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Carlsberg Profit Outlook Disappoints as Beer Volume Declines

By Dave Simpson

Danish brewer Carlsberg left its full-year profit forecast unchanged and warned of a tougher third quarter, disappointing investors after first-half earnings clearly beat estimates.

The shares fell as much as 3.9% in Copenhagen, the most in a year, as the Tuborg maker said it still anticipates mid-single-digit organic growth in earnings, implying a much weaker second half. Operating profit rose 15% in the first half as bigger-than-expected cost savings compensated for declining beer volume, particularly in eastern Europe.

The second half of the year will see Carlsberg reinvest a higher proportion of savings into its business in addition to increased costs related to its turnaround program, chief financial officer Heine Dalsgaard said on a call with analysts. Poor weather in northern Europe in the first weeks of the third quarter may also weigh on results, he said, potentially dealing a setback to a turnaround in the brewer’s financial performance.

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“Today’s results confirm the challenges that Carlsberg faces are ongoing,” Eddy Hargreaves, an analyst at Investec, said in a note. The brewer’s presence in tough markets such as Russia, India and China “makes us cautious about the near-term direction of forecasts.”

A key area of concern was eastern Europe, where the volume of beer sold declined about 13% in the quarter, compared with analyst estimates for a 4.2% drop. Carlsberg is the largest brewer in Russia, where its share of the plastic-bottle beer market declined 5% as competitors lowered prices, chief executive officer Cees ’t Hart said on a call.

Carlsberg is aiming to cut the best part of 2 billion kroner of costs by the end of this year to defend against an enlarged and more profitable rival following the combination of Anheuser-Busch InBev NV and SABMiller Plc. Earlier this month, AB InBev merged its Russia and Ukraine business with that of Turkey’s Anadolu Efes, heaping pressure on Carlsberg’s operations in Russia, where the Danish brewer controls more than a third of beer sales.

“The cost savings are coming through; we’re driving down overhead costs and supply chain efficiencies,” Dalsgaard said.

Carlsberg reduced its full-year forecast for gains from currency shifts to 50 million kroner from 300 million kroner.

News by Bloomberg. Edited by Hospitality Ireland.

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