Advertise with

Heineken’s attempt to challenge Anheuser-Busch InBev in Brazil is squeezing the Dutch brewer’s profit margin.
Heineken’s attempt to challenge Anheuser-Busch InBev in Brazil is squeezing the Dutch brewer’s profit margin.

Heineken shares fall most in three years, as Brazil eats into margins


By Thomas Buckley - Jul 31st 2018, 15:14

Heineken’s attempt to challenge Anheuser-Busch InBev in Brazil is squeezing the Dutch brewer’s profit margin. 

The world’s second-largest brewer forecast a drop in profitability this year as it expands more quickly than expected in Latin America’s biggest economy, where its beer business is less profitable than elsewhere.

The shares fell as much as 5.6% in Amsterdam, the most in almost three years.

Heineken became Brazil’s second-biggest brewer last year when it bought Kirin’s business there for about 2.2-billion real ($590m).

The Japanese company had stumbled amid competition with industry giant AB InBev, and now Heineken is stepping up the fight with increased marketing, causing a decline in its overall profitability even as it sells more beer.

"We weren’t expecting these products to accelerate so fast in the first year," chief financial officer Laurence Debroux said.

The company’s roster of brands in Brazil now includes Schincariol in the mass-market segment as well as more expensive Devassa and Eisenbahn lagers.

Kirin’s Brazilian unit was not profitable at the time of the acquisition, though it is now and margins should catch up to Heineken’s average level in three to five years, Debroux said.

"This should lead to a low- to mid-single-digit downgrade, on a stock which had performed well," Morgan Stanley analysts led by Olivier Nicolai wrote in a note to investors.

The full-year margin would shrink by about 20 basis points, Heineken said, also pointing to currency headwinds.

Adjusted operating profit rose 1.3% to €1.75bn in the first half, missing analysts’ estimates.

Heineken had forecast its margin to improve by 25 basis points this year in February, lower than its target for past years.

Higher raw material costs and a currency headwind are also reasons the brewer gave for cutting its forecast.

AB InBev reported earnings below estimates last week as marketing spending on the soccer World Cup hurt second-quarter profit growth.

Heineken’s beer volume rose 4.5% on an organic basis, compared with the estimate of 3.1%.
Business Live 

Related News

Push and pull strategies work together to keep consumers coming back for more
26/11/2019 - 10:20
The retail sector is under increasing pressure as consumers have shrinking disposable income in a strained economy. Maintaining share of wallet is critical. Relying solely on a push route to market strategy from manufacturers into retailers is not enough to get consumers buying products. A pull strategy needs to coexist with the push to drive brand consumption. Integrating these strategies requires intelligent and insightful decision-making. This, in turn, requires data generated through smart technology which provides line of sight across the value chain from manufacturer to distribution, retailer to the consumer.

Gearing FMCG manufacturing for the red season spike and maximising profits all year round
25/11/2019 - 11:03
As we enter the festive season, demand for Fast-Moving Consumer Goods (FMCG) increases rapidly, often leaving manufacturers scrambling to fulfill orders from their distribution channel. If demand cannot be met, then loss of revenue is inevitable. However, over-production is not an ideal solution either, as it can leave manufacturers sitting with unsold stock that costs money to store.

Pick n Pay shares five of its Black Friday deals
25/11/2019 - 10:10
Pick n Pay has released five of its nationwide in-store Black Friday deals as a teaser of what customers can expect this Friday.

Hong Kong protests hurt Richemont's profits
11/11/2019 - 13:17
Richemont’s share price took a hit after the company disappointed the market with its results for the six months to end-September.

Distell: no reward for shareholders patience
07/11/2019 - 10:23
It’s difficult to know what to make of Distell’s shareholders — they’re either a particularly forgiving bunch or they don’t see much connection between executive remuneration and profits.