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TAP's Profits Dry Up


Recession apparently not driving people to drink.

The worldwide economic slowdown isn't driving people to drink.

But it's driving stockholders nuts because they're discovering that, contrary to conventional wisdom, booze stocks aren't recession-proof.

In the past, brewers have generally been a defensive play during a recession. But that doesn't appear to be true now ,due to the depth of the worldwide economic slowdown. It also looks like once-burgeoning emerging markets can't be counted on to make up for slow-growth in established US and European markets.

Molson Coors Brewing (TAP) said fourth-quarter earnings fell about 49% from the same period a year ago. The suds maker said profits fell to $90.7 million, or $0.49 a share, from $176.2 million, or $0.96 a share.

"Our lower fourth-quarter financial results reflected the combined challenges of a much stronger US dollar versus a year ago, significant commodity inflation and lower sales volume in our major markets," Peter Swinburn, Molson Coors president and chief executive officer, said in a prepared statement.

The company isn't alone.

SABMiller, the world's second-largest beer maker, reported a 1% decline in worldwide beer sales for the quarter ended December 31st.

"Consumer demand has been affected by the current global economic slowdown and has continued to weaken in many of the group's markets," the company said.

SABMiller's volume fell 2.3% in the US, including a 7.5% decline for Miller Lite. In Russia, volume dropped 22%. Sales were flat in China.

In the last 10 years, the US beer market has grown an average of about 1% a year. During the boom, annual sales outpaced the average, but 2008's sales edged up about half a percentage point. Craft beer sales were strong in the first half of 2008.

Like many other brewers, Anheuser-Busch InBev bet on South America, Eastern Europe and Asia for future sales growth. So far, the investment hasn't paid off with strong volume sales in the downturn.

In Denmark, Carlsberg announced that it plans to cut about 275 more jobs and the Baltic region in response to weak sales. The company announced 80 job cuts in November 2008.
US sales growth of hard liquor also slowed last year.

The Distilled Spirits Council of the United States, a trade group based in Washington, DC, says US sales rose 2.8% to $18.7 billion in 2008 compared with a 5.6% revenue increase in 2007. Sales volume increased 1.6% last year compared with 2.4% in 2007.

It appears an increasing number of people like their bad economic news straight up. That sobering thought is bad news for the booze industry and is likely to continue until the economy rebounds - and more people say "Bottoms up!"
No positions in stocks mentioned.
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