Brewer Profits May Fall in 2012 on Barley Prices, Bernstein Says

Brewers including Heineken NV (HEIA) may be unable to offset soaring grain costs with price increases, leading to lower profitability in 2012, according to Sanford C. Bernstein.

Dry weather in western Europe may cause this year’s malting-barley harvest to have a low yield or be of poor quality, Bernstein analysts including Trevor Stirling in London wrote in a note published today. The concern has pushed up the price of the commodity, a key ingredient in beer.

Malting-barley prices have advanced 16 percent in the last two months, according to Bloomberg data. If prices continue to increase, there is likely to be a “much stronger” rise in the cost of goods to make beer next year, when brewers will use barley from this year’s harvest, according to Bernstein.

Producers would need to raise selling prices approximately 4 percent to 5 percent to offset higher barley costs, Bernstein said, and “brewers will find it tough to pass through all the pricing they will need to offset cost pressure.” The analysts estimate that pressure from input costs will cut western European operating margins for brewers by about 1.5 percentage points.

Heineken is “most exposed” because of its presence in western and central Europe and Africa, Bernstein said, noting the brewer’s “limited pricing power.”

Carlsberg A/S (CARLB) has the second-highest exposure through its western European business, while SABMiller Plc (SAB) is less exposed to the region than its rivals. SABMiller also has “strong pricing power” in Africa, allowing it to offset commodity pressures, according to Bernstein. Anheuser-Busch InBev NV (ABI) is “least exposed,” Bernstein said.

Bernstein has a “positive long-term stance” on the European beverage industry and said it’s “cautious” for the short term.

To contact the reporter on this story: Clementine Fletcher in London at cfletcher5@bloomberg.net.

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net.

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