The outlook for the global beverage industry is stable, due to producers' resiliency amidst the economic downturn, says a report.

Moody's Investors Service, in a new report titled 'Global Beverage Industry Outlook,' expresses its expectations for fundamental credit conditions in the industry for the next 12 to 18 months.

'Beverage producers have exhibited the resiliency amidst the economic downturn that Moody's would expect from an industry characterised by repeat purchases of relatively inexpensive goods,' said Yasmina Serghini-Douvin, an assistant vice president-analyst in Moody's Corporate Finance Group and co-author of the report.

Furthermore, although pockets of weakness have emerged in some regions and for some products -- notably in the more expensive super premium segments -- Moody's believes demand will remain relatively solid and that price hikes enacted in 2008, combined with ongoing cost-cutting measures, will sustain cash flow in the near term.

'In H1 2009, companies continued to reap benefits from price increases, primarily from those implemented in 2008,' explained Serghini-Douvin.

'Although price increases will become more difficult to implement going forward as consumers tighten their belts and inflationary pressures ease, cost-cutting efforts -- ranging from plant closures to align capacity with reduced demand, to trimming personnel and other discretionary costs -- together with more moderate raw materials prices should help cushion margin erosion,” she added.

Moreover, Moody's believes that synergies from recent transactions and joint ventures, such as SABMiller's MillerCoors in the US, will enhance companies' profitability and strengthen their business profiles.

Developing markets will also remain important sources of growth for the sector, albeit at a much slower pace than in the past.

Additionally, beverage companies have maintained good liquidity profiles, and many have reduced their debt and even tapped the debt markets to pre-finance approaching maturities.

However, Moody's notes that volumes continue to be under considerable strain, reflecting de-stocking, down-trading and overall reduced consumption.

Massive de-stocking within distribution networks in the latter part of 2008, particularly in the US and Russia, translated into much weaker volume figures for alcoholic beverage companies.

In Europe, companies such as Pernod Ricard and Remy Cointreau reported double-digit declines in volume growth in spirits sales during the first quarter of 2009, attributable in part, if not largely, to reduced inventories at distributors and wholesalers.

This trend has eased during the most recent quarter, but uncertainties remain regarding an increase in inventories and demand as a whole. The contraction in disposable income from still-rising unemployment, falling housing prices and tight credit conditions have resulted in reduced demand for beverages in most markets.

Nevertheless, Moody's expects that credit metrics in the sector will stabilise this year, and may even slightly improve, reflecting ongoing de-leveraging and more moderate capital investments. Therefore, the rating agency foresees limited ratings impact on the sector.

Moody's currently rates 31 alcoholic and non-alcoholic beverage companies globally. – TradeArabia News Service