Declining Consumption And Rising Costs Will Erode Margin Stability

Key Takeaways

• Ongoing shifts toward health consciousness, rising regulations, and environmental mandates are constraining Carlsberg's revenue growth, profitability, and investment capacity across core and new markets.
  
• Macroeconomic uncertainty, currency volatility, input cost inflation, and increased retailer power are heightening earnings and margin risks, especially in key Asian markets.
  
• Growth in premium brands, product diversification, operational efficiencies, and successful integrations are driving higher margins, market share, and confidence in sustained earnings improvement.

Catalysts

Produces and markets beer and other beverage products in Denmark, China, the United Kingdom, and internationally.

• The company is expected to face prolonged headwinds in developed markets as ongoing declines in alcohol consumption-especially beer-due to health consciousness and shifting demographics will likely reduce Carlsberg's core addressable market and constrain long-term revenue growth, despite current strength in emerging regions.
  
• Anti-alcohol regulation and rising excise and packaging taxes continue to proliferate globally, especially in key growth markets across Asia and Eastern Europe. This will lead to persistent upward pressure on compliance costs and could compress net margins and profits for years to come, made worse by already elevated CapEx for environmental compliance and ongoing investment requirements.
  
• Carlsberg's increasing exposure to Asia and Africa, particularly China, Vietnam, and India, introduces significant currency volatility and macroeconomic uncertainty. Weak on-trade dynamics in China and challenging consumer sentiment in Vietnam are likely to dampen volume and revenue growth prospects in these key markets, increasing earnings volatility.
  
• Heightened environmental activism and stricter sustainability mandates in Europe and globally are forcing higher capital expenditures in production and sustainable packaging, which restrict free cash flow and slow return on invested capital. This trend is accelerating and will likely intensify, reducing capacity for growth-oriented investments over the medium and long term.
  
• Industry-wide input cost inflation-driven by energy prices, raw material shortages, and supply chain disruptions linked to climate change-poses a structural risk to gross margins and profitability. With consolidation of retail and distribution channels increasing retailer bargaining power, Carlsberg's ability to pass on higher costs will be limited, threatening operating leverage and long-term margin stability.

Carlsberg Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Carlsberg compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Carlsberg's revenue will grow by 6.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 8.1% today to 9.2% in 3 years time.
• The bearish analysts expect earnings to reach DKK 9.0 billion (and earnings per share of DKK 67.74) by about August 2028, up from DKK 6.7 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 12.0x on those 2028 earnings, down from 14.9x today. This future PE is lower than the current PE for the GB Beverage industry at 14.9x.
• Analysts expect the number of shares outstanding to decline by 0.77% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.92%, as per the Simply Wall St company report.

Carlsberg Future Earnings Per Share Growth

Risks

• Continued global premiumization and successful trading-up in emerging markets, especially strong growth of Carlsberg's premium brands in China, India, and across Europe, may result in higher average selling prices, supporting both revenue and net margin expansion.
  
• Robust growth in low
• and no-alcohol beverages, as well as soft drinks-with Britvic now accounting for 30% of group volumes and strong growth in Western Europe-points to product portfolio diversification that benefits from health and wellness trends, expanding both revenue and addressable market.
  
• Ongoing cost efficiency programmes such as Funding the Journey and large-scale supply chain improvements, highlighted by stable or improving gross margin in Asia and targeted SG&A savings globally, suggest Carlsberg can protect and expand operating margins even in a challenging environment.
  
• Urbanization and rising disposable incomes in key growth markets-particularly India and urban China-are translating into consistent double-digit volume growth, sustained market share gains, and increasing top-line revenue potential for major brands in these regions.
  
• Key synergies and successful integration of Britvic, combined with strong investments in sales, branding, and digital/IT infrastructure, create a robust platform for Carlsberg to achieve its long-term 4% to 6% revenue growth ambition and ongoing improvement in earnings, evidenced by the raised earnings guidance and confidence in compounding profit growth for shareholders.

Valuation

• The assumed bearish price target for Carlsberg is DKK723.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Carlsberg's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of DKK1350.0, and the most bearish reporting a price target of just DKK723.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be DKK97.7 billion, earnings will come to DKK9.0 billion, and it would be trading on a PE ratio of 12.0x, assuming you use a discount rate of 4.9%.
  
• Given the current share price of DKK753.0, the bearish analyst price target of DKK723.0 is 4.1% lower. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.