Stock Report: Heineken Misses 1H Estimates

Stock Report – Dutch brewing company Heineken NV failed to meet analyst expectations for first-half profits. The company attributed the miss to higher packaging costs, which offset beer sales.

Even so, the world’s second-biggest brewer stood pat on its full-year profit growth estimates.

The company’s shares declined the most in nearly four years after its earnings report. Stocks lost as much as 6.5% in Amsterdam.

This made the stock the weakest performer in the FTSEurofirst 300 index of leading European stocks. So far this year, however, the company’s stock is still up by a quarter.

For figures, the adjusted operating profit gained 0.3% organically. It turned to 1.78 billion euros, or $1.98 billion, missing analysts’ estimate of 1.92 billion euros. This marks the slowest pace for the first half in at least six years.

During its stock report with analysts, Heineken’s input costs in January to June climbed 8.5%. This was because of the aluminum they use in packaging.

According to Chief Financial Officer Laurence Debroux, the company’s hedges on aluminum became less favorable this year.

The company also cited e-commerce investment and an IT upgrade for the rising costs. They also mentioned sponsorship costs that turned more askew to the first half of the year.

Beer sales volumes increased in all regions except Europe, where sales suffered from poor weather. Last year, the soccer World Cup bolstered sales, making it an unfavorable comparison to this year’s sales.

Sales were stronger in Vietnam, which is the company’s second most profitable market. Sales rose by double-digit percentage as the company penetrated deeper into the country.

In Mexico, its biggest market, sales were up by a low single-digit percentage. Brazil recorded a high single-digit increase.

Stock Report Cites Higher Costs and Bad Weather

As we have mentioned, the company is suffering from higher costs that relate to packaging. About 50% of that, in turn, relates to currency because of a slump in the Brazilian real against the greenback.

The company was still firm, however, for its mid-single-digit percentage growth forecast in operating profit for the year.

According to one analyst, Heineken will need to speed up to a growth of 10% during the second half.

Debroux said that the company will hedge the majority of higher input costs, aiming to ease them into the second half and into 2020.

The company also said it expected a 100-million-euro boost to operating profit, thanks to favorable currency shifts this year.

For another beverage analyst, the weaker first half was no news, although the market failed to realize the scale of the pressure. This analyst later claimed that the business itself was “in pretty good shape.”

Heineken isn’t the only one to suffer from poor weather among major consumer-goods companies that reported this quarter.

Investors will be awaiting updates on July European temperatures to see whether they could boost demands in the third quarter.

Shipments from Heineken’s namesake brand also slipped in the Asia-Pacific region and Europe during the second quarter.