Was SABMillers Q1 really that bad?

Was SABMiller's Q1 really that bad?

The news yesterday (22 July) that SABMiller's Q1 volumes were down points to a tough three months for the brewer. After all, the period included almost three weeks of World Cup action – if a beer producer can't sell its wares during the biggest sporting event on the planet, then something surely has to be amiss. Closer inspection of the firm's first quarter, however, suggests that SABMiller actually had as good a Q1 as it could have hoped for. Indeed, as one analyst said yesterday: “(SABMiller) survived everything short of a locust plague”.

The bottom line yesterday was that SABMiller's volumes for the three months to the end of June were down year-on-year by 1%. The slump sticks out even more given the the company managed 2% volume growth in its final quarter of fiscal 2010.

Consider the following, however: Firstly, the early timing of Easter shifted the usual volume boost that accompanies that holiday out of this year's first quarter and into the final three months of last year. Also, two of SAB's major markets, Colombia and Poland, suffered from what CEO Graham Mackay described as “specific events”.

In Colombia, where SAB dominates the beer market with 98% share through its Bavaria subsidiary, the Government hiked value added tax on beer from 3% to 14% on 1 February. Presidential elections in the country, held on 30 May with a second poll held on 20 June, resulted in five 'dry days' in the country as alcohol purchases were forbidden. The tumble from 13% growth in Q4 2010 to a loss of 6% in Q1 looks less severe in that context.

Meanwhile, in Poland – another beer market in which SAB owns the leader, Kompania Piwowarska – the funeral of President Lech Kaczynski on 18 April saw alcohol sales restricted as a mark of respect.

SABMiller's other leading market, South Africa, was host to the World Cup tournament, which started on 11 June. The previous quarter had boasted an 8% increase, so this three-month period was always going to be a struggle, even with the influx for the football. Sure enough, volumes were flat in the country. But, bear in mind the easy comparatives of Q4 year-on-year and the timing of Easter. Besides, SAB was always going to struggle to benefit from the World Cup in its home market – June and July is winter in South Africa, and anyone watching the games will surely have noted the predominance of rain in the country.

“At first sight,” wrote Trevor Stirling from Bernstein yesterday, “a volume decline of 1% in Q1 F11 looks like a sharp deceleration from Q4 F10 growth of 2%. (But) Q4 F10 had a flattering one-off and Q1 F11 had a corresponding tough comp.”

SABMiller will certainly be glad its first quarter is behind it and, with gentler comparatives for the coming three quarters, an “attractive long-term growth story”, as Stirling puts it, and plenty of cash in the bank, one would be unwise to suggest the future is as unappealing as the last three months have been.