Heineken NV shares plunged after the Dutch brewer cut its earnings forecast on weakening consumption following double-digit price increases.
(Bloomberg) — Heineken NV shares plunged after the Dutch brewer cut its earnings forecast on weakening consumption following double-digit price increases.
Operating profit slumped 22% on an adjusted basis in the first half, the Amsterdam-based brewer said Monday. Beer volume dropped more than expected as pricing increased almost 13%.
Brewers are struggling to pass high raw material costs onto consumers without driving consumers away to cheaper brands. Heineken is the first of the big global beermakers to report first-half results, and its comments may portend difficulties for rivals Anheuser-Busch InBev NV and Carlsberg A/S.
“The start of the year was all about passing on the inflation on our input costs,” Chief Executive Officer Dolf van den Brink said in an interview. “We front-loaded our pricing. We ran into a pretty strong economic slowdown in the key market of Vietnam, which is disproportionately important to us.”
The stock fell as much as 6.2%.
The results are “extremely disappointing, and the credibility of Heineken’s guidance is now in question,” Citi analyst Simon Hales wrote.
For the full year, Heineken forecast stable to mid-single digit operating profit growth. Previously the guidance was for mid- to high-single digit growth. The Dutch brewer forecast cost inflation to ease next year, which will lift pressure to raise prices.
Revenue rose less than expected in the first half and beer volumes dropped more than expected. Vietnam and Nigeria accounted for more than half of the drop in consumption, and demand in the Americas was soft, Heineken said. The Dutch company is the largest premium brewer in Vietnam, where it has been active for three decades, selling brands such as Tiger.
Demand for premium beer is more resilient, the CEO said. “People are drinking less, but they are drinking better.”
Heineken gets more than 40% of its revenue from premium products.
Russian Woes
Heineken increased the impairment for its Russian business to 201 million euros ($221 million), writing down its entire value. The company said it’s still working to sell the unit, and it doesn’t expect any financial gain from the ongoing business or any divestment.
“It is incredibly challenging to make an exit,” Van den Brink said. “We want to do it the right way, find a suitable buyer.”
Heineken predicted pricing will moderate and volumes will decline by a low single-digit percentage in the second half. The company is counting on a turnaround in profit during the period.
“We do see some softening of those pricing pressures starting to happen already in the second half of the year, but with the bulk of that to come in 2024,” said Chief Financial Officer Harold van den Broek.
–With assistance from Sarah Jacob.
(Updates with shares in fifth paragraph)
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