Heineken sees Brazil as temporary drag in AB InBev challenge

(iStock)
(iStock)

London - Heineken, the world’s second-largest brewer, wants to challenge leader Anheuser-Busch InBev in one of its key markets - and that’s going to cost the Dutch brewer some lost profit.

The operating profit margin will expand about 25 basis points in 2018, below the target it had for past years, the brewer said on Monday, warning of a headwind as it integrates a business in Brazil that it bought from rival Kirin for 2.2 billion real ($666m). The stock fell 2.8% as of 9:15 in Amsterdam.

The Dutch company became the second-largest brewer last year in South America’s largest economy after Kirin stumbled amid competition with AB InBev. Heineken’s namesake brand had double-digit volume growth in Brazil in 2017, which is improving after a slump caused by a currency devaluation and political upheaval.

The integration is progressing “very well” and the dilutive impact on profit is less than the company first expected, chief financial officer Laurence Debroux said on a call with reporters. Heineken will give a long-term forecast for profit growth next year, she said, as the company moves past an earlier guidance set in 2014 for 40 basis points of annual margin expansion.

Revenue rose 5% on a so-called organic basis in 2017, the company said. Analysts expected 5.7% growth. Volume growth was led by Asia Pacific, where Vietnam is one of Heineken’s largest markets.

Adjusted operating profit of €3.76bn beat the consensus estimate of €3.65bn.

Rising bond yields could weigh on M&A valuations, Debroux also said.

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