Heineken Earnings: Volume Still Weak, but Relief Is on the Horizon

For the second consecutive quarter, Heineken HEIA reported that consumers were balking at the steep price increases that it has implemented over the last 18 months. It now seems unlikely that the brewer will achieve our volume estimates this year, so we have modestly lowered our forecasts in some regions. However, the price increases pushed through this year mean that revenue is still likely to grow modestly, in line with our forecasts, and management has not changed its full-year outlook. We retain our EUR 96 fair value estimate and narrow moat rating. The market shrugged off the report; it seems the stock was already pricing in the slowdown in growth. The shares now trade at a 10% discount to our fair value estimate as of the Oct. 25 close.

Third-quarter net revenue grew 4.5% year over year, a slowdown from the 6.6% growth generated in the first half of the year. Although beer volume continued to decline, down 4.2% organically in the third quarter, the contraction was not as steep as it had been in the first half of the year, when beer volume fell 5.6%. By region, volume declines moderated in Asia-Pacific, down 4.6% organically in the third quarter, but there was a 10.1% decline in the Africa, Middle East, and Eastern Europe region. Management hinted at further price increases to come in the fourth quarter, but with the Producer Price Index now in retreat in many countries, it seems likely that inflation-led pricing will ease in the coming quarters, which should support an improvement in the volume trend. We forecast volume stabilization in 2024 and a return to low-single-digit growth the following year when inflationary pressures ease.

Management provided a nine-month net profit figure of EUR 1.924 billion, implying a reported decline of 12.5% from the same period a year ago. This includes the company’s exit from Russia and other scope factors and implies modest underlying growth, in line with our expectations.