Heineken cuts profit outlook after eastern Europe slide

Heineken, the world's third largest brewer by volume, lowered its guidance for full-year profit after beer sales in eastern European dropped sharply and slipped in Brazil and in its large African markets.

The group, which makes Europe’s best-selling Heineken lager, Sol, Tiger and Strongbow cider, said today it now expected net profit before one-offs to fall by a low single-digit percentage this year on a like-for-like basis.

It previously forecast that net profit would be broadly unchanged from that of 2012. It added that the stronger euro against a number of developing market currencies would have a negative €40 million impact.

Heineken said the weakness of the beer market in central and eastern Europe and difficulties in key developing markets, including Brazil, Nigeria, Egypt and the Democratic Republic of Congo, led to lower than expected lager sales.

Heineken shares fell by as much as 4.0 per cent to €51.07, making them among the weakest performers in the FTSEurofirst 300 index and breaking a two-week rally in which they had gained 6.4 per cent.

Shares in global leader Anheuser-Busch InBev, the market leader in Brazil, were down 1.1 per cent and those in world number four Carlsberg, the dominant player in Russia, were off 2.0 per cent.

“Western Europe could not make up for weakness in Eastern Europe and the Americas. The profit warning is partly due to volumes, but also currencies. All in all it’s not good news,” said Wim Hoste, analyst at KBC Securities, after cutting his target price for Heineken to €58 from €60.

“The markets are down a little, but you can see the fallout for others, such as AB InBev,” he added.

Consolidated beer volumes slipped 3 per cent on a like-for-like basis to 48.3 million hectolitres, lower than the 50.2 million hectolitres average expected in a Reuters poll of seven banks and brokers.

Consolidated revenue was up just 0.2 per cent to €5.18 billion, again lower than the €5.41 billion forecast in the Reuters poll.

Heineken, the largest seller of beer in Europe, posted an 8 per cent drop in beer sales in central and eastern Europe, with weak consumer spending in Russia, Romania and Greece and wet weather depressing drinking in September.

Inflation, tight credit and unemployment hit Nigeria and volumes fell in Egypt and Congo due to unrest. In Brazil, slowed growth and stubbornly high inflation, leading to rising interest rates, have weakened consumer spending there.

However, volumes improved by 1 per cent in western Europe, largely due to a hot, dry summer albeit after a wretched spring.

Elsewhere, volumes only rose in the Asia-Pacific region, with increased beer drinking in China, Indonesia, Papua New Guinea and Vietnam more than making up for lower sales in India due to a prolonged monsoon and regulatory changes in the southern state of Tamil Nadu.

Heineken has a greater share of the sluggish western European market than its rivals, but has also boosted its emerging market presence with expansion into Mexico in 2010 and its buy-out of a joint venture partner in Asia last year.

SABMiller, the world number two, last week reported a 4 per cent increase in first-half revenue, driven by growth in Latin America and Africa. (Reuters)