Surely A Large Human
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Heineken first-half profit climbs 35%
By Steve Goldstein, MarketWatch
Last update: 5:40 a.m. EDT Aug. 27, 2008
LONDON (MarketWatch) -- Dutch brewer Heineken on Wednesday reported a 35% rise in first-half profit, buoyed by drinkers opting for more high-end beers, slashing costs and the company's acquisition of half of Scottish & Newcastle.
Heineken (NL:00916: news, chart, profile) , which is also the maker of Amstel Light, Dos Equis and Tiger beer, said its first-half profit rose to 407 million euros ($598 million) from 302 million euros.
Revenue rose 17% to 6.41 billion euros, or a 7% rise on a comparable basis.
The world's number-four brewer by volume said its profit rose 7% to 925 million euros when stripping out exceptional items and goodwill amortization. By that measure, Heineken's profit wasn't as strong as some analyst estimates.
Still, Heineken shares rose 2.5% in morning Amsterdam action. Heineken shares have dropped about 30% over the last year.
"Heineken's first-half results could be described as a relief especially taking into account the all time high 10% outstanding short interest," said Nico Lambrechts, an analyst at Merrill Lynch.
"The results contain something for the bears and the bulls, but we do not believe the market will materially increase full year earnings at this stage with the key summer consuming months nearly completed," he added.
Like all brewers, Heineken is faced with rising input costs, both for the grains used to produce the beer and for the metals used to package it.
Per hectoliter, input costs rose 15%, Heineken said.
Heineken has employed hedges to compensate this year's raw material and packaging costs and has in place 50% of what's needed for next year, when it expects prices to rise by another 8%.
But the company recorded beer volume growth of 15%, much of that coming on the Scottish & Newcastle deal. Heineken and Carlsberg jointly bought Britain's Scottish & Newcastle for 7.8 billion pounds, or roughly $15 billion, and then broke the company in half.
Heineken became the number-one brewer in the U.K. and became the number-two position in Portugal, Finland and Belgium through the Scottish & Newcastle deal, which added brands like Newcastle Brown, Kroenenbourg 1664 and Strongbow to Heineken's portfolio.
The Scottish & Newcastle deal, which closed in May, contributed 28 million euros to adjusted profit and 608 million euros to revenue.
Heineken said it would have added 32 million euros to earnings and 1.51 billion euros to revenue had it closed on the beginning of the year.
Last week, Heineken announced more savings from the deal, anticipating 184 million euros a year rather than 152 million euros.
Slowing sales in Western Europe, U.S.
The rest of the volume growth was driven by strong performances in Africa, Central and Eastern Europe and the Asia Pacific region, which offset slowing volumes in Western Europe and the U.S.
Price rises, weakening economies and the implementation of smoking bans hurt sales in Western Europe, while in the U.S., less promotion and weak trade hurt Heineken-branded lager sales. Amstel Light sales also dropped.
Worldwide, Heineken-branded beer volumes grew 5.8%, allowing it to gain market share in the international premium segment.
It's also cut costs as part of its Fit 2 Fight program, mostly on supply-chain initiatives but also on the implementing of shared service centers in Poland and Italy.
For the year, Heineken is targeting at least mid-single digit, organic profit growth -- by that measure, its profit grew 7.5% during the first half -- and for the volume trends to continue into the second half.
Heineken hadn't previously issued a profit forecast for the year.
It's going to pay a dividend of 28 eurocents a share, up 17% from last year.
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