Heineken sees weak europe beer consumption weighing on sales

Staff Writer
Columbus CEO

(c) 2013, Bloomberg News.

LONDON — Heineken NV, the world's third- biggest brewer, said poor spring weather in Europe led to weak second-quarter revenue and predicted that earnings this year won't grow as consumers in the region curb spending.

The company witnessed a "further moderation versus what we had expected after the first quarter," Chief Executive Officer Jean-Francois van Boxmeer said today on a call with reporters. The second quarter was "clearly below" company expectations "and that will have an impact on total outlook for the year."

Group beer volume fell 3 percent in the first half on an organic basis, the Amsterdam-based brewer said in a statement, led by a 8 percent decline in western Europe after an increase in French beer taxes and a prolonged spell of cool weather. Heineken had said in April that revenue and volume would improve this year more slowly than previously anticipated.

The company said it expects no organic growth this year in net income before some items. That's less than estimated by Sanford C. Bernstein analysts, who had anticipated a low single- digit increase before today's report. First-half profit on that basis fell to 679 million euros ($911 million) from 688 million euros a year earlier, Heineken said.

Heineken on Wednesday raised its cost-saving target to 625 million euros between 2012 and 2014, which it will achieve through more efficient purchasing of commodities and services. It had previously forecast reductions of 525 million euros.

"The good news is that the cost savings are ahead of expectations, but the bad news is it's still struggling with tough markets and a couple of months of good weather isn't going to offset a bad spring," Trevor Stirling, an analyst at Bernstein, said by telephone.

European competitor Carlsberg A/S also reported second-quarter profit that missed estimates and lowered its forecast for beer market growth in Russia, its biggest region. The Copenhagen-based maker of Tuborg maintained its outlook for profit this year as it offset "challenging market conditions in western and eastern Europe" with cost-cutting measures.

Heineken has been seeking to combat waning sales in Europe with more profitable new products and cost-cutting measures as drinkers veer toward wine or spirits. The brewer said today it got 6 percent of revenue from new products in the first half.

Economic uncertainty and weak consumer sentiment will persist across many key markets, Heineken said, even after it benefited from better European weather in July. It said it doesn't expect a "material change to underlying trading conditions" across the majority of its regions.

Adjusted earnings before interest and taxation excluding some items rose to 1.33 billion euros from 1.15 billion euros. That compared with a median estimate for 1.34 billion euros.

The brewer, which makes beverages including Amstel and Sol, is seeking to expand in regions outside western Europe. Last year, it bought a joint-venture partner's stake in Asia Pacific Breweries for S$5.6 billion ($4.4 billion) to gain control over a business stretching across markets including Vietnam.

Operating profit in developing markets rose 7 percent in the first half. Emerging countries comprise about half of total group earnings.

_ With assistance from Katarina Gustafsson in Stockholm.