Foster's Cuts 2008 Forecast, Says CEO to Resign
Foster's Group, the world's second largest wine company, said on Tuesday it would review its underperforming wine business as it cut its 2008 profit forecast and said Chief Executive Trevor O'Hoy had resigned.
Foster's, Australia's largest alcoholic drinks company, said disappointing results from its U.S. wine business, where it competes with Constellation Brands
It now expected 2008 earnings per share growth in a range of 5-7 percent in constant currency terms, down from previous guidance of about 10 percent growth.
Net profit after tax before significant items was expected to be between A$700 million ($667 million) and A$715 million.
That compares with median market estimates of A$723.6 million, according to a Reuters Estimates survey of nine analysts. Forecasts had ranged from A$701 million to A$729 million.
The U.S. wine operations, which Foster's acquired in 2005 with the A$3.7 billion acquisition of Southcorp, have come under pressure from a slowing economy, a strong Aussie dollar and a drift away from Australian wines.
"The reality is we did not execute the Southcorp integration as well as we expected and operating conditions are now more challenging. We must also acknowledge that we paid too much to acquire wine assets," Foster's Chairman David Crawford said.
Foster's said it had begun a strategic review of its global wine business that would consider the optimal structure of the group, and announced a pretax writedown for the wine business of A$600-A$700 million.
"That Southcorp acquisition was a poison pill," Deutsche Bank analyst Kristan Walker said last week before the Foster's announcement.
Walker said a new chief executive could consider selling the wine business. "I think if you heard an inkling of that from the board and the management team you'd see a very quick rerating of the stock."
"What would be left is a very good beer business that generates very healthy returns, and quite clearly that would attract other potential buyers."