Heineken profit up, says brand outperforms market

By Alexandra Hudson

AMSTERDAM (Reuters) - Heineken NV (HEIN.AS), the world's third-largest beermaker, posted a 7.4 percent rise in operating profit and better-than-expected sales on Wednesday despite higher grain and packaging costs, lifting its shares by 2 percent.

Africa and the Middle East delivered an underlying 23 percent jump in revenues and Heineken, which also makes Amstel and Tiger beer, was also buoyed by contributions from assets of Britain's Scottish & Newcastle (S&N) which it bought in April.

First-half profit before special items rose to 925 million euros ($1.36 billion) on sales of 6.4 billion euros, up 17 percent.

"We have maintained the momentum of our top-line growth and again ensured that the Heineken brand outperforms the market and increases its share of the international premium segment," Chief Executive Jean-Francois van Boxmeer said.

Costs rose by 15 percent in the first half as it paid more for grains, glass, aluminum and energy and it said it expected them to rise by 8 percent next year.

Analysts said Heineken's restatement of year-before figures on Friday had complicated forecasts while some were disappointed in the brewer's outlook for volumes.

"Given the restatement of joint-ventures and S&N, EBIT was a bit blurred," said analysts at Rabo Securities.

"We believe that Heineken's results are not as bad as feared given a strong top line ...the outlook for 2008 is very cautious though, but provides room to over-deliver," Rabo analysts wrote in a research note.

Volumes rose 5.4 percent on an underlying basis, a rate the Dutch company said it expected to see again in the second half.

"These results are more or less in line with expectations, although I think the outlook for volumes is somewhat disappointing," said analyst Richard Withagen at SNS Securities.

Heineken shares were up 2.46 percent at 32.06 euros as of 6:45 a.m. EDT, outperforming the DJ Stoxx food and beverages index which was down 0.69 percent.

PREMIUM PROSPECTS

Heineken posted 5.3 underlying net profit growth for the first half and forecast growth in the mid-single digit percentage range at least for the year, down sharply from 2007 reflecting weaker markets.

Heineken posted underlying profit growth of 23 percent last year after guidance of 20-25 percent.

The credit crisis, waning consumer confidence and smoking bans in bars have all taken their toll on the beer market, though growth for premium brands such as Heineken remains.

The brewer said its Heineken brand grew by 5.8 percent in the international premium segment and was well-positioned to exploit further growth.

Volumes of the brand rose 2.5 percent in Western Europe, where the brewer's sales as a whole declined by 1.3 percent on an underlying basis.

"We can extract value from mature markets by pushing premium brands and new initiatives and cutting costs," Chief Financial Officer Rene Hooft Graafland told a news conference.

Since acquiring parts of S&N and becoming the number one player in the British market, Heineken is particularly focused on boosting its brand in the UK.

Heineken trades at around 13.7 times projected 2009 earnings compared with 15.1 for Carlsberg (CARLb.CO), 14.2 for Stella Artois and Beck's maker InBev INTB.BR, and 15.8 for Diageo (DGE.L), which owns Guinness, according to Reuters data.

(Editing by Sue Thomas/Jason Neely)