The Battle of Heineken with InBev hits its profits

INTERNATIONAL – Heineken's attempt to challenge Anheuser-Busch (AB) InBev in Brazil squeezes profit margins as the Dutch brewer predicts a drop in profitability this year.

The shares of the world's second-largest brewer fell nearly three years earlier, after announcing a faster-than-expected expansion in Latin America's largest economy, where its brewing activity is less profitable than elsewhere.

Heineken became the second Brazilian brewer last year by acquiring the activities of Kirin Holdings. for around 2.2 billion real (7.8 billion rand). The Japanese company had stumbled due to competition with industry giant AB InBev, and now Heineken is stepping up the fight with increased marketing, resulting in a decline in its overall profitability even though it sells more beer. ", Said financial director Laurence Debroux

The company's list of brands in Brazil now includes Schincariol in the mbad market segment as well as the more expensive lagers Devbada and Eisenbahn. The Kirin unit in Brazil was not profitable at the time of the acquisition, even though it is now, said Debroux.

Heineken recorded double-digit volume growth in Brazil in the first half, while AB InBev recorded a 9.4% growth in its business in the second quarter. On the other hand, the volume of Dutch breweries fell by 0.1% in Europe, its largest market, in the first half of the year.

The year 's margin will drop by about 20 basis points, Heineken also says. Adjusted operating profit increased 1.3% to 1.75 billion in the first half, missing badysts' estimates.

"This should lead to a one- or two-digit downgrade, on a track that performed well" headed by Olivier Nicolai wrote in a note to investors.

Heineken dropped to 6.1percent in Amsterdam. The Dutch brewer in February had forecast an improvement of 25 basis points this year, lower than its goal of the past years. Higher raw material costs and a headwind are also reasons the brewer gave for reducing his forecast yesterday.

AB InBev reported lower-than-estimated results last week, as marketing spending on the football World Cup penalized earnings growth in the second quarter.

Heineken recorded an organic increase in its beer volume of 4.5%.

– BLOOMBERG