LONDON, Feb 12 (Reuters Breakingviews) - Heineken is mixing a cocktail to serve in a downbeat market. On Wednesday, the $45 billion brewer delivered sales and operating profit growth ahead of expectations. The boost was a surprise to investors who have been battered by unreliable results. Luckily, CEO Dolf van den Brink has room to keep surprising them.
Heineken surpassed even its own expectations. Last year, the Dutch brewer grew its revenue by 5% while its operating profit grew 8.3%. The latter in particular surpassed analysts' expectations of 5.3% and exceeded the company's own forecasts of up to 8%.
Heineken’s rosy outlook came as a shock to investors, who sent the shares up by over 12%. Brewers have had a rough few years since the pandemic. Inflation has increased costs and many younger would-be drinkers are abstaining. In 2023, U.S. beer sales fell to the lowest level in a quarter of a century, according to industry group Beer Marketer's Insight. And that’s before the looming impact of weight-loss drugs, which may make people less likely to drink. Before Tuesday’s bounce, Heineken shares had lost around a third of their value since last year’s peak in May.
Van den Brink can at least focus on what he can control. For the year ahead he reckons “variable costs” like ingredients and raw materials as well as currency swings, will increase. But he also plans to offset that by stripping out 400 million euros of costs via its IT upgrade and sustainability initiatives. He hopes as a result that EBIT this year could grow again by between 4% and 8%.
That growth could be sustained in coming years. Analysts expect Heineken to convert around 15% of its revenue into operating profit this year, according to LSEG data. Yet there’s plenty of scope for improvement: AB InBev, for example, should generate a margin of over 25% this year, again using LSEG forecasts. Even if sales flatline, van den Brink should be able to keep taking out costs. After Wednesday’s boost, Heineken’s shares are trading at around 15 times forward earnings, a steep decline from the more than 20 times multiple as recently as 2022. While the rich valuation is unlikely to return, van den Brink can at least avoid a totally flat future.
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