Higher Aluminum Costs Offset High Beer Sale Of Heineken

The increased beer sale in the first half of the year was offset by higher than normal packaging costs which potentially resulted in Heineken NV announcing missing market estimates in the period. However the profit growth forecast for the entire year of 2019 was not altered by the second-largest brewer of the world.

In 2019, there would be rise by a mid-single-digit percentage in the operating profit before one-offs, forecast the Dutch maker of Heineken, Europe’s best selling lager. That number saw a slight increase of 0.3 per cent in the first half of the current year.

A shift in consumer demand tastes to more expensive beers, higher prices and increased sales would help the company to benefit this year, Heineken said. However the company also simultaneously warned that there would be a mid-single-digit percentage rise over the year in the input and logistics costs.

The stocks of the company hit a record high of 104 euros on Friday but were down by 6.1 per cent at 96.82 euros. That made the stocks the weakest performer in the FTSEurofirst 300 index of leading European stocks. So far this year, the stocks have increased by 25 per cent.

There was an increase of 8.5 per cent in the input costs in the January to June for the company mainly because of the rising cost of aluminum that it uses for packaging.

The company’s hedges on aluminum had been less favorable than last year’s, the company’s Chief Financial Officer Laurence Debroux told the media.

The company has been forced to pay hard currency for raw and packaging material with, for example, a weaker Brazilian real, which has bit the company’s p[operations in the emerging markets operations.

The company has made investments in e-commerce and for upgrading its IT infrastructure as well as engaged in some sponsorship which were more skewed to the first half of the year and that resulted in an increase in costs for the company.

“If you look at the first half, the month of June was more difficult, mainly because of weather in a number of countries, but the underlying trend of the business is on track … and we’re expecting that to move into the second half,” Debroux said.

Barring Europe, the sale volume of beer rose in all of its markets during the first half of the current year. Its sale in Europe was hit by poor weather. The year to year sale volume also looks bad because of increased sale in the regions because of the hosting of the soccer World Cup.

In the first half of the year, the company missed analysts’ estimates of operating profit of 1.92 billion euros, according to IBES data from Refinitiv, as the company reported it achieved a 0.3 per cent growth in operating profit on a like-for-like basis which came at 1.78 billion euros or $1.98 billion.

“We knew the first half was going to be weaker than the second, but clearly the market hadn’t realized the scale of the pressures in the first,” said Trevor Stirling, beverage analyst at Bernstein Securities. “The business itself is in pretty good shape.”

(Adapted from Reuetrs.com)

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