Brewer Carlsberg reported a 26 per cent rise in third-quarter operating profit today, but lost market share in Russia and warned of rising input costs in 2011, which hit its shares.
Carlsberg raised its 2010 view on key market Russia, where it is market leader, to a mid-single digit percentage decline from its expectation in August of a high single-digit drop.
It also nudged up its profit outlook after a hot summer and rising consumer sentiment in eastern Europe provided a boost.
Chief executive Jorgen Buhl Rasmussen said that while the firm sees signs of recovery in eastern Europe, conditions remain challenging in several northern and western European markets.
"Rising input costs will have an impact and we will therefore have to increase sales prices," he said.
Prices on malt, wheat and barley have surprised, mainly in eastern Europe, Mr Rasmussen said.
"The fires and the drought in eastern Europe have clearly had an effect in the autumn, more than we had thought in July and August."
ING analyst Gerard Rijk said Carlsberg's eastern Europe unit, which includes Russia, disappointed compared with rivals, as did its message on input costs and the need to raise prices.
Carlsberg gets more than half its revenue in western Europe. But as those markets are saturated, it sees mid-term growth in Russia - despite a tripling of beer tax in January to combat alcoholism - and longer term in Asia.
The maker of Carlsberg, San Miguel, Kronenbourg and some 300 other brands said beer drinking in Russia grew in the quarter despite the tax hike, thanks to economic recovery and heat.
The Russian market grew 2 per cent in the quarter, slowing the nine-month drop to 5 per cent, Carlsberg said. Its Russian Baltika unit had 39 per cent market share, marginally down from the previous quarter, the brewer said.
Price hikes unexpectedly unmatched by rivals and increased marketing by competitors caused the drop, Rasmussen told the analyst conference.
Rival Anheuser-Busch InBev has launched its Budweiser in Russia this year.
Mr Rasmussen, who had earlier predicted market share gains in Russia this year, said: "We probably need to face the fact that it will be flat (in 2010), maybe with a small decline."
Third-quarter operating profit rose to 4.17 billion crowns from 3.3 billion a year earlier, topping an average forecast in a Reuters poll for a 20 per cent rise. Net profit however lagged expectations.
Carlsberg now sees full-year operating profit rising to more than 10 billion crowns from 9.39 billion in 2009. Its previous guidance had been for around 10 billion.
Traders said the revision was smaller than some investors had expected, contributing to the drop in Carlsberg's shares.
Fourth-quarter earnings in eastern Europe will be "significantly lower" than a year ago, partly due to higher input costs, the brewer said.
Mr Rasmussen said he expected markets in eastern Europe to grow next year, and probably the rest of Europe too.
Markets in eastern Europe will grow overall in 2011, and probably somewhat in the rest of Europe too, he predicted.
Reuters