Another Strong Q4 for Heineken, but Higher Marketing Spend Could Signal Hotter Competition

Heineken reported another impressive financial performance in 2022, with fourth-quarter results again marginally beating our expectations. So far, the fourth-quarter results of large-cap European consumer staples companies have been fairly strong, and Heineken continued that trend as volume in Asia roared back. This performance was assisted by the reallocation of cost savings to brand investments, which we expect to continue as Heineken drives growth in its premium and non-alcoholic brands, and may trigger more competitive spending by other brewers. As these brands generate above average margins, we do not expect any impact to profitability, however, and retain our narrow moat rating and EUR 90 fair value estimate. Heineken appears fairly valued at current levels, but could prove to be fairly defensive if economic conditions deteriorate.

Fourth-quarter organic volume growth slowed to 3.5% year over year in the fourth quarter from 8.9% in the third quarter and 6.9% in the full year. This deceleration was expected given Heineken was cycling a strong fourth quarter last year when several markets reopened. Growth in Asia, however, was very strong, with 22.9% fourth-quarter beer volume growth, primarily due to the gradual return of tourism in some key markets. While China was still implementing lockdowns in the fourth quarter, Heineken now reports its China exposure as equity income, which will affect the comparability of this number against competitors. While there were modest fourth-quarter volume declines in the Americas and Africa, Middle East and Eastern Europe divisions, Heineken reported volume growth of 1.9% in Europe, consistent with competitors that have signalled the European consumer remains fairly strong. The portfolio mix was again positive, as premium beer grew by 11.4% and was 15.6% ahead of its 2019 level, contributing to both revenue growth (up 19.1% in 2022 with over 10% price/mix) and margin expansion last year.