What's going on?
Shares of Dutch beer brewer, Heineken, fell by 5% on Monday. It reported first-half results below investors’ expectations, and warned that its 2018 profits would be lower than planned, too.
What does this mean?
The maker of boozy bevvies including Sol and Strongbow actually had good sales momentum in the first half of 2018, but profits became blurry when taking into account the strength of the euro. Heineken’s euro costs rose as the currency got stronger compared to currencies that the company sells in – like the Vietnamese dong and Mexican peso – meaning it was making less money per drink sold overall.
There was a chaser of good news… but it came with a sour aftertaste. In Brazil, where Heineken bought rival Kirin last year, sales growth was higher than expected. However, Kirin’s less profitable than the rest of Heineken overall, so higher sales growth in Brazil still meant lower profit margins for the company as a whole.
Why should I care?
For markets: Heineken’s shares were punch drunk.
Heineken’s shares fell, likely due to investors digesting the company’s lower profits this year. In Brazil, the company competes with beer-bellied giant AB InBev – valued at $200 billion and owner of brands like Beck’s (for comparison, Heineken’s valued at “just” $60 billion). Investors may be wondering whether the company can improve Brazilian profit – if it increases prices, AB InBev might hit back with lower ones. Remember: consumer companies are still having a tough time raising the prices they charge customers.
The bigger picture: A pint? More like several.
Several alcohol companies have turned to acquisitions as a way to grow. In 2016, AB InBev became the world’s largest brewer by buying rival SABMiller, and it’s since made eyes at craft beer brands that have proved popular among millennials. The trend extends to spirits, too, with Smirnoff maker Diageo buying George Clooney’s startup tequila brand in 2017 for a neat $1 billion.