Heineken NV’s first quarter was boosted by beer drinkers in Europe even as inflation persists in many key markets, which helped offset a weaker performance in the Asia-Pacific region and Nigeria.
(Bloomberg) — Heineken NV’s first quarter was boosted by beer drinkers in Europe even as inflation persists in many key markets, which helped offset a weaker performance in the Asia-Pacific region and Nigeria.
Shares in the world’s second largest brewer rose nearly 4% in early trading Wednesday after it said consumers in Europe were still largely accepting higher prices for its beers, which include its namesake brand and more premium offerings such as Birra Moretti, Beavertown and El Aguila.
Overall volumes fell 3% on an organic basis for the quarter ended March, below the average analyst estimate for a 1.04% decline. Vietnam and Nigeria had tough quarters but investors were expecting that.
Heineken stuck to its outlook for adjusted operating profit to grow organically by mid- to high-single digits this year even as Chief Executive Officer Dolf van den Brink warned of cloudy consumer demand for its products.
The Amstel maker’s results offer a potentially mixed outlook for brewers. As higher raw material costs have weighed on margins, many brewers have resorted to price increases. That, combined with a cost-of-living squeeze, has presented a particularly challenging environment for the industry.
“We were nervous going into these results; in the event they were ok,” said James Edwardes Jones, an analyst at RBC Europe, in a note to clients. “We are impressed by Europe’s performance which Heineken seems to have some confidence in.”
Heineken said that net revenue in Nigeria slipped by a “low-teens” percentage as higher prices failed to fully offset volume declines of more than 20%. The West African nation is the world’s seventh most populous with more than 200 million people, and is one of the most lucrative alcohol markets in the world. Heineken is the dominant force in the local beer market there.
The company’s Nigerian unit had its worst February in 15 years after the central bank drained about $4.6 billion of cash from the economy by replacing old currency notes, creating a cash squeeze and denying beer drinkers paper money to buy suds.
During the quarter, Heineken bought back about €1 billion worth of its shares from Fomento Economico Mexicano SAS, as the Mexican Coca-Cola bottler started to divest its stake in the Dutch group in order to better focus on its Latin American retail operations.
What Bloomberg Intelligence Says:
“There’s downside risk to Heineken’s maintained mid- to high-single digit 2023 adjusted operating-profit guidance — given stalling economic growth in the brewer’s key geographies such as Vietnam, Cambodia and Nigeria — with significant volume declines in Asia (10.5%) and Africa (8.6%). Premium-beer sales remain robust for now, but if economic growth doesn’t improve, management’s view is likely to come under pressure.”
— Duncan Fox, BI consumer-goods analyst
Heineken Struggling to Refresh Drinkers as Economies Slow: React
It has also warned of the risk of nationalization of its Russia operations, as a sale of the business is being weighed down by frequently changing regulations in that market.
Heineken said it had submitted an application for approval by Russian authorities to transfer the ownership of its business in Russia.
(Updates with Nigeria performance beginning in paragraph 8)
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