Royal Unibrew Hit Hard by Broker Downgrades Following Loss of Pepsi Bottling Contract

Royal Unibrew RBREW is scrambling after losing its Pepsi bottling contract across the Nordic and Baltic regions, a deal representing about 13% of its revenue. Brokers were quick to slash earnings forecasts, sending the stock tumbling nearly 25% the day the news broke.

Deutsche Bank downgraded the stock to 'hold' from 'buy', estimating the lost business translates to a 17% organic hit in EBIT by 2029, even after accounting for partial cost savings. Goldman Sachs followed suit with a 'neutral' rating, slashing their price target by 29% and cutting FY29 earnings estimates by nearly a third, citing an elevated cost of capital and pessimistic outlook on earnings recovery.

The lost Pepsi volumes are expected to flow to Carlsberg CARLB and Coca-Cola European Partners CCEP. Citi highlighted this contract shift as a win for those two, with Carlsberg stepping in as the new Pepsi bottler for Denmark, Finland, Latvia, Estonia, and Lithuania from 2029.

Deutsche Bank's Mitch Collett pointed out that the departing contract, which carried an EBIT margin of 13%, will be costly to replace. While Royal Unibrew can dodge half the related selling and admin expenses, additional costs of about DKK300 million are expected, weighing heavily on profits.

Goldman's Aron Adamski foresees sub-5% EPS growth through 2030, down from previous forecasts above 9%, positioning Royal Unibrew behind its brewing rivals. He also flagged that investors might start assigning a higher risk premium to its remaining Pepsi licenses in the BeNeLux region, which make up 5% of sales.

Citi also flagged a potential scramble for Coca-Cola bottling contracts in Denmark and Finland, hinting that CCEP stands as the frontrunner to replace Carlsberg once their agreement expires at the end of 2028, with implications for all players involved.

While Royal Unibrew grapples with this significant loss of business, Carlsberg and CCEP seem poised to gain volume and market presence. The shakeup adds an extra layer of complexity in the competitive European beverage bottling sphere, where long-term contracts and market share shifts can heavily influence financial outlooks.

With the market already digesting the news and broker sentiment tilting negative, it remains to be seen how Royal Unibrew will recalibrate its strategy and costs to stabilize earnings in the years ahead.