCo was a key partner in the 1990s, and beer maker Heineken and food giant Nestle were just a couple of the new companies that came on during the 2000s to broaden United Breweries' product lineup. More recently, deals with companies like Red Bull have kept the Chilean beverage giant in touch with changing consumer preferences.
United Breweries investors have been encouraged by the progress that the company has made all year. With good prospects for increasingly favorable conditions to continue going into the Southern Hemisphere's spring and summer months, United Breweries appears to be doing everything it can to take maximum advantage of its opportunities.
