Heineken Falls as Inflation Warning Overshadows Strong 2Q

By Geoffrey Smith

Investing.com -- Heineken (OTC:HEINY) stock fell in early trading on Monday after the world's second largest brewer warned of strong headwinds from inflation in the next 18 months, overshadowing a buoyant second quarter.

"Whilst consumer demand in aggregate has been resilient in the first half, there is increasing risk that mounting pressure on consumer purchasing power will affect beer consumption," Heineken said as it presented its second quarter earnings.

The Dutch-based brewer said it expects "significant inflationary pressures on our cost base" and ongoing high investment needs to affect its numbers through the second half of this year and also next year. In particular, it pointed to record high prices for natural gas, which it uses in large quantities for its industrial processes.

The company kept its profit guidance for this year unchanged, saying it still expects a modest improvement in operating margins. However, it hinted that this may not be the case next year, as it changed its focus to growing operating profit in overall terms, by a "mid to high single-digit" percentage. It had previously said its operating margin would improve further.

Heineken stock, which has risen some 15% since the initial shock of Russia's invasion of Ukraine, fell as much as 2% at the open but recovered to trade down only 0.5% by 3:55 AM ET (7:55 GMT).

The brewer's second quarter numbers came in comfortably ahead of forecasts due to a sharp bounce-back in demand across the globe as the easing of the pandemic allowed bars, restaurants, and other entertainment venues to reopen.

Earnings per share rocketed to 2.30 euros, more than 20% above expectations for 1.89, while net revenue rose a hefty 24.3%, nearly two-thirds of which was due to price increases. Organic sales volumes rose 7.6%, while growth in its premium brands topped 10%.

The company noted, however, that the results were - at least to a degree - flattered by the weakness of the euro. Extrapolating from current exchange rates, it estimated that the weak euro could add 1.5 billion euros ($1.53 billion) to net revenue and 140 million euros to net profit in the second half. Net profit in the second quarter was 1.27 billion euros.