Foster's hit by wine glut fears

Wine sales were strong in the US and Asia

Australian drinks firm Foster's has reported a strong rise in half-yearly profits but its shares have fallen amid fears of an oversupply of wine.

Profits rose 28.5% to Australian 593.7m dollars ($437m) in the period to 31 December on strong wine sales in Europe and Asia and good domestic beer sales.

But shares in the world's number two wine producer fell 3% on fears of a glut of wine in Australia and the UK.

Australia has seen record grape harvests this year.

Mixed sales

Production in California is also expected to be at near record levels in 2006.

This is likely to intensify competition in key markets.

Foster's saw mixed wine sales over the period, with sales of its Rosemount brand falling 20%.

I think the market is concerned that the wine number was pretty soft David Cooke, ABN Amro

Nevertheless, strong wine sales in Asia, Europe and the US helped lift overall profits from its wine business 59% to $150m.

Domestic beer sales were strong, rising 18% to $273.8m, offsetting a fall in international beer sales of 11% to $14.8m.

Foster's said its $2.4bn acquisition of wine firm Southcorp last year had diversified its business and enabled it to withstand weakness in individual markets.

However, analysts said that its wine sales were worse than expected.

"I think the market is concerned that the wine number was pretty soft," said David Cooke, an analyst at ABN Amro.