Heineken's Full-Year Profit Up 41 Percent
AMSTERDAM (AP) — The world's third-largest brewer Heineken NV reported strong growth in 2010 profits on Wednesday due to cost-cutting, but said its 2011 mug is half-full: consumers in rich countries are cautious and grain prices are rising, but the company expects to offset that by hiking prices.
Heineken said it plans to invest in advertising to reverse a slide in sales volumes in Europe, where it is the largest beer seller, a move that will hurt short-term profits in the region.
Net profit in 2010 was €1.44 billion ($1.95 billion), up 41 percent from €1.02 billion in 2009. Revenues grew 9.5 percent to €16.1 billion. The family-controlled company does not release quarterly profit and loss figures.
Net profit was helped by cost-cutting and a €199 million gain on asset sales, Heineken said. Revenues were boosted by Heineken's $7.8 billion acquisition in April of Mexican beer maker Femsa, owner of brands such as Dos Equis and Tecate. Revenues would have fallen 2.2 percent comparing operations owned in both years, as price increases failed to keep pace with volume falls.
Shares rose 4.9 percent to €38.705 in early Amsterdam trading.
Geographically, Heineken enjoyed strong growth in Nigeria, South Africa, Brazil, and several mid-sized Asian countries. In Europe and the U.S. it saw sales fall, though Dos Equis and Newcastle Brown Ale sales rose in the U.S.
"Although the company expects an improving economic environment in Europe and the USA in 2011, the impact of austerity measures and high unemployment is expected to result in continued cautious consumer behavior in these markets," it said in a statement on the earnings.
However, it said it expects its high-margin premium brands to outgrow the overall market.
The company, which is exposed to commodity costs in the form of the barley it puts in beer and the energy costs it needs for production and distribution, said it expects to handle the recent price spikes without difficulty.
"Heineken forecasts a low-single digit increase in input costs and plans to mitigate this impact through increased pricing," it said.
Perhaps most notable were the company's remarks on Europe, where it is the largest brewer thanks to its ownership of Britain-based Scottish & Newcastle.
"In Europe, Heineken will shift its prime focus toward volume and value share growth, with increased investments in marketing and innovation in Heineken and other key brands, further supported by the international rollout of higher margin brands," the company said.
"Whilst this is expected to affect profit development in Europe in the near term, it underlines our commitment to strengthening our leadership position in the region."
In the past the company had focused more on margins.
Analysts said Heineken is pulling out the stops to remain number one in Europe.
"The volume loss in this region is simply weighing too much on its asset base and needs to be arrested, which will come at the expense of (near-term) profitability," said SNS Securities analyst Richard Withagen, who rates shares a "hold."