EFFORTS by Foster's chief executive Ian Johnston to turn around the group's struggling wine division have been stymied by recessionary conditions in the US, a rising Australian dollar and a shift by many drinkers to cheaper, low-margin wine labels.
Foster's will now share the pain of grape growers, who have suffered a collapse in prices due to the nation's wine glut.
The company warned yesterday that its wine earnings for the first half of the financial year would sink as much as $90 million.
The downgrade pushed Foster's shares down 10¢, or 1.8 per cent, to close at $5.51.
Mr Johnston painted an austere picture of the international wine market, saying consumers in America were venturing out to restaurants less and making smaller purchases when they did open their wallets.
There was no joy to be found in the US holiday season, he added, which was characterised by a weak consumer environment and increased discounting. Foster's performance, and the vitality of the wine market generally, in the key states of California, Texas, Illinois and Florida were below expectations.
Australian and New Zealand wine sales were struggling against the tide of oversupply on the home market, and growth in premium wines was not enough to offset volume declines in commercial wines.
Continental Europe was the only upbeat region and was offsetting challenging conditions in Britain and Ireland.
An added headwind was the appreciation of the Australian dollar against its US and British counterparts, making Foster's wine portfolio less competitive and blunting profits when they were repatriated.
Mr Johnston said unfavourable exchange-rate movements were forecast to pare back wine earnings by $80 million to $90 million in the first half. This was due to an expected US9¢ increase in the average exchange rate to the US dollar and an 8-pence increase in the average exchange rate to the British pound for the period.
Foster's biggest wine market - the Americas - saw full-year earnings rise 8.7 per cent, but on a constant-currency basis they fell 31.7 per cent for the period. Global wine volumes fell 5.3 per cent.
In the face of the wine sector's troubles, Foster's triggered a restructure of its assets earlier this year and has trimmed its portfolio of wine brands and sold off vineyards.
''The global financial crisis is having an impact, more in some markets than others,'' Mr Johnston said. ''Implementation of our new strategy is under way, but the results will take time to show through.''
Evans & Partners analyst Paul Ryan said the earnings downgrade was not a surprise and Foster's still had a highly valuable beer business.
''Our thesis has always been around that beer is 85 per cent of the earnings now, wine about 15 per cent, and beer is in the very early stages of a turnaround,'' Mr Ryan said. ''The challenge for Foster's management is stop losing [beer] market share, and we think they can do that.''
Armytage Private director Campbell McComb said: ''Without doubt, the beer business continues to be the jewel in the crown and would be looking very attractive to foreign players at current multiples.''
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