AMSTERDAM (AP) — Heineken NV, the world's third largest brewer, said Wednesday it is going to ramp up its advertising spending this year to lure reluctant consumers in Western Europe and the U.S., as it reported a 22 percent increase in first-quarter sales due to acquisitions and mild growth.
Net profit was euro151 million ($217 million). The family-controlled company issues only partial financial information on a quarterly basis, and did not provide a net profit comparison figure.
It said sales grew to euro3.59 billion, mostly due to the company's acquisition of Dos Equis and other brands from Mexico's FEMSA. Operating profit was also boosted around 20 percent by the Dos Equis purchase, volume growth, and cost cutting.
"Heineken remains confident in continued positive volume development in Latin America, Africa and Asia," the company said in a statement Wednesday. "Whilst we are witnessing gradually improving economic conditions in a number of countries in Europe and in the USA, consumers remain cautious with their spending behavior."
It said it expects to spend more money on advertising in the U.S., Britain, Spain, Greece, Poland and Canada this year, which will hurt net profit.
"However, we expect this investment to support our focus on long-term brand equity building ... in key markets," it said.
Shares fell 1.6 percent to euro39.56 in early trading.
Comparing like for like, sales were up 3.6 percent, Heineken said, as it sold 6.7 percent more beer by volume, but prices fell, mainly in Russia, which accounted for 40 percent of the total volume growth. Prices were also lower at its wholesale business.
Heineken is the largest brewer in Europe via its ownership of Scottish & Newcastle. "Prices in Western Europe were broadly stable," Chief Financial Officer Rene Hooft Graafland said on a conference call with analysts.
He said the company has not yet been impacted by rising grain prices, but expects brewing costs per hectoliter to rise in the "low single digits" this year — costs which the company hopes to pass on to customers in the form of limited price increases.
"Volumes and revenues were broadly in line with our expectations," said SNS Securities analyst Richard Withagen in a note on the earnings. He predicted operating earnings growth will slow as the year goes on "when marketing spending relative to sales will exert margin pressure, especially in Europe." SNS rates the shares a Hold.
By region, the company's performance closely reflected macroeconomic developments, with volumes down in Spain, Ireland, Portugal and Greece, but up more than 10 percent in Africa and Asia. Volumes were also up in Brazil, Chile and Mexico.