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Summary

  • CCU is strategically positioned to benefit from the World Cup.
  • CCU has an extensive product line.
  • CCU is a very solid and well-managed company.

Company Background:

Compania Cervecerias Unidas (NYSE:CCU) is a diversified beverage company headquartered in Santiago, Chile. CCU has been in business for over 160 years, and currently employs over 7,000 workers. The company sells premium, specialty, and low-priced alcoholic and non-alcoholic beers. It has 12 proprietary beer brands, featuring Cristal, Royal Guard, Morenita, Dorada 6.0, and Lemon Stones, and it also has 4 licensed brands. CCU has licensing agreements with Heineken (OTCQX:HEINY), Guinness, Anheuser-Busch (NYSE:BUD), PepsiCo (NYSE:PEP), Nestle (OTCPK:NSRGY), and Schweppes. Other than its core business of beer, the company sells soft drinks, sport drinks, energy drinks, wine, iced tea, ciders, bottled water, and some snacks. CCU distributes its products to restaurants, hotels, bars, wholesalers, and supermarket chains throughout its key markets: Chile, Uruguay, Paraguay, Argentina, and also to Latin America, Europe, Canada, and the United States. CCU currently trades at $23.38, a 23% discount from its 52-week high of $30.25

How CCU Will Benefit from the World Cup:

CCU is strategically positioned to benefit from the World Cup in Brazil, with the company's primary business focused in South America. South Americans love their soccer, and especially the World Cup, which happens only once every four years. Soccer fans will be packing restaurants and bars all across South America to watch the games, therefore beverage consumption, especially alcoholic beverages, is expected to increase. Three of the four countries that account for the majority of CCU's business qualified for the World Cup (Chile, Uruguay, Argentina). The increased beverage consumption in these countries will drive up revenue for CCU.

CCU's Future Outlook:

CCU used the proceeds from its issuance of new shares back in November to fund its expansion plans, which includes organic and inorganic growth of the company in Chile. The plans seems to be working so far, as total net sales were up 10.1% in Q1, including 7.9% of that growth being organic. Net income was up 0.3% organically and 0.6% overall. As demonstrated by these numbers, CCU continues to gain more market share with its existing businesses in Chile. In Q1, the company reported EPS of $.40, which slightly beat consensus estimates of $.39, however it fell well short of last year's Q1 EPS $.54. Also, the company's Q1 revenue came at $607 million, which is down from last year's results of $644 million. Even though this quarterly decline in revenue is concerning, the company's annual revenue has consistently increased. In 2012, annual revenue was $2.25 billion; in 2013, annual revenue increased to $2.28 billion, and it is expected to increase again this year. Some other positives include the company's extremely low debt-to-equity ratio of 0.27 and the company's high gross profit margin of about 62.50%. Although the gross profit margin is high, the net profit margin of about 12.75% is actually below the industry average.

Aside from its Chilean expansion plan, management also has a regional expansion plan, in which it intends to acquire stakes in competing beverage companies within South America. This past December, CCU acquired 50.005% of Bebidas del Paraguay S.A. and 49.995% of Distribuidora del Paraguay S.A. The company Bebidas del Paraguay S.A. sells beverages throughout Paraguay, and Distribuidora del Paraguay S.A. distributes the beverages of the aforementioned company.

The Final Word:

The beverage industry is a highly competitive market place that CCU will have to continue to successfully navigate for future growth. CCU is an extremely solid company that should benefit in the short term from increased beverage consumption during the World Cup. I like the company at current valuations, and would pick up some shares now before the start of the World Cup.

Source: Buy Compania Cervecerias Unidas Ahead Of The World Cup