Heineken Holding NV (OTCPK:HKHHF)'s shares took a hit Monday when the company missed earnings expectations. Management blamed the disappointing result on a damp June and rising aluminum prices. Still, volumes were up, especially in emerging markets. The non-alcoholic brand is performing very well.
Net revenue was up 5.9%. Not bad at all! Total beer volume increased 3.1%, and the Heineken brand 6.9%. Net profit was down 1.4% to 936 million euros, and earnings per share declined 1.2% to 1.64 euros. Free cash flow was 578 million euros. The company will pay an interim dividend on the main shares of 64 cents.
For the rest of 2019, management sees “superior top-line growth driven by volume, price and premiumisation.” In other words, we’re in a strong economy and people are still drinking expensive beer. One of these days, the economy will have a hiccup and more folks will drink cheap beer. Management also sees mid-single-digit growth in operating profit.
Heineken 0.0, a non-alcoholic beer, is now available in 51 countries. The brand was launched two years ago and has 69 calories. The non-alcoholic beer market is killing it, with analysts expecting it to pass $25 billion by 2024. This division was up over 10% for Heineken.Â
Total beer volumes were up 3.1%. The segment encompassing Africa, Middle East and Eastern Europe rose 7.1%, with the Americas up 2.9% and Asia 10.4%. Europe alone declined, losing 1.15%. No doubt much of this growth was through mergers and acquisitions. The company purchased brand Tiger a few years ago, and it is growing in Asia. Amstel is doing well throughout the world.
CEO Jean-Francois van Boxmeer spoke with CNBC on Monday. He noted that revenue increased satisfactorily and that emerging markets have done well. He said he thought European numbers declined because the World Cup was not held this year and thus the company could not count on those sales. He was still bullish on emerging markets.Â
There are two classes of Heineken shares. The first is Heineken, which has a market cap of 55.6 billion euros. The second is Heineken Holdings, which owns a little over 50% of Heineken stock. Heineken’s stock sells at 97.06 euros and Holding’s stock sells for 92 euros. This means that buying Heineken Holdings gives a 5.2% discount. But put another way, that 1.64-euro interim dividend is slightly bigger for Holdings owners. My firm has owned Holdings for about seven years. With the dividend, we have about a 155% profit.
The Heineken family controls Heineken Holdings, which controls Heineken. Fomento Economico Mexicano controls 8.63% of the company, which it received several years ago when Heineken acquired Dos Equis, Sol and Tequate.
Morgan Stanley is not crazy about the stock. It has an “underweight” rating and a price target of 77 euros. It noted weakness in the U.S. and Mexico and brand weakness in Brazil. Morningstar thinks the shares are fully priced.
As for me, I’m a long term holder. I love Heineken. The industry is dominated by two primary players. Heineken has gone around the globe gobbling up competitors and small brewers like Lagunitas. We’re not buying now but are certainly keeping our shares that we bought several years ago.
Disclosure: We own shares of Heineken Holdings.Â
Read more here:Â
Value Investing With Millennium & Copthorne Pays OffÂ
Toyota Doing Well, but How Much More Debt Can the American Consumer Consume?Â
MGP Ingredients Gets Crushed With Revenue MissÂ
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
