Core Viewpoint - Heineken's recent H1 2024 results were below market expectations, but the company is still positioned for long-term growth despite short-term challenges [1][3][10] Financial Performance - Total consolidated volume for H1 2024 was 133.4 million hectoliters, missing consensus by approximately 2.5% [3] - Net revenue was €14.81 billion, up about 2% year-on-year, but fell short of consensus by around €380 million [4] - Organic net revenue growth was approximately 6%, which was around 170 basis points below expectations [4] - Underlying operating profit was €2.08 billion, reflecting a year-on-year growth of about 12.5%, but also missed consensus by around 70 basis points [4] Market Position and Growth Potential - Heineken's premium beer portfolio is growing, with premium volumes up over 5% in H1 and branded Heineken volumes specifically up over 9% [5] - Approximately two-thirds of the company's beer volume and EBIT came from developing markets in H1, which offer above-average growth potential [5] - Analysts project EPS to grow at a double-digit CAGR through 2027, supported by roughly 5% annualized revenue growth [8][9] Margin Dynamics - Heineken's underlying operating margin was 14%, approximately 160 basis points below pre-COVID levels, but up around 60 basis points year-on-year [5] - The company is focused on cost savings and has a marketing strategy that currently spends about 10% of revenue, compared to ~11.5% pre-COVID [5] - Gross margin was 53.5% last year, down about 670 basis points from 2019, with expectations for gradual improvement over time [7] Valuation - Heineken shares trade at around $45, equating to approximately 17x consensus underlying EPS, which is about 20% below the pre-COVID average [8][9] - The current leverage of ~2.3x EBITDA is at the low end of the company's historical range, indicating potential for buybacks or M&A as sources of upside [9]
Heineken: Eventual Margin Improvement Can Drive Attractive Returns