Chile's Compania Cervecerias Unidas (NYSE:CCU) has benefited from the improvement in economic conditions in Latin America over the decades. The company, known in the U.S. as United Breweries, plays a key role in the South American beverage market, and coming into its first-quarter financial report, the company's investors were hoping that it would be able to sustain solid growth on key metrics. For the most part, United Breweries managed to succeed in delivering good results in Chilean peso terms, despite some currency-related headwinds. Let's look more closely at the latest from United Breweries and whether it can keep on growing throughout 2016 and beyond.
United Breweries stays solid
United Breweries' first-quarter results were reasonably strong. Revenue came in up 8% in local-currency terms compared to the year-ago period, and that was enough to outpace the 7% growth expectations among investors following the stock. Net income rebounded from a decline in the fourth quarter of 2015, but it still only managed to grow at a 3% pace for the quarter. In dollar terms, earnings of $0.36 per share were lower than last year's figures, but they topped the consensus forecast by $0.03 per share.
A look at United Breweries' numbers shows reasonable overall fundamentals for the business. Overall volume growth came in at 6.3% to nearly 7 million hectoliters. In Chile, volumes were up 7.8%, and a 5% rise in higher average prices helped send segment revenue up by more than 13%. The company said that strong execution, active marketing, and solid promotional activity helped United Breweries outpace its competitors and gain in market share. The devaluation in the Chilean peso of about 12 percentage points over the course of the year hurt the company, because it has certain costs that are denominated in U.S. dollars. If you take out the impact of the devaluation, EBITDA would have jumped by 21%.
Meanwhile, internationally, macroeconomic conditions weighed on performance. Volume growth amounted to a much slower 2.4%, but EBITDA was down 8% in peso terms. Weakness in Argentina was especially important to the segment, which includes that country as well as Paraguay and Uruguay. However, efficiency gains helped offset the negative economic impacts.
The company's wine segment performed quite well. EBITDA was up 22% in local-currency terms, with sales climbing 9%. The segment benefits considerably from the strong U.S. dollar, because wine exports are a major part of the business for the Chilean beverage company.
CEO Patricio Jottar celebrated the news. "This growth was driven by strong volumes," Jottar said, "despite an adverse macroeconomic environment in all our geographies, characterized by devaluation of our main currencies, inflation, and a slowdown of the economies." The CEO also pointed to the gains in efficiencies from the company's ExCCelencia CCU program.
What's next for United Breweries?
United Breweries is still working toward longer-term prosperity. Put into context, Jottar believes that the results the company posted this quarter are in line with the company's 2016-2018 Strategic Plan. The plan is focused on growth and efficiencies, with an emphasis on brand building and finding ways to execute better at the company's various points of sale.
One interesting element that investors will need to focus on looking forward is whether a reversal in the strength of the U.S. dollar will have a positive overall impact on the company. On one hand, some of the U.S. dollar-denominated costs that the company faces become easier for United Breweries to handle if the dollar weakens against the Chilean peso. Yet on the other hand, the revenue that United Breweries earns abroad from its wine exports becomes less valuable in local currency terms if the U.S. currency isn't worth as much.
United Breweries stock hasn't made major moves since the company filed its results with the SEC on May 4. But if the Latin American economy starts to turn around and strengthen, then United Breweries could be a big beneficiary of improving trends in Chile and throughout the region.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends United Breweries. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.