Heineken is on course for a tougher second half

Heineken is on course for a tougher second half

There was a general thumbs up from analysts in the wake of Heineken's H1 results yesterday. But while many praised the brewer's strong volumes increases, there was concern over what may well be a more difficult second half to the year.

Analysts at Nomura reported that Heineken had beaten volumes expectations, while sales were higher than estimated in all regions except Central Europe. They also praised a cost-cutting programme that should start to deliver more benefit to the Dutch brewer's bottom line.

The programme - known as TCM2 as it is the second phase in an ongoing drive - helped Heineken improve margins considerably in H1, with consolidated operating profit margins up by 150 basis points. UBS's Melissa Earlam called the growth “impressive”, though she pointed out that organic profits growth in Western Europe was below sales increases despite strong volumes.

Equally impressed was Bernstein's Trevor Stirling, who in yesterday's analyst conference call anointed Heineken's results as “cracking”.

In a later note, Stirling wrote that Heineken is “starting to show its true pedigree” after “several years of frustrating results”. If it can continue to funnel savings to underlying profit then the brewer will likely be in line for a share price boost, Stirling added.

Heineken didn't have it all its own way. There was a consensus among analysts - and, to be fair, Heineken's management, too - that H2 will be more difficult.

The brewer will be without the volumes increases afforded by the FIFA World Cup, while there are tougher comparisons in the two quarters ahead because of more favourable weather last year. Furthermore, Nomura highlighted other risks, not least a potential upscale in the Ebola virus threat in Nigeria, a country that accounts for about half of Heineken's Africa business.

In yesterday's conference call, CEO Jean-François van Boxmeer said he was monitoring the issue but that the impact on Nigeria had been “limited”, with other countries harder hit. Similarly, in Russia, another region troubled with uncertainty, van Boxmeer said recent trade sanctions had so far had little effect.

Nomura, however, predicts further weaknesses in the Russian market in H2, though this is probably more down to a shrinking beer market caused by five years of tax increases and marketing restrictions than the Ukraine crisis. 

But whatever the reason, Heineken can be glad it doesn't share the exposure to eastern Europe rival Carlsberg has. Yesterday the Danish brewer announced it may have to close some of its Russian sites, a move that overshadowed its own second-half results. So while, there may be clouds on the horizon for Heineken, in contrast to gloomy Carlsberg, it will have enjoyed yesterday's day in the sun.