In the Spotlight - Carlsberg gets tough love from analysts
World Cup boosted Carlsberg brand sales
Carlsberg has done its best to blow away fears over Russia's wheat shortage and this week surprised many by doubling its profit forecasts for 2010, but analysts and journalists are a hard bunch to please - as the Danish brewer has discovered.
"If Carlsberg did profit forecasts", "From Russia with love" - the headline writers have had fun with Carlsberg's half-year results announcement this week. The Danish brewer bullishly predicted that net profits would rise by 40% in 2010 compared to its previous forecast of a 20% increase. Profits leapt by 57% in the first six months of the year, versus the first half of 2009.
What's more, beer sales have fallen less steeply than anticipated in Russia following the Government's tax hike. Carlsberg's market-leading Baltika Breweries nudged its volume share of the sector to 40%. Other brewers also made gains, predominantly at the expense of Heineken.
This time last week, just-drinks was hurriedly digesting reaction to news that Russia would ban all wheat exports for at least the rest of the year. Carlsberg was the biggest faller in a slide on brewers' share prices, but has since clawed back ground on the strength of this week's results.
"We have increased our expense behind brands and activities, a high number of new products were launched, and successfully executed campaigns and events drove the improved market shares in a significant part of our business," Carlsberg CEO Jorgen Buhl Rasmussen told analysts. "At the same time, we relentlessly continue our focus on efficiency agenda as we still see a vast number of opportunities to improve the profitability of the group."
However, some analysts and commentators pointed out that, behind the confidence and impressive headline profits figure, Carlsberg could be vulnerable.
Renee Schultes, writing on the Wall Street Journal website, said that the key for Carlsberg remains cost cutting. "With global demand for beer still sluggish, Carlsberg will need to dig even deeper for cost savings and show that it can sustain recent market share gains," said Schultes, adding that the need for cost savings does not necessarily match with A&P investment needed to sustain share gains.
Sanford C Bernstein analyst Trevor Stirling said that Carlsberg's earnings before interest and tax in the second quarter of the year were 15% ahead of analyst consensus.
But, he questioned the brewer's statement that it could avoid a "material impact" on earnings from wheat price rises. "We expect momentum in H2 in E Europe to slow. Firstly, Baltika is largely unhedged on malting barley and will face increased input costs. Secondly, we expect A&P support to rise. Finally Q4 faces very tough comps," said Stirling.
In addition, many analysts - and also Carlsberg, to be fair - pointed out that the bulk of the profits gain in the half-year was a result of the Russian Rouble currency.
Still, in the UK, most media declared Carlsberg the "winner" of the battle for thirsty FIFA World Cup fans. The brewer's advert featuring England players and an all-star cast of past and present sporting greats helped the group to make its Carlsberg brand the best-selling beer in the key UK off-trade segment.
The Economist picked out promising signs for brewers in Asia, as Carlsberg became the latest of the multinationals to report strong growth in China in particular over recent months. But, the magazine said that beer producers still need to improve profitability. "Some day, billions of thirsty Asians will make global brewers sing. But not today."
Such was Carlsberg's optimism in a relatively flat global beer market, observers immediately set about probing for weaknesses. The firm's clear challenge in the second half of 2010 is to hang on to gains made.
Asia Pacific Breweries has posted a healthy lift in Q1 sales and profits, driven in part by acquisitions....
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