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Heineken Shares Plunge on Stagnant Profit

Heineken NV (HEIA), the world’s third-largest brewer by volume, said full-year profit is unlikely to grow, sending the shares down the most on record.

So-called organic adjusted net income for 2011 will be “broadly in line” with last year, the Amsterdam-based company said today in a statement. Heineken reported adjusted profit of 1.45 billion euros ($2.1 billion) on that basis last year, and analysts had expected profit this year of 1.68 billion euros, according to the average of 23 estimates compiled by Bloomberg.

Poor weather conditions in Europe and low consumer confidence caused weak volume sales in July and August, Heineken said today as it announced first-half profit that missed analysts’ estimates. The brewer gets about 45 percent of revenue from western Europe, where sales have also been crimped by increased competition and tightening household budgets.

“The outlook statement contains the biggest disappointment,” Richard Withagen, an analyst at SNS Securities in Amsterdam, said in a note. He said his own profit estimate may have to be reduced by 3 percent and consensus by 10 percent. Heineken fell as much as 5.81 euros, or 16 percent, to 30.40 euros in Amsterdam trading. The stock traded at 30.98 euros as of 9:15 a.m.

First-half earnings before interest and tax rose to 1.26 billion euros, excluding some items, from 1.14 billion euros a year earlier, the company said. The median estimate of five analysts surveyed by Bloomberg was 1.37 billion euros.

Advertising Spending

Organic sales gained 3.3 percent, while the consolidated volume of beer sold on the same basis rose 3.9 percent.

The weather “has had a big influence, particularly in the northern hemisphere,” Chief Executive Officer Jean-Francois van Boxmeer said today on a call. Heineken will increase marketing expenditure “by low single-digits” in the second half of the year regardless, he said, as “development and building brands are long-haul efforts.”

After reporting first-quarter profit growth of more than 20 percent, Heineken said in April it didn’t expect to maintain the same pace of expansion for the rest of the year as it increases advertising and promotional spending, which will affect “profit development in the near term.” Organic adjusted net income excludes some items and the effect of currency fluctuations and acquisitions or disposals. The company consolidated the Femsa beer operations for the first time from May 1, 2010.

Heineken expects a “slightly higher” rate of input cost inflation in the second half, and maintained its guidance for “a low single-digit increase” in input costs per hectoliter.

New Cost Plan

Van Boxmeer declined to comment on how much the brewer will have to raise prices next year to offset higher costs of commodities including malting barley. “Buying campaigns are not completed yet, and it’s a very competitive issue,” he said.

Heineken today announced a new cost-cutting plan, set to start in 2012, to replace its Total Cost Management program, which ends this fiscal year. It gave no details. Total Cost Management delivered 80 million euros of cost savings in the first half of the year.

“A company has to continue to address its productivity issues on an ongoing basis,” Van Boxmeer said. “If in the past we’ve been devoting a lot of attention to our infrastructure in terms of brewing and overheads, going forward we’ll devote a lot of attention to our purchasing activity.”

Source: Clementine Fletcher (Bloomberg)