Global beverage sector outlook stable

Moody's Investors Service expects that solid demand for soft drinks and alcoholic beverages, together with recent price increases, and expected cost cuts, will allow the global beverage industry to maintain steady cash flow in 2009, giving it a stable outlook on fundamental credit conditions.
However, companies will continue to experience volume and profit pressure in the face of the slowing global economy and an on going shift in mix and channel. A greater-than-expected downturn in the global economy could put negative pressure on the outlook, said Moody's Senior Vice President Linda Montag.
"Consumers will continue to buy soda, beer and other beverages but they are likely to forgo high-margin impulse purchases at convenience stores or purchase fewer pricey beverages in restaurants and bars," said Montag.
Another concern is the slowdown in the emerging markets, where sales growth has offset weakness in the mature US and European beverage markets.
"While growth in most emerging markets is still likely, the pace will be much slower," says Montag.
Although sales volumes are expected to grow in the emerging markets in 2009, that growth is likely to slow considerably in line with slowing economies. Consumers in some markets consider certain brand-name products to be luxuries, which could slow growth even more, according to Moody's.
In addition, a number of emerging markets are suffering from currency devaluation, which might have a negative impact on reported results of international companies, says Moody's.
On a positive note, declines in commodity prices over the past six months could provide a tailwind for some companies squeezed by rising costs last year. According to Moody's, lower packaging and transportation costs this year could also give beverage companies a boost.
Overall for most companies in the sector, liquidity remains supported by relatively stable cash flows, good available alternate sources of liquidity and the flexibility to reduce capital-spending and share repurchase plans, says the ratings agency.