Higher Costs Weigh on Profit As Heineken Sells More Beer -- WSJ
July 30 2019 - 3:02AM
Dow Jones News
By Saabira Chaudhuri
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (July 30, 2019).
Higher costs held down profit in the first half of the year for
Heineken NV, despite the world's second biggest brewer selling more
beer globally and launching its nonalcoholic Heineken variant in
the U.S.
Shares of Heineken fell 6.3% to EUR96.52 in trading in Amsterdam
after the brewer reported operating profit that missed expectations
Monday. The Dutch brewer -- which also owns Sol, Birra Moretti and
Tiger beer -- blamed its higher costs on strong aluminum prices and
expenses tied to the rollout of a new technology system.
Chief Financial Officer Laurence Debroux said Heineken had also
logged higher expenses tied to advertising for the introduction of
its nonalcoholic beer Heineken 0.0 in the U.S.
"In the U.S. you always have to punch above your weight in terms
of advertising investment," she said.
In the six months through June 30, Heineken's operating profit
grew 0.3% organically to EUR1.78 billion ($1.98 billion), missing
analyst estimates by 6.7%. Its expenses for the half climbed 6.8%
to EUR9.66 billion.
Like its rivals Anheuser-Busch InBev SA and Carlsberg A/S,
Heineken has been investing in non- and low-alcohol brews as
millennials across much of the developed world cut back on drinking
alcohol.
On Monday, the brewer said its low and no-alcohol volumes had
increased to 6.9 million hectoliters in the reporting period, and
48 of its brands now sold nonalcoholic variants.
In the U.S., Heineken's eponymous brand continued to struggle,
but the company said that was offset by the launch of Heineken
0.0.
Heineken's exposure to the U.S. is far smaller than that of AB
InBev or Molson Coors Brewing Co. That is holding it in good stead
when many Americans are spurning mainstream lagers for craft or
imported brews, as well as wine and spirits.
Globally, the company's beer volume rose 3.1% organically, while
the Heineken brand saw volume rise by 6.9%. Beer volumes climbed
strongly in the Asia Pacific region, Africa, the Middle East and
Eastern Europe. They declined in the rest of Europe, which faced a
tough comparison with the year-before period that benefited from
the men's soccer World Cup and warmer weather.
Asia is becoming a bigger focus for brewers who hope to
accelerate efforts in the region's higher-growth markets at a time
of sluggish growth in many developed countries. In April, Heineken
closed its multibillion-dollar deal with government-controlled
China Resources Beer Holdings Co., which gives it access to a
sprawling distribution network in the country.
AB InBev recently tried to publicly list its Asia arm saying
this would help it create a platform to do more acquisitions in the
region, but the world's biggest brewer scrapped the potential
listing after it couldn't get the price it was after.
On Monday, Ms. Debroux said Heineken's aluminum prices for the
first half of 2019 were locked in through hedges last year when
prices were very high, raising the brewer's costs. Aluminum prices
last year were hit by a range of factors including higher tariffs
and production curbs at the world's largest alumina refinery in
Brazil.
Nonetheless, Heineken backed its guidance for the year.
Bernstein analyst Trevor Stirling said the second half of the year
"needs to be exceptionally strong" but added that this was
"doable." Heineken should see some of its challenges ebb amid more
favorable hedges on aluminum and an easier comparison on expenses
tied to the technology rollout which began in the second half of
last year as well as on marketing expenses.
Anthony Shevlin contributed to this article.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
(END) Dow Jones Newswires
July 30, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
Heineken (EU:HEIA)
Historical Stock Chart
From Mar 2024 to Apr 2024
Heineken (EU:HEIA)
Historical Stock Chart
From Apr 2023 to Apr 2024