Heineken, the Dutch brewer, may experience a considerable drop in profits for the year 2024, potentially falling well below analyst projections due to geopolitical and economic instability. This anticipation has led to a decline in its shares, with a decrease of up to 6.5%.
The world’s second-largest brewer has a decent track record of growing sales and profit in a highly competitive market. However, it is still well behind its bigger rival, AB InBev, regarding operating margins.
But Heineken’s share price has lagged behind its main peers in recent years as investors have grown skeptical about the sustainability of earnings growth. The company aims to boost revenue and improve efficiency through “continuous productivity improvements” to help fund investments in its brands, digital transformation, and strategic capabilities.
Investors will be keen to see whether Heineken can deliver a return to growth in the future, especially after its first-half results missed expectations this week. The brewer reported organic net revenue growth of 6.6%, but beer volume fell by 4.7% as consumers curbed their consumption in key markets such as Vietnam and Nigeria.
In the first six months, Heineken saw a sharp slowdown in demand in Asia Pacific, which is usually its most robust growth market. Beer prices rose, but this was not enough to offset the decline in sales. The brewer has been trying to hook customers with more premium drinks, such as its South Korean-inspired soju brand, but this strategy has yet to pay off in the region.
The brewer raised prices across its portfolio to offset steep cost increases, which also hurt volume growth. In addition, a stronger euro and higher energy costs weighed on the company’s profits.
Heineken cut its profit forecast in July and said it expected “tough market conditions in some key markets.” It has already shifted the focus of its development strategy away from developing countries and towards its mature, high-growth markets. It also invests in smaller, niche brands that appeal to young drinkers.
The company’s diversified portfolio includes Heineken, Amstel, Sol, Tiger, Birra Moretti, Affligem, and Mort Subite. Heineken is present in 192 countries and employs more than 118,000 people worldwide.
Heineken expects a return to organic profit growth in the low-to mid-single digits this year, helped by decreasing costs from last year’s high level. But this still leaves the brewer well short of the high-single-digit growth it has long targeted. In the long term, Heineken aims to drive higher-value revenue by balancing growth between volumes and prices. This approach is more likely to be successful in developed markets where prices are lower than in emerging ones, which tend to be more sensitive to inflationary pressures. In such a scenario, premiumization should offer more scope for Heineken to boost profit margins. That might attract more investors to its stock. Despite concerns about the current environment, Heineken remains one of Europe’s leading exporters and is still a good buy at 18 times earnings. The stock is trading near the bottom of its five-year range, but it remains one of the best beer stocks in the world.