While profit growth is slowing in the EMEA beverage sector, credit quality is likely to remain stable, a new report from Moody's Investors Service has stated.
Moody's report followed on from the recent reporting of full-year and six-month results from Coca-Cola Europacific Partners and Pernod Ricard respectively, both of which were 'much stronger than expected', with each exceeding the performance of 2019, i.e. before the COVID-19 pandemic.
Profit Growth
According to Moody's, profit growth is likely to remain muted in the drinks sector over the next 12 to 18 months, although several companies still expect strong growth this year – Diageo anticipates operating profit growth of 6% to 9% for the period 2023-2025, for example, while Heineken is aiming for mid- to high single-digit organic operating profit growth this year.
Over the coming year, consumer sentiment is likely to remain weak, Moody's noted, as inflation continues to erode consumer purchasing power – a factor that will hit demand in the first half of the year, particularly in Europe.
Moody's also anticipates that the trend for buying premium drinks, which has helped boost profits in recent years, is likely to slow further, having shown signs of decline at the tail end of last year.
Read More: All Major Premium Drinks Categories Saw Growth In US In 2022: IWSR
'Stronger Than Anticipated'
“Most European investment grade beverage companies, including Heineken and Pernod, have now reported their December end results, which were on average stronger than we had anticipated and above that of 2019, showing full recovery following the pandemic," commented Paolo Leschiutta, senior vice president, Moody’s.
"However, as we head into 2023, profit growth will slow as consumer sentiment remains weak and purchasing power has eroded. Profit growth will suffer from a slowdown in premiumisation and lower demand in the more profitable on-trade channel (i.e. pubs and restaurant) as people will go out less.
"Despite the slowdown, we expect credit quality to remain robust and largely driven by companies’ financial policies in terms of M&A and shareholder distribution.”
Moody's said that it expects companies in the beverage sector to continue to balance M&A activity with shareholder returns, depending on how much cash they generate from their operations.
'Despite rising interest rates and the weak macroeconomic environment we expect asset valuations to remain high as companies will focus on brands and businesses with good growth potential,' it said.
Read More: Pernod Ricard Confident About Full Year As H1 Results Beat Expectations
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