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UPDATE 2-Carlsberg lowers outlook for net profit and Russian market
May 7, 2014 / 5:51 AM / 4 years ago

UPDATE 2-Carlsberg lowers outlook for net profit and Russian market

* Q1 EBIT 453 mln DKK ($85 mln) vs 749 mln forecast

* Lowers 2014 net profit guidance due to weak Russian rouble

* Sales fell 14 pct in Eastern Europe in the first quarter

* Sales growth in Asia weaker than expected

* Carlsberg shares trade 0.8 pct lower at 10.10 GMT (Adds comments from management, analysts, background, share price)

By Teis Jensen

COPENHAGEN, May 7 (Reuters) - Danish brewer Carlsberg A/S has lowered its outlook for Russia’s beer market and says the weak rouble will hit its bottom line in 2014. First-quarter results lagged because of sluggish sales in Russia and efforts to market more expensive brands in China.

Carlsberg, the maker of Baltika, Tuborg and Kronenbourg 1664, is the market leader in Russia, but it is suffering from a slowing Russian economy and a law banning the sale of alcohol from street kiosks. The combined factors led to an 8 percent slump in the Russian beer market last year.

Carlsberg now expects the Russian market to decline by mid-single-digit percentages in beer volume in 2014, Carlsberg said. Earlier guidance was for a low-single-digit decline.

Carlsberg’s sales dropped 14 percent in Eastern Europe in the first quarter, a little more than analysts expected. The kiosk closings hurt Russian sales in the first quarter.

“Going forward, there should be no more impact from kiosk closures,” Chief Executive Jorgen Buhl Rasmussen said on a conference call.

Included in the forecast for 2014 is a more uncertain macro situation in Russia and Ukraine, Carlsberg said.

“The outlook for sales and earnings in Russia and Ukraine for the rest of the year and in 2015 is worsened every day that goes by without the crisis getting solved,” analyst Morten Imsgard from Sydbank said about political tension in the region.

Carlsberg, the world’s fourth-largest brewer, maintained its expectations for operating profit to grow organically by high-single-digit percentages in 2014. But it said currency effects were likely to cut into the net result more than previously expected.

The group said that it now expects reported adjusted net profit to grow by low-single-digit percentages in 2014, down from an earlier guidance of mid-single-digit growth.

Carlsberg’s new 2014 outlook is based on a euro-rouble exchange rate of around 51, compared with an assumption of 49 in its earlier guidance. The brewer said a difference of 1 point on the exchange rate would affect operating profit by around 100 million crowns in 2014.

WEAKER ASIA GROWTH DUE TO BRAND CLEAN UP

In Asia, sales grew by 21 percent, far less than analyst forecasts of almost 40 percent.

“It is a problem for Carlsberg if the growth in that region is also starting to be questioned,” Alm. Brand Bank said in a note to clients.

Carlsberg has more than 500 brands worldwide. Especially in China, it is working to increase the sales of its more expensive beers, Rasmussen said.

“You always end up with some brands at the bottom of your portfolio no longer being very profitable, and that’s what we are cleaning up ... ” he said. “That’s what you’re seeing we are doing in the first quarter, especially in China, and it of course has a negative volume impact in our Chinese volume development.”

The price per litre of beer sold has increased significantly in China, Carlsberg said.

Over the past few years, the Danish brewer has pushed deeper into Asia, with a leading market share in Nepal, Laos and Sri Lanka. But it has far smaller shares of the much-larger markets of India and China.

In 2013, Carlsberg started building two Asian breweries, in China and Myanmar, and took control of China’s Chongqing Brewery.

In Western Europe, Carlsberg’s largest region, sales grew by 2 percent, which was slightly weaker than expected.

Global brewers have pushed deeper into emerging markets in search of sales growth that is lacking in western Europe and North America, where revenues grow only from raising prices and shifting consumers to more expensive beers.

Carlsberg’s operating profit before special items fell to 453 million Danish crowns ($84.56 million) in the first quarter from 680 million a year ago. That was below a forecast for 749 million crowns in a Reuters poll.

Carlsberg’s shares were trading 0.8 percent lower at 1010 GMT. The Danish benchmark index is down 0.2 percent lower.

Alm. Brand Bank said that Carlsberg’s “strong execution” when it comes to increasing the average price of its sold beer offset some of the disappointment over the sluggish sales numbers.

The world’s largest brewer, Anheuser-Busch Inbev, also reported on Tuesday. Click here for more.

$1 = 5.3571 Danish crowns Additional reporting by Annabella Nielsen; Editing by Kim Coghill and Matt Driskill, Larry King

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