By Katie Davis C arlsberg’s shares, along with their competitors in the industry, have been the steadily climbing, reaching record highs in March of this year, with Anheuser-Busch being the only one showing continued growth. ees’t Hart President and CEO of Carlsberg since 2015 hopes his turnaround strategy which involves a big drive to save costs and reinvestment to lift both the volume of beer sold and profits will tap into the operating margin lags that Carlsberg’s has compared to those of Anheuser-Busch, Miller and Heineken. Carlsberg currently trades at a discount to the three rivals, on a price-to-earnings basis, and the truth is, that’s deserved. Although Hart has done a good job with Carlsberg, there is still hard work ahead if he wants to lessen the gap between forward price earning, which focus on project earnings instead of prior earning if comparing standard price-to-earnings ratio.
Carlsberg’s forward price-earnings ratio remains at a discount to rivals despite the shares’ rise and as of August 2016 forward price-earnings ratio for Carlsberg and its competitors were:
30
20
10
0
The company’s strategy should close the gap in time and they were certainly positive as it closes in on Heineken. Good news for that is Carlsberg reported a better-than-expected 8 percent increase in organic operating profit in the first half, unfortunately their operat- ing margin was flat, at 11 percent, and revenue fell 15 percent in Eastern Europe, one of the higher-margin markets. Carlsberg expects operating profit growth to slow to just 1 percent in the second half as it grapples with rising produc- tion costs and a weak ruble in Russia, where it’s the country’s biggest brewer. The industry could get even tougher for Carlsberg and Heineken for that matter once the combination of Anheus- er-Busch and Miller is completed. As Anheuser-Busch is known for its ruthless cost cutting, and could drive per- formance and profit higher at the new Megabrewer. The margins of the two stand-alone companies are already best in class, so a fired-up and efficient jumbo competitor will complicate Carlsberg’s drive to turn itself around.
If Carlsberg can lift its operating margin closer to its rivals, then there is hope for the discount to narrow. Unfortunately, that’s not yet the case.
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OCTOBER 2016 • SPOTLIGHT ON BUSINESS
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