Heineken earnings drop, warns of weak markets

Shares in Heineken NV, the largest seller of beer in Europe, fell sharply on Wednesday after it warned of weak demand in developed markets and predicted full year earnings would be flat from a year ago after a drop in the first half.

Heineken shares were down 12 percent at (euro) 31.70 ($45.66) after it said sales volumes in the high-selling season of July and early August had disappointed due to poor weather conditions in Europe as well as lower consumer confidence in key markets.

“This will affect second half 2011 volume and profit performance and therefore Heineken expects full year net profit on an organic basis to be broadly in line with last year,” the company said in its earnings statement.

By “organic” profit, the company means profit before the impact of acquisitions, currency effects, exceptional one-time costs and changes in the value of brands. It is a nonstandard measure it says best represents its underlying performance.

The family-controlled Heineken, which issues earnings reports just twice a year, hadn’t given previous earnings guidance — but the projections published Wednesday caught analysts off guard.

“The consensus will need to come down by some 10 percent,” said SNS Securities analyst Richard Withagen in a note on the earnings. He rates shares a hold.

Heineken reported net profit in the first half of 2011 of (euro) 605 million ($872 million), down from (euro) 700 million in the same period a year ago, when Heineken booked a gain of (euro) 157 million on the sale of its Indonesian subsidiary.

Sales rose 11 percent to (euro) 8.36 billion, mostly due to its acquisition of brands including Dos Equis and Tecate from Mexico’s Femsa for $7.8 billion in May 2010. Other well-known Heineken brands include Amstel, Foster’s, Strongbow, Kingfisher, and Newcastle.

The company said Wednesday comparing like-for-like, sales would have risen 3.3 percent and “organic” operating profit would have risen 3.9 percent.

Chief executive Jean-Francois van Boxmeer said the first half performance was “solid,” citing cost cutting and higher sales volumes, thanks in large part to a rebound in Russia.

Heineken has strong positions in Nigeria and Mexico, and expects growth to continue in Africa, Latin America and Asia.

Western European volumes rose overall, despite falls in Britain, the Netherlands and Greece.

In the U.S., the overall market shrank 2 percent and Heineken lost market share, Withagen said.

The company said negative factors in the second half include higher commodity costs and higher advertising spending — each up “in the single digits” in percentage terms from a year ago.

However, those will be balanced by lower taxes and ongoing cost-cutting programs, the company said.

Heineken’s net debt was (euro) 7.89 billion at the end of the quarter, down from (euro) 8.10 billion at the end of 2010.