On Air Now

Listen

Listen Live Now » 93.7 FM Sheboygan, WI

Weather

Current Conditions(Sheboygan,WI 53081)

More Weather »
67° Feels Like: 67°
Wind: ENE 14 mph Past 24 hrs - Precip: 0”
Current Radar for Zip

Tonight

Partly Cloudy 54°

Tomorrow

Sunny 73°

Thurs Night

Mostly Clear 58°

Alerts

Carlsberg hit by rocky Russian market and rising costs

A bartender serves a glass of Carlsberg beer at a bar in Kuala Lumpur, July 4, 2012. REUTERS/David Loh
A bartender serves a glass of Carlsberg beer at a bar in Kuala Lumpur, July 4, 2012. REUTERS/David Loh

By Mette Fraende

COPENHAGEN (Reuters) - Danish brewer Carlsberg has scrapped its profit margin target for eastern Europe, blaming volatile markets and raw material costs, and damping hopes the region can offset sluggish demand in western Europe.

The world's fourth-biggest brewer said on Monday sales growth had stalled in its key Russian market and the cost of an efficiency drive in western Europe would cap earnings growth this year, sending its shares down as much as 7 percent.

"The change in long-term financial targets is probably the most disappointing element in the report," said Sydbank analyst Morten Imsgaard.

"It helps paint a picture of a brewery which is not entirely in control of factors which are decisive for earnings," he said.

Carlsberg, like bigger rivals AB Inbev , SABMiller and Heineken , is relying on emerging markets to offset weak beer sales in recession-hit western Europe and help it cope with volatile prices for raw materials like barley, energy and packaging.

The group has built up a market-leading position in Russia in the hope its burgeoning middle classes will drive growth and reduce its reliance on western Europe, which currently accounts for just over 60 percent of sales.

However, growth rates in Russia have been has been hurt by a government drive aimed at curbing alcohol abuse, with measures taken including excise tax increases and a ban on advertising in all media, including the internet.

"Several events, both within and beyond our control, have and will continue to impact margins," Carlsberg said as it scrapped its target for an operating profit margin of 26-29 percent for eastern Europe by 2015. The group made an operating margin in the region of 21.7 percent in 2011.

Carlsberg did give a longer-term target for average growth in adjusted underlying earnings per share of more than 10 percent per year.

However, it forecast operating earnings this year would reach only around 10 billion Danish crowns ($1.79 billion) from 9.8 billion in 2012, lagging an average forecast of 11 billion in a Reuters poll of analysts.

"The guidance they give for 2013 is not particularly aggressive." said Alm Brand analyst Stig Nymann. "I don't really see anything positive."

Carlsberg said an efficiency drive in western Europe, which includes centrally managing all procurement, production, planning and logistics, would hurt in the short term.

The revamp, while helping operating margins in the region in the long term, would cost 300-400 million crowns this year, 400-500 million in 2014 and 500 million in 2015, it said.

RUSSIA STALLS

Carlsberg, whose brands include Baltika and Tuborg, said sales growth in Russia stalled in the fourth quarter. That was better than a broader market decline of 2-3 percent, it said, but down from growth of about 2 percent in the third quarter.

Chief executive Jorgen Buhl Rasmussen offered little hope the Russian market would see much improvement this year, citing restrictions on mobile beer stalls.

"Driven by the short-term interruption from the closure of sales from non-stationary outlets, we believe a flattish market is likely," Rasmussen said.

A year ago, Carlsberg replaced the head of Russian division Baltika Breweries to address slowing sales at that time.

Its market share in Russia fell to 38.3 percent in the fourth quarter from 38.9 percent in the third, ending a string of three consecutive quarters of improvement.

Fourth-quarter operating profit before one-off items was 2.15 billion crowns, missing analysts' average forecast of 2.3 billion.

Eastern Europe accounted for 4.6 billion crowns of sales, or around 29 percent, while western Europe accounted for 9.2 billion crowns, or 61 percent.

Last week Heineken, the world's third-largest brewer, reported higher-than-expected 2012 profit on the back of sharply increased earnings from Africa and the Americas and forecast higher volumes and revenue this year.

At 7.50 a.m. ET, Carlsberg shares were down 6.9 percent at 561 crowns, the biggest fall by a European blue-chip stock <.FTEU3>.

($1 = 5.5874 Danish crowns)

(Additional reporting by Teis Jensen; Editing by Ritsuko Ando and Mark Potter)

Comments