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Problems for Heineken in its first quarter arrived like a bunching of buses. Bad weather, inflation and tax hikes were all blamed for the fact that beer sales volumes fell in all markets except Asia over the first three months. For anyone who had given the Dutch brewer the benefit of the doubt that its exposure to a stuttering Europe could be offset by growth in emerging markets, now is the time for a reality check. Shares fell 6 per cent on Wednesday.
Compared with SABMiller and AB InBev, western Europe is twice as important in terms of earnings for Heineken, Bernstein notes. The second problem is its exposure within Europe. That explains why Heineken's sales volumes fell 8 per cent in the region compared with SABMiller's 3 per cent rise over the first three months. As a result of SABMiller's asset swap with Efes, it no longer has direct exposure to Russia where Heineken's sales were hurt by the kiosk ban. Meanwhile, the former's lack of presence in France meant it missed out on the rise in excise duty that hurt Heineken. SABMiller's Peroni brand also helped it to buck the trend in the U.K. where on-premise sales have suffered from a remarkably cold winter.
Unfortunately for Heineken, however, performance was also poor elsewhere. High inflation in Nigeria dragged on its Africa volumes, while in the Americas sales fell by 2 per cent. Only Asia – a sixth of volumes – gave any sign of hope with sales volumes up 8 per cent.
The hope was that Heineken's €525-million ($701-million) cost saving program, which it is half way through, would help operating margins to expand this year. But with sales volumes unlikely to improve much in Europe and Nigeria, that is looking ever less probable. Investors will be waiting a long time for Heineken's shares to narrow the discount at which they continue to trade with peers.