Mexican brewer Grupo Modelo SAB (GPMCY, GMODELO.MX) said Friday its net profit fell 1.5% in the second quarter from a year ago to 2.89 billion pesos ($247 million), as higher taxes and exchange losses offset gains in volume sales and operating income.

Sales revenue rose 8.2% to MXN25.12 billion on higher domestic and export sales volume, and higher prices in Mexico. Operating profit rose 5.9% to MXN6.81 billion. Modelo shares were down 1.4% to MXN72.51 in early trade on the Mexican Stock Exchange.

The maker of top U.S. import brand Corona said its export volume rose 11% to 4.9 million hectoliters, despite weak employment and consumer confidence in the U.S., Modelo's biggest export market.

In Mexico, a recovery in consumption, favorable weather and the Easter holiday in April contributed to an 8% rise in domestic beer sales volume to 10.9 million hectoliters.

Exchange rate losses because of a stronger peso, and higher taxes than in the year-ago quarter led to a smaller financial gain--MXN153 million compared with MXN316 million in the second quarter of 2010--and the drop in net profit.

Chief financial officer Emilio Fullaondo said in a conference call with analysts that the peso is stronger than the brewer had forecast in its budget this year, averaging MXN11.70 to the U.S. dollar compared with MXN12.50 in 2010.

The exchange rate remains at the top of Modelo's concerns going forward, Fullaondo added, as the company sees little wiggle room to raise prices.

"The performance of the exchange rate will be very important for profitability in the second half," Fullaondo said.

Modelo also anticipates greater cost pressure from rising prices for raw materials such as aluminum and barley.

Fullaondo said the brewer is wary of raising prices in the U.S. market, as the economy there remains weak, although there is some talk that brewers will nudge U.S. beer prices higher in October.

Crown Imports, a joint-venture with Constellation Brands Inc. (STZ, STZB), distributes and markets Modelo beers in the U.S. It had sales of $717 million and operating profit of $118 million in the second quarter.

Modelo said that Crown Imports' results "continued to outperform the import category due to the strong performance of our brands at the final consumer level."

Fullaondo declined to comment on reports that Modelo could make a bid for Australian beer maker Foster's Group Ltd. (FBRWY, FGL.AU), saying that Modelo sees room to grow sales organically in the more than 170 countries where its brands are distributed.

Still, Modelo management will analyze all attractive possibilities in its core business of beer making.

"We have to be aware of opportunities in our business anywhere, not just in Latin America," Fullaondo said.

-By Anthony Harrup and Amy Guthrie, Dow Jones Newswires; (5255) 5980-5176, mexico@dowjones.com

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