Drop in beer sales cuts the foam from Heineken's profits

Heineken NV, the world's third-largest brewer, said profit growth stalled in the first half as French, Dutch and US customers cut back on beer drinking. The stock posted the biggest decline in almost 14 years.

"We can no longer confirm that net profit will grow in 2003," said Albert Holtzappel, a spokesman for the Amsterdam-based company.

Chief executive officer Anthony Ruys forecast an increase in full-year earnings as recently as April.

Net income for the six-month period will be little changed from the 330 million euros (US$380.5 million) it posted a year earlier after rising 10 percent or more in the previous six half-year periods.

The brewer said lackluster demand at bars and clubs was compounded by the dollar's drop against the euro.

"It doesn't look like Heineken has everything under control," said Lex Werkheim, who helps manage 250 million euros at Eureffect BV in Amsterdam and sold his stake on Monday.

"The stock has gone from reasonable growth to no growth," Werkheim said.

The Dutch maker of Amstel lager and Murphy's stout lost more than 1.6 billion euros of its market value yesterday after indicating European and US customers are drinking less beer. Shares of Anheuser-Busch Cos, the industry leader, and No. 2 SABMiller Plc also dropped on concern demand may not revive as consumers turn to other beverages.

Heineken shares slumped 4.17 euros, or 12 percent, to 29.89 euros in Amsterdam, the lowest level since October 1998. The drop was the steepest in at least 13 years.

Shares of Anheuser-Busch, the maker of Budweiser, fell as much as 1.1 percent in New York, SABMiller shares dropped 5.4 percent in London, while Interbrew SA of Belgium, the brewer of Stella Artois, shed 3.5 percent in Brussels. Interbrew releases a statement about its business today.

"The news from Heineken and other brewers in the past months has made it clear that the conditions in the global beer arena have been depressed," Richard Withagen, an analyst at Delta Lloyd in Amsterdam, said in a note to investors.

"We do not expect that Interbrew has been able to escape from these bad conditions," he said.

Demand for beer is falling, Heineken said, citing the war in Iraq, US smoking bans, the euro's rise against the dollar and the spread of SARS as reasons for depressed sales.

Heineken's sales fell in the US, France, the Netherlands, Greece and Asia in the first six months of the year. In France, sales volumes declined as much as 10 percent, the company said.

Its goal of increasing US sales by 7 percent this year is no longer "realistic" because smoking restrictions in New York and Boston bars have exacerbated a slowdown in beer consumption, chief financial officer Rene Hooft Graafland said during a conference call.

Heineken is the No. 2 imported beer brand in the US after Grupo Modelo SA's Corona.

The dollar's drop against the euro will shave 30 million euros from this year's net income, or 10 million euros more than expected, Heineken estimated. The company has hedged 90 percent of its dollar exposure for this year and 41 percent for next year, Graafland said.

The dollar has dropped 9.9 percent against the euro since Jan. 1. The euro's advance against other currencies will reduce operating profit by at least 25 million euros in the first half.

Heineken declined to forecast full-year growth.

"A substantial part of beer sales is realized in the summer months of July and August," the brewer said in a statement. The company plans to give indications about profit for the whole year on Sept. 10, when it reports first-half earnings.