Heineken NV, the second largest beer maker in the world cut its full-year margin guidance Monday after it posted earnings for the first six months that fell short of market expectations.
The Heineken lager, Sol, Tiger and Strongbow cider brewer forecast that margins would fall by 20 basis points in comparison to its previous forecast that called for an increase of 25 basis points.
The Dutch beer maker, whose Heineken lager is the No. 1 selling beer across Europe, said this was due to a higher than had been expected negative translational hit by currencies and large dilutive effects of expanding its operations in Brazil.
Heineken CEO Jean-Francois van Boxmeer called the effect in Brazil both good and bad news on Monday. Boxmeer said that Brazil has an average margin that is lower across the company’s products, but it is growing at a much faster rate than has been anticipated so that news is very good.
He added that the premium market for Heineken in Brazil was growing faster than was expected by the company, but that comes with lower margins that the group’s average, but we are confident that over the years ahead, Brazil’s margins will catch up to the group average.
Van Boxmeer explained that with the currency hit that the stronger euro weighed on the input costs of the company, as well as translational effect from foreign exchange on the euro.
The positive news said the CEO was that the company experienced strong growth in revenue, and continues to invest behind it revenue growth since the right programs are in place so nothing will change in that regard.
On the news of the lower forecast, shares of Heineken fell 5% at the open of European markets.
Profits are being squeezed in Brazil as the company attempts to challenge the hold Anheuser-Busch InBev has on the beer market in the country.
Heineken is now the second largest beer maker in Brazil after a strong 2017, when it acquired Kirin Holding Co.’s business in the South American nation for $590 million. Kirin, based in Japan, stumbled amidst competition with AB InBev the giant in the industry and now the Dutch brewery is increasing the battle with more marketing, causing a drop in its profitability even though it sells much more beer.