United Breweries Earnings: Good Sales Drove a Good Result

Strong sales helped the Chilean beverage company navigated tricky exchange-rate waters to post top-line gains in all of its business units.

John Rosevear
John Rosevear
Aug 17, 2015 at 3:29PM

United Breweries (NYSE:CCU) reported its second-quarter earnings result on August 4. Here's what you need to know.

The key numbers
For the quarter ended June 30, the Chilean beverage com reported net income of CLP (Chilean pesos) 18.55 billion ($26.9 million), or CLP 50.2 ($0.07) per share. That was a decrease of 21% from the year-ago quarter, but the company received a big one-time payment in the second quarter of last year. Excluding that payment, net income increased 65.7%. Net sales were CLP 310.67 billion ($450 million), up 17.9%.

Shares rose 2% in trading on August 4 after the news was released.

Revenue growth in all three divisions
United Breweries is the largest brewer in Chile, the second-largest producer of wine and a major distiller of liquors and producer of soft drinks. It operates in Argentina, Bolivia, Colombia, Paraguay, Uruguay, and Chile. It has licensing and distribution agreements with a number of major global beverage brands, including Heineken (which is an investor in United Breweries), Anheuser-Busch, PepsiCo, Pernod Ricard, and others. 

As mentioned above, its year-over-year comparisons were complicated by a large one-time payment it received in the second quarter of last year. That payment was compensation for the termination of a contract that had allowed United Breweries to import and distribute Corona and Negra Modelo brand beers on an exclusive basis in Argentina and to produce and distribute Budweiser in Uruguay.

The company is organized into three business segments, all of which saw solid growth during the quarter, excluding the effect of that one-time payment last year.

Net sales in the Chile operating segment, which makes and sells beer, soft drinks, and liquor inside United Beverages' home country, rose 12.8%. EBITDA grew 46.3%, with margins improving by 491 basis points. The explanation for the gain was simple and good: stronger sales and better pricing combined with good marketing and execution.

In the Rio de la Plata segment, which covers beer, soft-drink, and liquor operations outside of Chile, net sales were up 48%, but EBITDA dropped to a loss of CLP 62 million (about $90,000) from a CLP 13.1 billion ($19 million) gain the year before. That was entirely due to that one-time payment -- excluding the payment, the unit's EBITDA increased by CLP 5.733 billion ($8.3 million), on good growth in sales volumes and significantly (31.4%) higher prices, at least in CLP terms.

Revenue in the wine segment grew 5.4% and EBITDA margin was strong at 19.1%, but EBITDA dropped 1.7% to CLP 8.911 billion ($12.9 million). The drop was explained largely by unfavorable dollar-to-euro exchange-rate shifts that affected income from wine exports as well the increased cost in wine following the 2014 harvest, the company said in a statement.

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Cash and debt
United Breweries continues to have a good cash position. It had cash and cash equivalents of CLP 186.8 billion ($270.7 million) as of the end of June, down a bit from CLP 214,775 million at year-end. Total financial debt stood at CLP 196,947 million ($311.2 million) at the end of the quarter, also down a bit from 2014's year-end level.

The upshot: A solid quarter
Long story short: Increased sales, better pricing, lower costs through increased efficiencies, and some net help from exchange rates (at least in CLP terms, aside from wine exports) helped drive a nice result. If that big one-time payment isn't taken into account, United Breweries' EBITDA was up 51% on a year-over-year basis, and as noted above, its net income increased by over 65%. That's a solid quarter.