Carlsberg Rises on Maintained 2013 Forecast Amid Russia Woes

Carlsberg A/S shares rose the most in four months after the world’s fourth-largest brewer maintained its forecast for full-year profit while lowering its expectations for the Russian market.

Operating profit this year will be about 10 billion Danish kroner ($1.8 billion), the maker of Tuborg beer said, reiterating an earlier forecast. Net income will probably rise by a mid-single-digit percentage, it also said. Earnings and company forecasts exclude one-time items. The stock rose as much as 3.8 percent in Copenhagen, the most on an intraday basis since July 4, and traded 2.8 percent higher at 564 kroner at 9:40 a.m. local time.

Investors should be “impressed” that the brewer maintained its full-year forecast despite adverse foreign-exchange movements and “exceptionally tough conditions” in Eastern Europe, Jonathan Fyfe, an analyst at Mirabaud Securities said in a note to clients. “Carlsberg’s share price has shrugged off increasingly gloomy news from its peer group over the last few weeks, so we believe the market was braced for a particularly poor quarter and a guidance cut.”

Russia this year changed the classification of beer to that of an alcoholic drink from its previous categorization as a food. Since the change, some urban kiosks that used to sell Carlsberg beer have closed and the brewer has said it has taken longer than anticipated for consumers to adapt to the change. Russia, once a hot spot for brewers looking for growth, has also hiked taxes and curbed advertising in its efforts to reduce drinking.

Russia Cut

The Copenhagen-based brewer in August lowered its forecast for the Russian market and today cut it further. It now anticipates a high-single-digit percentage decline for the year, having previously forecast a mid-single-digit drop. Its bigger rivals have also reported difficult business conditions in the country. Carlsberg said it increased prices in Russia in March, May, June and September. Eastern Europe, including Russia, represented about 26 percent of third-quarter sales.

“The closures of non-permanent outlets and the slower growth of the Russian economy, which has deteriorated consumer sentiment further, continue to impact the beer market negatively,” the Danish company said in a statement today.

Falling Volume

Earnings before interest and taxes for the three months ended Sept. 30 fell to 3.43 billion kroner from 3.6 billion kroner a year earlier, Carlsberg said. The average of 15 analyst estimates compiled by Bloomberg was 3.45 billion kroner.

“The western European countries were surprisingly good both on revenue and earnings, but Asia and eastern Europe were really bad,” Michael Friis Jorgensen, an analyst at Alm. Brand A/S, said by telephone, adding Carlsberg’s maintained full-year earnings forecast is a positive surprise.

The maintained 2013 guidance is a positive signal on cost management at the brewer, Nordea Bank AB said in a note to clients.

So-called organic beer volume, which excludes acquisitions and disposals, fell 5 percent in the quarter, as 1 percent growth in Asia and 2 percent growth in western Europe failed to counteract a 15 percent decline in eastern Europe. Revenue declined to 18 billion kroner from 18.6 billion kroner a year earlier, missing analysts’ estimates of 18.4 billion.

Carlsberg may be turning attention to Asia. The company is eying about a half-dozen potential candidates, especially in Asia, including Chinese companies Tsingtao Brewery Co. and Beijing Yanjing Brewery Co. for a purchase, according to a person with knowledge of the matter.

Carlsberg said it took several steps to strengthen its growth profile during the first nine months of this year. The efforts were focused on Asia where the company started to construct the world’s first international brewery in Myanmar and a new brewery in the Yunnan province in China. It also increasing shareholdings in Asian assets.

Carlsberg Foundation, which holds 75 percent of votes and 30 percent of share capital in the brewer, announced last month that it will drop the requirement to hold at least 25 percent of Carlsberg’s share capital. The move gives the brewer increased financial flexibility to pursue acquisitions.

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