Heineken cuts margin outlook after Brazilian hit

Dutch brewer Heineken disappointed investors by cutting full-year margin forecasts due to currency weakness in some more profitable markets and expansion in Brazil.

The brewer of alcoholic beverages such as Heineken lager, Sol and Strongbow cider recorded first half earnings per share of €1.89 that missed consensus by 3.7%.

Moreover, management expected full year operating margins to trickle 20 basis points lower, a far cry from the previous forecast of a 25 basis point increase.

Overall beer sales exceeded expectations, with net sales up 5.6% on an organic basis, with Vietnamese and Mexican markets contributing the most growth and being the most profitable. Beer volumes grew 4.5% organically in the first half, up 4.6% in the second quarter and better than expected.

However, the company lowered its guidance because of the negative translational hit from currencies concentrated more in its higher margin countries, such as Vietnam, and the effects of its expansion in Brazil, where the company has seen double digit growth in beer volumes after taking over the lossmaking operations of Japan’s Kirin.

Laurence Debroux, chief financial officer, said: “We’re bringing the margin up [at Kirin] but it’s not yet at group average and at the same time we have double-digit growth of volumes and revenue, which frankly we had not expected.”

The beer behemoth reported that increased revenue growth was offset by higher expenses and input costs, while first half operating profits before one off’s grew to €1.75bn, below the consensus forecast of €1.89bn.

Nik Oliver, analyst with investment bank UBS, said that, despite strong overall volume growth, growth in underlying profit had “disappointed” due to the company’s performance in Africa, the Middle East & Eastern Europe.

He noted that guidance for the translational headwind from FX of €179m is actually lower than the €200m previously guided.

"We expect investors to react negatively given the lowered margin guidance which implies a ~3% cut to FY18 earnings, all else equal."

Heineken’s shares were down 4.53% at €87.98 at 1016 BST.