Andrea Felsted is a Bloomberg Gadfly columnist covering the consumer and retail industries. She previously worked at the Financial Times.

Investors in Carlsberg have just got a reality check.

The shares had been steadily climbing, and reached a record high on Tuesday, amid great hopes for new chief executive Cees 't Hart's turnaround plan. The strategy involves a big drive to save costs and reinvestment to lift both the volume of beer sold and profits. That's necessary as Carlsberg's operating margin lags those of Anheuser-Busch InBev, SABMiller and Heineken.

Carlsberg trades at a discount to the three rivals, on a price-to-earnings basis, and the truth is, that's deserved. It's done a good job, but there's still hard work ahead.

Drinking Up
Carlsberg's forward price-earnings ratio remains at a discount to rivals despite the shares' rise
Source: Bloomberg Intelligence

The company's strategy should bear fruit in time, and there were certainly positive signs on Wednesday, as it reported a better-than-expected 8 percent increase in organic operating profit in the first half. But the operating margin was flat, at 11 percent, while revenue fell 15 percent in Eastern Europe, one of the higher-margin markets. 

Carlsberg expects operating profit growth to slow to just 1 percent in the second half as it grapples with rising production costs and a weak ruble in Russia, where it's the country's biggest brewer. The stock had its worst day in a year, falling nearly 6 percent to 640 kroner. 

Beer Money
Carlsberg has an opportunity to lift its operating margin closer to those of rivals
Source: Bloomberg Intelligence

And life could get even tougher once Megabrew -- the combination of AB Inbev and SABMiller -- arrives on the scene.

AB Inbev is known for its ruthless cost cutting, and could drive performance and profit higher at the new behemoth. The margins of the two stand-alone companies are already best in class, so a fired-up and efficient jumbo competitor will complicate Carlsberg's drive to turn itself around. 

If Carlsberg can lift its operating margin closer to its rivals, then there is scope for the discount to narrow. Unfortunately, that's not yet the case.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Andrea Felsted in London at

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Jennifer Ryan at