Carlsberg Slumps as Brewer Scraps Medium-Term Margin Goal

Carlsberg A/S, the Danish owner of Russia’s biggest brewer, scrapped its medium-term profitability goal amid increasing costs for making beer and expenses for changes to product buying and logistics.

The February 2010 target to boost operating profit to 20 percent of sales in three-to-five years has “proved difficult to use,” the Copenhagen-based company said today in a statement, adding that “several events, both within and beyond our control, have and will continue to impact margins.”

Carlsberg fell as much as 7 percent in Copenhagen trading, the most in more than six months, as the brewer also reported fourth-quarter earnings that missed estimates. Since the company set the margin target, the European economy has plunged into crisis, Russia has introduced stricter regulation of beer sales and production costs have risen amid higher barley prices.

“We had expected the company to low-ball guidance for 2013, but this is lower than we expected,” Ian Shackleton, an analyst at Nomura in London, wrote today, describing Carlsberg’s move away from its previous margin guidance as “negative.”

The brewer said it will now seek to widen its operating margin in western European by at least 50 basis points a year on average for five years, and deliver growth in adjusted earnings per share, excluding some items, of more than 10 percent.

Photographer: Vincent Mundy/Bloomberg

Carlsberg fell as much as 7 percent in Copenhagen trading, the most in more than six months, as the brewer also reported fourth-quarter earnings that missed estimates. Close

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Photographer: Vincent Mundy/Bloomberg

Carlsberg fell as much as 7 percent in Copenhagen trading, the most in more than six months, as the brewer also reported fourth-quarter earnings that missed estimates.

Shares Slump

The shares were down 4.8 percent at 573.5 kroner as of 9:20 a.m., trimming their gain this year to 3.5 percent.

Earnings before interest, taxes and some one-time items advanced to 2.15 billion kroner ($385 million) in the fourth quarter from 1.83 billion kroner in the same period a year earlier, Carlsberg said. That compares with the 2.28 billion- kroner median estimate of seven analysts surveyed by Bloomberg.

Earnings this year will be about 10 billion kroner, the brewer said in the statement. It reported unchanged profit of 9.8 billion kroner for 2012, achieving its target to match 2011.

The company generated 44 percent of earnings from its eastern Europe unit, primarily Russia, where the government has raised taxes and increased regulation on alcohol sales. It controlled 38.3 percent of the Russian market in the fourth quarter, unchanged from the same period a year earlier, though down from 38.9 percent in the third quarter. Russia banned selling beer at kiosks Jan. 1, and imposed restrictions on direct advertising of the brew last year.

Higher Margin

The company said it will book about 300 million kroner to 400 million kroner this year to standardize its supply chain in western Europe. Carlsberg is aiming to offset a waning beer market in western Europe by centrally managing all its procurement and logistics in the region, which will “yield significant long-term benefits” but “will also require significant resources,” it said.

The project “will be a key priority in 2013. It represents a step change in the way we run our business in western Europe and will provide us with significant long-term benefits and competitive advantages,” Chief Executive Officer Joergen Buhl Rasmussen said in the statement.

Sales in the fourth quarter totaled 15.9 billion kroner, compared with the 15.6 billion-kroner estimate. Volume was unchanged on a so-called organic basis. The company sold more higher-priced beers, including its Carlsberg and Tuborg brands.

Carlsberg said that beer demand in Russia was stagnant and the western European market declined about 1 percent to 2 percent. Demand in Asia increased. Market dynamics for all three regions will be similar to 2012 this year, the company said.

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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