Heineken profit beats expectations on strong Europe

CNBC.com with Reuters
Key Points
  • H1 operating profit 1.81 bln euros vs 1.76 bln euros in poll
  • Major markets Mexico, Vietnam strong
  • Europe benefits from late Easter, early summer
Heineken CFO: Current FX rates would reduce profit by 130 million euros

Heineken, the world's second-largest beer maker, reported higher than expected earnings in the first half of 2017, with the strongest profit growth in Europe thanks to a late Easter and an early start of warm summer weather.

The Dutch brewer of Europe's top-selling lager Heineken, as well as Tiger and Sol, said volumes, revenue and profits grew on a like-for-like basis in all four of its regions, with turnarounds from weak first quarters in Africa and the Americas.

Volume growth in Ethiopia and South Africa more than offset a decline in Nigeria while a strong Mexican market ensured expanding sales in the Americas, with declines in Brazil, Panama and to a lesser extent the United States.

Vietnam, one of Heineken's top two markets, continued strong. In Europe, where profit growth was strongest, volumes increased in France, Italy, Spain and Portugal, helped by a late Easter and the warm drink-inducing weather.

"If you look at volume around the world, it's a very balanced performance between price increase, mix development and volume," Laurence Debroux, chief financial officer of Heineken, told CNBC Monday.

"Balanced volume growth in Europe, good volumes in Vietnam, particularly for the Tiger brand, and you see a bit of recovery in some countries in Africa.

The company said on Monday that it continued to expect revenue and profit growth this year, despite continued volatility. It is targeting a 0.4 percent improvement in operating margin for the year, excluding the acquisitions of the Brazilian business of Japan's Kirin and U.S. craft brewer Langunitas, and its planned purchase of most of the pubs of Britain's Punch Taverns.

Source: Heineken USA

However, the company said that its Brazil takeover, consolidated from June 1, would be margin dilutive by 0.4 percentage points this year.

"(It was) a very good first half, but very much in line (with expectations) as well, and we still believe the second half will see volatility so we're guiding towards the same 40 basis points, excluding our largest acquisitions," Debroux noted.

She said that the company was continuing to account for fluctuations in the price of the euro, but would not speculate on where the currency was headed.

Heineken CFO: Current FX rates would reduce profit by 130 million euros

The brewer said its first-half operating profit rose 11.8 percent before one-offs to 1.81 billion euros ($2.12 billion), above the 1.76 billion euro average expected in a Reuters poll of seven analysts.

Benefiting from the 'craft phenomenon'

The growing popularity of craft beers, particularly among new consumers within the beer market, has prompted some to raise questions about the future of the classic pint, but Debroux insisted that the new trend has reignited the conversation around beer and provided a boon for Heineken.

"The craft phenomenon is kind of helping us by bringing back the conversation, not only around lifestyle but around the product, the origin, the way it's played, which is really something that plays for us at Heineken."

Debroux also pointed to growing demand for lower or non-alcohol alternatives and said it is a segment that the brewer will continue to pursue.

"Non-alcoholic beer is a very interesting one, because beer companies are rightly looking to this as a growth opportunity because we're seeing more health conscious consumers," Jonny Forsyth, global drinks analyst at Mintel, told CNBC Monday.

Forsyth noted that the non-alcoholic segment has a ceiling of around 15 percent of total sales for brewers, but at 1-2 percent currently, it continues to have room to grow.

"If we look at craft, everyone said it's not going to go beyond 10-15 percent. In the U.S. it's gone to over 20 percent of value so we are seeing a changing consumer."

"But," he added, "I do question whether (non-alcoholic beer) will fill the hole left by the decline of sales of standard strength beer."

Heineken ranks as the world's number two brewer, although the gap between it global leader AB InBev has widened after the latter's near $100 billion takeover of SABMiller late last year.

- Reuters contributed to this report.