Higher Costs Weigh on Profit As Heineken Sells More Beer -- WSJ

By Saabira Chaudhuri 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 30, 2019).

Higher costs held down profit in the first half of the year for Heineken NV, despite the world's second biggest brewer selling more beer globally and launching its nonalcoholic Heineken variant in the U.S.

Shares of Heineken fell 6.3% to EUR96.52 in trading in Amsterdam after the brewer reported operating profit that missed expectations Monday. The Dutch brewer -- which also owns Sol, Birra Moretti and Tiger beer -- blamed its higher costs on strong aluminum prices and expenses tied to the rollout of a new technology system.

Chief Financial Officer Laurence Debroux said Heineken had also logged higher expenses tied to advertising for the introduction of its nonalcoholic beer Heineken 0.0 in the U.S.

"In the U.S. you always have to punch above your weight in terms of advertising investment," she said.

In the six months through June 30, Heineken's operating profit grew 0.3% organically to EUR1.78 billion ($1.98 billion), missing analyst estimates by 6.7%. Its expenses for the half climbed 6.8% to EUR9.66 billion.

Like its rivals Anheuser-Busch InBev SA and Carlsberg A/S, Heineken has been investing in non- and low-alcohol brews as millennials across much of the developed world cut back on drinking alcohol.

On Monday, the brewer said its low and no-alcohol volumes had increased to 6.9 million hectoliters in the reporting period, and 48 of its brands now sold nonalcoholic variants.

In the U.S., Heineken's eponymous brand continued to struggle, but the company said that was offset by the launch of Heineken 0.0.

Heineken's exposure to the U.S. is far smaller than that of AB InBev or Molson Coors Brewing Co. That is holding it in good stead when many Americans are spurning mainstream lagers for craft or imported brews, as well as wine and spirits.

Globally, the company's beer volume rose 3.1% organically, while the Heineken brand saw volume rise by 6.9%. Beer volumes climbed strongly in the Asia Pacific region, Africa, the Middle East and Eastern Europe. They declined in the rest of Europe, which faced a tough comparison with the year-before period that benefited from the men's soccer World Cup and warmer weather.

Asia is becoming a bigger focus for brewers who hope to accelerate efforts in the region's higher-growth markets at a time of sluggish growth in many developed countries. In April, Heineken closed its multibillion-dollar deal with government-controlled China Resources Beer Holdings Co., which gives it access to a sprawling distribution network in the country.

AB InBev recently tried to publicly list its Asia arm saying this would help it create a platform to do more acquisitions in the region, but the world's biggest brewer scrapped the potential listing after it couldn't get the price it was after.

On Monday, Ms. Debroux said Heineken's aluminum prices for the first half of 2019 were locked in through hedges last year when prices were very high, raising the brewer's costs. Aluminum prices last year were hit by a range of factors including higher tariffs and production curbs at the world's largest alumina refinery in Brazil.

Nonetheless, Heineken backed its guidance for the year. Bernstein analyst Trevor Stirling said the second half of the year "needs to be exceptionally strong" but added that this was "doable." Heineken should see some of its challenges ebb amid more favorable hedges on aluminum and an easier comparison on expenses tied to the technology rollout which began in the second half of last year as well as on marketing expenses.

Anthony Shevlin contributed to this article.

Write to Saabira Chaudhuri at [e-mail]

(END) Dow Jones Newswires

July 30, 2019 02:47 ET (06:47 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.