Global beverage industry outlook remains stable

The stable outlook for the global beverage industry is based on the view that most beverage companies will be able to sustain current cash-flow levels by continuing to cut costs and by increasing retail prices over the next year, according to Moody's Investors Service.
"The ability to pass through price increases to customers without hurting sales volumes will be critical for the worldwide beverage industry, which is comprised of soft drinks as well as wine and spirits companies," said Moody's Senior Vice President Linda Montag.
Constraining the industry's outlook is commodity-price inflation, Moody's said, which is expected to remain above historical levels and hurt profitability.
However, packaged beverages are affordable to most people around the world, making the business relatively resistant to economic slowdowns, said Montag.
Companies that sell brand-name beverages and that have operations in fast-growing emerging markets will have the strongest pricing power. Marketing and innovation as well as product and geographic diversification will also be important.
According to the ratings agency, since these factors are already incorporated into current ratings, changes in share-repurchase and debt-financed M&A activity are likely to drive most rating changes in the year ahead.
"Although our outlook for the global beverage industry is stable, there are pockets of weakness," added Montag. "For example, based on declining beer consumption and high costs, the outlook for brewers in Japan is negative."
In addition, it's important to note that the stable outlook for the US beverage industry assumes an economic scenario that avoids a deep recession and contagion in other countries over the next year, says the analyst.