Carlsberg Profit Misses Estimates on Marketing, Wet Weather

Source: Businessweek

By Clementine Fletcher

August 15, 2012

Carlsberg A/S (CARLA), the biggest brewer in Russia, reported second-quarter profit that missed estimates as unseasonably wet weather stunted sales in Europe and the company increased advertising spending.

Earnings before interest, tax and some one-time items fell 6.1 percent to 3.47 billion kroner ($574 million), the Copenhagen-based company said. That missed the average estimate of 13 analysts surveyed by Bloomberg for 3.9 billion kroner.

"Ebit was somewhat surprisingly weak," Rune M. Dahl, an analyst at DNB Markets in London, wrote in a note today. "Carlsberg took market share in Russia but not as much as expected and the underlying market is still struggling in terms of volume."

Brewers have suffered as rain across Europe drags on beer volume growth. Larger competitor Anheuser-Busch InBev NV (ABI) said in July that its western European sales were hindered by wet weather, and SABMiller Plc (SAB) had "depressed" volume across western Europe even as the effects of the Euro 2012 soccer tournament boosted sales in central and eastern European countries.

Carlsberg's shares slid as much as 3.7 percent, or 19 kroner, to 490 kroner as of 9:32 a.m. in Copenhagen trading. Second-quarter revenue rose 4.5 percent to 19.59 billion kroner. Excluding currency shifts and acquisitions, sales rose 2 percent as the brewer raised prices.

Russian Market

Carlsberg owns Baltika, Russia's leading brewer, where the beer market grew 3 percent in the second quarter. The brewer faces the threat of possible increases in alcohol regulation in Russia, including a potential ban on plastic bottles. The government has set a Sept. 17 deadline for a decision on the matter, according to David Belaunde, an analyst at Morgan Stanley in London. AB InBev said second-quarter volume slid in Russia due to "challenging" circumstances as tax and prices increased.

Carlsberg's promotional investments were weighted to the first half of the year due to marketing restrictions Russia implemented in July, the brewer said. Sales and marketing investments, as a percentage of revenue, are expected to be about the same level as last year at its eastern European unit, it said.

Carlsberg reiterated its full-year forecast as a better ruble exchange rate of about 40.5 rubles to the euro for the year offsets the effect of bad weather. Carlsberg predicted in February that full-year operating profit will stay at about the same level as last year, based on an average exchange rate of about 43.3 rubles to the euro, and said it anticipates that adjusted net income will grow "slightly." The forecast excludes some one-time items.

The brewer got 39 percent of profit from its eastern Europe unit last year, and 49 percent from northern and western Europe.

Investments

The beer markets in northern and western Europe slid 3 percent to 4 percent, excluding Poland, in the first half of the year, more than the company had expected due to wet weather and "challenging consumer dynamics" in some countries, Carlsberg said. Poland's beer market grew 6 percent as consumers drank more beer during the soccer Euro 2012 tournament, held in that country.

Second-quarter revenue from the region slid 2 percent and operating profit plunged 12 percent as drinkers in markets like Denmark and France chose cheaper brands or bought more beer to drink at home instead of in bars and restaurants, Carlsberg said. Those figures exclude currency shifts and acquisitions.

Brewers are seeking growth in emerging markets to offset tough environments in Europe. Carlsberg's revenue and operating profit both increased in Asia in the second quarter, it said, aided by sales in India, Cambodia, Vietnam and Laos. Carlsberg introduced its Tuborg brand to China in April and added new bottles in Russia, India and Belarus during the first half.

"The first signs are very encouraging," the company said.

Net income increased to 3.36 billion kroner from 2.06 billion kroner last year as it booked a 1.7 billion-kroner pre- tax gain from the sale of most of its Valby site in Denmark.