Post date: 10/28/2010 - 05:38
Heineken 3Q Volumes DisappointDutch brewer Heineken NV (HEIA.AE) Wednesday posted a disappointing drop in volumes as its European markets suffered from low consumer confidence and austerity measures.
Dutch brewer Heineken NV (HEIA.AE) Wednesday posted a disappointing drop in volumes as its European markets suffered from low consumer confidence and austerity measures.
Heineken, which brews brands including Heineken, Amstel and Strongbow cider, reported a 1% drop in third quarter volumes while sales grew 13%, boosted by the acquisition of Mexico-based Femsa Cerveza.
Volumes dropped sharply in Western and Eastern Europe, where consumers reined in spending as a result of government austerity measures.
Volumes in Western Europe, where Heineken generates more than 50% of sales, fell 3.9% as a result of unfavorable weather conditions as well as low consumer confidence, especially in the U.K.
"In the U.K we were hurt by England dropping out of the World Cup so quickly," said Chief Financial Officer Rene Hooft Graafland. He added that he expects to gain market share in the fourth quarter, but is not optimistic on the overall outlook of the U.K. beer market
The 4.8% drop in Central and Eastern European volumes was mostly attributable to a drop in volumes in Russia following a hefty excise increase at the beginning of this year. Heineken's regional president Nico Nusmeier told Dow Jones Newswires that volumes in Central and Eastern Europe will remain weak in the second half, but should return to growth in the first half of next year. Hooft Graafland said Heineken will increase its advertising and promotional spend in Russia.
In addition, austerity measures hurt beer consumption in Poland, the Czech Republic, Hungary and Greece.
Heineken said sharp European volume drops were offset by rises in Africa, Latin America and Asia, echoing comments from rival SABMiller PLC (SAB.JO) which last week reported a 1% rise in volumes, but said volumes in Europe were down 5% in its fiscal first half year.
In Africa and the Middle East volumes rose 12%. Volumes rose 2.3% in the Americas with a strong performance from Latin America compensating for the volume drop in the U.S. where the economic environment continues to affect beer consumption.
The disappointing third quarter volumes sent the shares down 4% to EUR36.51 at 0955 GMT. ING analyst Gerard Rijk said the market had expected volumes to fall, but not to this extent.
Hooft Graafland acknowledged the company will feel the impact of rising input costs next year, but said he doesn't expect it to be an issue this year and any cost increase will not be at the same levels as in 2008 when commodity costs rose over 15% prompting Heineken to increase prices by as much as 4%.
The CFO said the company hopes to pass on the higher costs by increasing its prices in 2011, but only in high inflation countries in Eastern Europe and Africa, as the Western European and U.S. markets have limited room for price increases.
Heineken reiterated its full year outlook for a low double digit rise in profit before exceptional items and amortization of brands.