Carlsberg earnings fall as Russia goes flat

Carlsberg has cut its annual profit forecast after quarterly earnings missed estimates amid plunging volume in Russia and slower-than- expected cost savings in western Europe.

Operating profit in 2015 will decline slightly, the Copenhagen-based company said yesterday, prompting an 8% plunge in the shares.

It had previously forecast mid- to high-single-digit growth. Earnings in the second quarter slumped 19%.

The setback increases the pressure on chief executive Cees ’t Hart, two months after he assumed leadership of the brewer from Joergen Buhl Rasmussen.

The CEO has to figure out a way to contend with a slumping market in Russia, where Carlsberg is the biggest beer maker.

He said yesterday he has started a strategic review, the outcome of which will be announced in the first half of 2016.

“Part of the miss is driven by the slow delivery of cost savings from their self-help initiatives,” Jonathan Fyfe, an analyst at Mirabaud in London, said in a research note.

“Those initiatives formed a significant part of our investment case for Carlsberg, so that is particularly concerning.”

The company said it failed to achieve the full range of anticipated savings in western Europe in the first half.

Carlsberg shares fell up to 47 kroner (€6.30) to 543 kroner in Copenhagen, the steepest intra-day drop since December 16.

A strong full-year performance in Asia won’t be enough to offset weaker results in western Europe and tough conditions in eastern Europe, Mr Hart said in the statement.

In Russia, the beer market dropped 9% in the second quarter amid a slump in the country’s currency and tightening regulation.

Carlsberg closed two breweries there this year to counter weakening demand.

“We are starting to get more negative about what to expect from the Russian consumer this year,” chief financial officer Joern Jensen said on a conference call with investors.

Carlsberg plans to makes “all the changes necessary” to cope with the difficult market conditions, though has no radical plans such as closing more breweries, he said.

The beermaker plans to involve 60 to 70 senior members of its leadership in the strategic review, Mr Hart said. The aim of the review is to “re-establish and further strengthen our financial flexibility,” he said.

Earnings before interest, taxes and one-time items were 2.92bn Danish kroner (€390.6m), Carlsberg said. Analysts on average had estimated profit of 3.23bn kroner.

Sales in the quarter fell 3% on an organic basis, which excludes currency and acquisition effects.

“Expectations will now be reset,” Francois Mosnier, an analyst at Exane BNP Paribas, said in a research note.