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Carlsberg cuts outlook as Russian beer market stalls

Danish brewer Carlsberg cut its full-year outlook when reporting a 13 per cent fall in quarterly profit that missed forecasts after sales in its key Russian market were hit by higher prices, sending its shares diving.

"Second-quarter performance in Russia has been below expectations," chief executive Jorgen Buhl Rasmussen said on Wednesday.

The world's fourth-largest brewer said it now saw full-year adjusted net profit growth of five to 10 percent, against previous guidance for more than 20 per cent.

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Carlsberg also cut its outlook for 2011 beer volume growth in Russia, which accounts for about 40 per cent of group sales.

Second-quarter operating profit fell 13 per cent to 3.70 billion Danish crowns or $702-million, compared with a forecast for 4.34 billion crowns in a Reuters poll.

Sales rose 4.3 per cent to 18.74 billion crowns, in line with an 18.73 billion forecast.

"The recovery in the beer category is taking longer than we anticipated as the Russian consumer adapts to the exceptional price increases of around 30 per cent undertaken during the last 18 months," Mr. Rasmussen said, adding that it had a negative impact on Russian profit and was the driver behind its downgraded outlook.

"I would not have thought that Carlsberg would have to downgrade its outlook due to this," Alm. Brand analyst Stig Nymann said, adding he had expected it would have been easier to get price increases through in eastern Europe.

"Perhaps we are now heading towards more difficult times for the Russian economy and Carlsberg ought to be careful not to tighten the price screw too hard from now on," Sydbank analyst Morten Imsgard said.

Rising raw materials prices have been challenging the world's brewers, who have looked to compensate by passing higher costs on to drinkers. The price of barley, a basic ingredient for brewing beer, has risen more than a third this year.

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Fires and drought in eastern Europe last year have helped push up the price of malt barley. Unfavourable weather during the second quarter also hit beer consumption, the brewer said.

Carlsberg shares were down 18 per cent to an 18-month low at 368.90 crowns by 10:45 a.m. GMT as investors remained worried about Russia, which is trying to reduce alcohol consumption.

"The market is nervous about how Russia will look in the coming years," said Nykredit analyst Ricky Rasmussen.

Carlsberg said it saw Russian beer volumes growing by a low single-digit percentage figure against a previous forecast of two to four per cent. The Russian market declined about two per cent in the second quarter, it said.

It stuck to a mid-term view of three to five per cent beer volume growth in spite of Russia's crackdown on the sale of beer.

Russia plans to impose a ban on all beer sales at outdoor kiosks, public transport stations, airports and petrol stations, which account for around a third of national sales, and the measures are to take full effect from 2013.

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Russian consumers switching from spirits to drinks with lower alcohol contents would ensure that Carlsberg could meet its mid-term growth, the chief executive said.

"If we all agree on the historic trend that lower alcoholic beverages take a higher share, then by definition, beer should come up in consumption," said Buhl Rasmussen.

"I am confident that our Russian business will return to growth," Mr. Rasmussen said, adding he was pleased with the performance elsewhere – markets in northern and western Europe grew slightly, while in Asia most beer markets reflected growth of mid- to high single-digit percentages.

For the Copenhagen-based brewer of Tuborg, Baltika and Carlsberg beers, northern and western Europe account for about 40 per cent of total beer sales and Asia about 20 per cent.

"It looks good for the business in northern and western Europe, and in Asia which is seeing strong growth in China," Imsgard said.

With files from Teis Jensen

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