Heineken Drops Most on Record Following Forecast of Stagnant 2011 Earnings

Heineken NV (HEIA), the world’s third- largest brewer by volume, said full-year profit is unlikely to grow, sending the shares down the most on record.

So-called organic adjusted net income for 2011 will be “broadly in line” with last year, the Amsterdam-based company said today in a statement. Heineken reported adjusted profit of 1.45 billion euros ($2.1 billion) on that basis last year, and analysts had expected profit this year of 1.68 billion euros, according to the average of 23 estimates compiled by Bloomberg.

Wet weather in Europe and low consumer confidence caused weak volume sales in July and August, Heineken said today as it announced first-half profit that missed analysts’ estimates amid higher promotional spending. Heineken generates more revenue in Western Europe, where households are reining in spending, than any of the other major brewers.

“The problems in the first half are mainly Heineken- specific,” said Trevor Stirling, an analyst at Sanford C. Bernstein, citing weak volume in Greece and Egypt as well as higher costs. “In the second half, all of these things continue, plus we’re seeing weak volumes in western Europe.”

Analysts had anticipated Heineken’s organic profit to rise about 13 percent this year, Stirling said. “I don’t think there was anybody on the sell-side who was anywhere near as bearish as this,” he said of the company’s forecast for unchanged profit.

Share Slump

Heineken fell as much as 5.81 euros, or 16 percent, to 30.40 euros in Amsterdam trading and was down 13 percent at 31.63 euros as of 12:52 p.m. Shares in competitors also declined. Anheuser-Busch InBev NV (ABI), the world’s largest brewer, dropped as much as 4.7 percent in Brussels trading, while Carlsberg slid as much as 2.9 percent in Copenhagen.

After reporting first-quarter profit growth of more than 20 percent, Heineken said in April it didn’t expect to maintain the same pace of expansion for the rest of the year as it increases advertising and promotional spending. Heineken still plans to increase marketing expenditure “by low single-digits” in the second half, Chief Executive Officer Jean Francois Van Boxmeer said, as “development and building brands are long-haul efforts.”

Business in parts of the U.S. and Europe will remain “challenging” given the squeeze on spending imposed by reduced household incomes, Heineken said.

First-Half Profit

First-half earnings before interest and taxes at Heineken rose to 1.26 billion euros, excluding some items, from 1.14 billion euros a year earlier, less than the 1.37 billion-euro median estimate of five analysts surveyed by Bloomberg.

Organic sales gained 3.3 percent in the first half, Heineken said, slowing from 3.6 percent in the first quarter. The consolidated volume of beer sold on the same basis rose 3.9 percent, compared with the first quarter’s 5.5 percent growth.

Beer volume increased in all the brewer’s regions apart from the Americas, where it slid 2.4 percent. The company lost share in Mexico and the U.S.

The weather “had a big influence, particularly in the northern hemisphere” since the end of the first half, Van Boxmeer said today on a call.

July was an “extraordinarily wet and cool month” in the Netherlands, Heineken’s home market, according to the Royal Dutch Weather Institute. The U.K., which analysts at UBS AG estimate represents about 10 percent of sales, experienced cool conditions, according to the country’s Met Office. Heineken gets about 45 percent of its sales from western Europe.

Higher Input Costs

Heineken expects a “slightly higher” rate of input cost inflation in the second half, and maintained its guidance for “a low single-digit increase” in input costs per hectoliter.

Van Boxmeer declined to comment on how much the brewer will have to raise prices next year to offset higher costs of commodities including malting barley. “Buying campaigns are not completed yet, and it’s a very competitive issue,” he said.

Heineken today announced a new cost-cutting plan, set to start in 2012, to replace its Total Cost Management program, which ends this fiscal year. It gave no details. Total Cost Management delivered 80 million euros of cost savings in the first half of the year.

“A company has to continue to address its productivity issues on an ongoing basis,” Van Boxmeer said. “If in the past we’ve been devoting a lot of attention to our infrastructure in terms of brewing and overheads, going forward we’ll devote a lot of attention to our purchasing activity.”

Acquisitions?

Heineken, which bought Mexico’s Fomento Economic Mexicano SAB’s beer unit in April 2010 to expand into faster-growing markets, won’t comment on specific acquisition opportunities, Chief Financial Officer Rene Hooft Graafland said in an interview on Bloomberg Television’s “On the Move” program when asked whether he would be interested in Fosters Group Ltd. He added that the company’s focus is expanding in emerging markets.

Rival SABMiller Plc took a A$9.5-billion ($10 billion) bid for Foster’s directly to the Australian brewer’s shareholders last week after the company’s board rejected an approach in June.

Organic adjusted net income excludes some items and the effect of currency fluctuations and acquisitions or disposals.

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

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

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