Carlsberg Slumps as Cost Cuts Fail to Contain Russian Slowdown

Carlsberg Cuts Full-Year Earnings Forecast on Russia

Carlsberg A/S shares fell the most in four years after the maker of Baltika beer cut its annual profit forecast and gave investors few clues as to how it will combat a slumping market in Russia and speed up cost savings.

The stock’s decline of as much as 11 percent was the most since August 2011, as new Chief Executive Officer Cees ’t Hart said the outcome of a strategic review he’s starting won’t be announced until the first half of 2016. Until then, the company faces having to contend with further market weakness in Russia, where Carlsberg is the largest brewer.

“The big issue is that Carlsberg continually disappoints on Russia,” said Alicia Forry, an analyst at Canaccord Genuity in London. “It seems the company doesn’t have a proper handle on what the situation is with regards to distributors, regulators and pricing.”

Only two months after assuming leadership of the brewer from Joergen Buhl Rasmussen, Hart is wrestling with a Russian beer market that shrank 9 percent in the second quarter amid a slump in the ruble and higher taxes. At the same time, cost savings in western Europe designed to stem the decline in the brewer’s profit have fallen behind schedule.

“We didn’t get a commitment from Carlsberg that the delay in the savings delivery will be caught up next year or beyond,” Francois Mosnier, an analyst at Exane BNP Paribas, said in a note. A “short presentation” from the new CEO “will not allow investors to form an opinion yet.”

Carlsberg shares fell as much as 67.5 kroner to 522.5 kroner in Copenhagen. They were trading at 535.5 kroner at 5:19 p.m. local time, reducing the company’s market value by about 6.5 billion kroner ($1 billion) to 82.8 billion kroner.

‘More Negative’

A strong full-year performance in Asia won’t be enough to offset weaker results in western Europe and tough conditions in eastern Europe, Hart said in the statement.

In Russia, where Carlsberg closed two breweries this year, the company is “starting to get more negative” about what to expect from consumers this year, Chief Financial Officer Joern P. Jensen said on a conference call with investors.

Carlsberg plans to makes “all the changes necessary” to cope with the difficult market conditions, though has no “radical plans” such as shutting more facilities, he said.

The company failed to achieve “the full range of anticipated savings” in western Europe in the first half and was “perhaps too optimistic” in its targets, Jensen said. “We wanted too many things to happen at the same time.”

The beermaker plans to involve 60 to 70 senior members of its leadership in the strategic review, Hart said. The aim of the review is to “re-establish and further strengthen our financial flexibility,” he said.

Short Sellers

Operating profit in 2015 will decline slightly, Carlsberg said. It had previously forecast mid- to high-single-digit growth. Earnings in the second quarter slumped 19 percent to 2.92 billion Danish kroner, excluding interest, taxes and one-time items. Analysts on average had estimated profit of 3.23 billion kroner. Sales in the quarter fell 3 percent on an organic basis, which excludes currency and acquisition effects.

The stock’s drop provided gains for short sellers who seek to profit from declines in share prices. About 5.35 percent of Carlsberg shares are sold short, the third-largest amount in the 23-member Stoxx 600 European Food and Beverage sector, according to researcher Markit.

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