Cost cuts drive Heineken to forecast-beating 2010

By @ibtimes on

Heineken NV , the world's third-largest brewer, beat full-year earnings forecasts as cost cuts in Europe and savings from a large Mexican acquisition more than offset lower beer sales, lifting its shares.

The group, whose main brands are Heineken and Amstel, Europe's number one and three beers, said it expected drinkers in Latin America, Asia and Africa to buy more of its lagers and other drinks this year. And it said it would almost completely offset an expected low single-digit percentage rise in costs with higher prices.

Its shares were up 4.7 percent at 38.63 euros by 0928 GMT on Wednesday after rising as high as 39 euros, their highest since April 2008.

Investors had been keen to hear the Dutch brewer's outlook on rocketing raw material costs, likely to be a hot issue in 2011. The futures price for malting barley has risen 50 percent since the launch of the contract in May last year.

Harvests influence a lot of the pricing, Chief Executive Jean-Francois van Boxmeer told a conference call, adding most of 2011's purchases had been covered. We are happy with that and we are of course now preparing the next year (2012) and there are still many uncertainties.

The group said it expected European and U.S. consumers to be cautious this year due to unemployment and austerity measures. But it said the premium beer segment, including its Heineken brand in many markets, would outperform the beer market overall.

Rival SABMiller , with a strong presence in fast-growing African and Latin American markets, said last month its lager volumes rose 3 percent in the final three months of 2010.

CHALLENGING OUTLOOK

Heineken, for whom western Europe accounted for roughly half of revenue in 2010, suffered a group volume decline on a like-for-like basis of 3.1 percent in the full year. The drop in the fourth quarter was 2.5 percent.

Heineken's purchase of the beer business of Mexican group FEMSA is set to boost operating profit from more buoyant emerging markets to 40 percent from 32 percent as well as securing brands Dos Equis, Tecate and Sol.

Heineken continues to face a challenging situation in western Europe, where the bulk of its cost-cutting has been focused. Further job cuts could be expected this year.

In Europe in particular, we have demographics playing against us ... you have to realize that baby boomers are retiring from drinking, Van Boxmeer told a conference call.

Heineken is targeting improved sales in western Europe where it will introduce higher margin Dos Equis lager, its cider range and tequila-flavored Desperados beer to several markets. Increased marketing would have an impact on profit.

Operating profit before one-offs rose by 25 percent or 8.6 percent on a like-for-like basis to 2.61 billion euros ($3.5 billion), compared with a consensus forecast of 2.47 billion.

Heineken's 2010 net profit before one-offs rose 37 percent to 1.45 billion euros, compared with a forecast for 1.38 billion in a Reuters poll. On a like-for-like basis, the increase was 19.7 percent. Heineken had forecast a rise of at least a low double-digit percentage.

The company delivered 280 million euros of savings under its Total Cost Management program, as well as 42 million in synergy savings from its Mexican takeover. Heineken said the TCM would deliver further savings, but less than in 2010.

The results are higher than expected and FEMSA (savings) and TCM are the two most ingredients. It is also positive that nothing is going wrong with the FEMSA business, said ING analyst Gerard Rijk.

World number four brewer Carlsberg reports full-year figures on February 21, followed by market leader Anheuser-Busch InBev on March 3. SABMiller will report full-year earnings on May 18.

(Editing by Rex Merrifield and David Holmes)

($1=.7406 Euro)

Join the Discussion