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Russia. Investors eye Carlsberg views on rising costs

Carlsberg's (CARLb.CO) strategy for coping with rising raw material costs and its views on growth in the key Russian beer market will be in the spotlight when the Danish brewer reports results on Monday.
The price of malting barley EOBc1 is up by about 50 percent since a futures contract in this commodity was launched in May last year.
Investors want to know whether Carlsberg -- the world's No. 4 brewer -- can offset such cost increases with higher prices.
"One of the big issues will be rising raw material costs and how Carlsberg views it," Nykredit Markets analyst Ricky Rasmussen said. "The price of raw materials has risen a lot and it is hard to transfer such large costs to consumers."
"It will start being a concern if raw material prices do not stabilise soon," Rasmussen said.
Heineken (HEIN.AS), the world's third-largest brewer, said on Wednesday it would almost completely offset an expected low single-digit percentage rise in costs with higher beer prices.
"Investors will be looking for signs of recovery (in Russia), but they will also look at pricing, for a statement like we got from Heineken that they are comfortable that price increases will cover the costs that are coming through," said SP Equity Research analyst Carl Short.
Russia will also be a focus because Carlsberg is the No. 1 brewer in the country, with just under 40 percent of the world's fourth largest beer market.
"Anything negative regarding the recovery of the Russian market will be taken badly," Short added.
Around 80 percent of the Russian beer market is controlled by four brewers -- Carlsberg's Baltika, Anheuser-Busch InBev (ABI.BR), Heineken and Turkish brewer Anadolu Efes (AEFES.IS).
"I expect Carlsberg to say they see market growth this year (in Russia) and that the initiatives due to be introduced by the government will not be too onerous for the brewers," Short said.
Carlsberg is expected to report a 17 percent drop in fourth-quarter operating profit to 1.36 billion Danish crowns ($246.8 million), partly due to the absence of one-off items that boosted the year-ago comparison figures and partly due to higher costs, a Reuters poll of analysts showed. [ID:nLDE71E248]
Heineken's earnings on Wednesday beat full-year forecasts as cost cuts in Europe and savings from a large Mexican acquisition more than offset lower beer sales.

17 Feb. 2011

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