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Heineken cuts outlook for profit

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Bloomberg News
Published:
LONDON -- Heineken cut its outlook for full-year profit after third-quarter sales missed estimates amid weak consumption by beer drinkers in central and eastern Europe, raising concern about demand across the industry.
Net profit will show a low single-digit percentage decline, Amsterdam-based Heineken said Wednesday, having previously forecast a result "broadly in line" with 2012.
The forecast cut represents a further blow for the world's third- biggest brewer, which lowered its expectations for sales growth in April. Third-quarter volume was lower than expected, the company said, weighed down by weak economies in countries such as Romania and Greece. Heineken also cited "delayed" improvements in its main developing markets, which include Nigeria and Mexico.
"Today's miss is certainly disappointing," said Jonathan Fyfe, an analyst at Mirabaud in London. "The broad-based nature of the miss also reads negatively for the rest of the sector."
Heineken's so-called consolidated organic beer volume fell 3 percent in the third quarter, missing the median estimate of nine analysts surveyed by Bloomberg for a 2 percent decline.
Volume in central and eastern Europe fell 8 percent, hurt by bad weather and crackdowns on beer advertising in Russia. SABMiller last week also reported difficult business conditions in Russia, where Carlsberg is the biggest brewer. Carlsberg is due to report third-quarter results Nov. 13.
"We didn't expect such a negative development" in the region, Rene Hooft Graafland, chief financial officer of Heineken, said Wednesday on a call with analysts.
Consumer-goods companies including Unilever, Nestle and Diageo have reported slowdowns in emerging markets from China to Brazil, previously seen as a foil to waning demand in more developed markets such as Europe and the United States.
"We were expecting a better development in key developing markets like Mexico and Nigeria," Hooft Graafland said. "Given the strong fundamentals we were thinking they'd start picking up in the second half of the year and we don't see that yet. The pickup will come, I'm convinced, but not yet."
Organic beer volume in Africa and the Middle East fell 2 percent, with non-beer volume dropping more than 10 percent. Social unrest in Egypt and the Democratic Republic of Congo hurt sales, as well as economic pressures in Nigeria, the continent's second-biggest beer market.
"I knew they were under pressure in Egypt and that Africa wasn't performing as they hoped, but I'm surprised they downgraded their guidance," said Trevor Stirling, an analyst at Sanford Bernstein in London. Africa is a traditionally profitable region for the company.
Western European volume rose 2 percent as better weather and new products spurred consumer demand in markets including Britain and Netherlands. Volume in the Americas slid 2 percent, weighed down by a slight decline in Mexico, where Heineken owns Fomento Economico Mexicano, or Femsa.
Heineken last year agreed to buy its joint venture partner Fraser & Neave Ltd.'s 40 percent stake in Asia Pacific Breweries for about $4.5 billion. APB is not yet consolidated into organic growth figures, though Heineken said it continues to perform "on a very strong note."
Heineken said it will "intensify" cost-cutting across Europe to try and offset its projected profit decline. The cuts will cost 70 million euros in the second half, which will generate benefits from 2014 onwards.
The brewer said currency shifts will cut adjusted net profit by about 40 million euros this year compared with a previous estimate of 25 million euros. It cited the euro's strength against sterling, the Mexican peso, Nigerian naira, Russian ruble and Brazilian real.
Story tags » Alcohol

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