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AB InBev (BUD) Q2 Earnings & Sales Beat, Premiumization Aids

Zacks Equity Research

Anheuser-Busch InBev SA/NV BUD, alias AB InBev, reported solid second-quarter 2019 results, wherein earnings and sales surpassed estimates. This marked the company’s first earnings beat in the last four quarters, after reporting in-line earnings in the first quarter. Meanwhile, sales topped estimates for the third straight quarter.

Overall, shares of AB InBev have gained 45.2% year to date, outperforming the industry’s growth of 27.5%.


Q2 Highlights

Normalized earnings per share of $1.25 increased 14.7% from $1.09 earned in the year-ago quarter. Moreover, the bottom line beat the Zacks Consensus Estimate of $1.13. Earnings gained from improving trends in key markets and continued premiumization in majority of the markets, partly negated by adverse currency translations.

Anheuser-Busch InBev SA/NV Price, Consensus and EPS Surprise


Anheuser-Busch InBev SA/NV Price, Consensus and EPS Surprise

Anheuser-Busch InBev SA/NV price-consensus-eps-surprise-chart | Anheuser-Busch InBev SA/NV Quote

Underlying earnings per share (normalized EPS, excluding mark-to-market gains related to hedging of share-based payment programs and impact of hyperinflation) were $1.16 in second-quarter 2019, up 5.5% from $1.10 in the year-ago quarter.

Revenues were nearly in line with the year-ago quarter’s reported figure at $13,963 million and surpassed the Zacks Consensus Estimate of $13,667 million. Moreover, the company registered organic revenue growth of 6.2%, courtesy of 3.8% rise in revenues per hectoliter (hl) on strong volume growth. The top line also benefited from its global premiumization and ongoing revenue management initiatives.

Total organic volume advanced 2.1%, with own-beer volume rising 2.2% and non-beer volume up 1.8%. This marked the strongest volume performance in five years. Volume growth was aided by strength in its key markets — including, Mexico, Brazil, Europe, South Africa, Nigeria, Australia and Colombia.

Consolidated revenues at the company’s three global brands — Budweiser, Corona and Stella Artois — improved 8% globally and 11.3% outside their respective home markets. Further, its High End Company revenues rose about 20%. This growth was mainly backed by successful execution of the company’s premiumization strategy.

The cost of sales increased 1.9% to $5,263 million and 7.2% organically. Further, organic cost of sales per hl grew 4.4%.

The company’s normalized earnings before interest, taxes, depreciation and amortization (EBITDA) was $5,862 million, which rose nearly 3% year over year and 9.4% on an organic basis. EBITDA margin expanded 130 basis points (bps) to 42% and increased 123 bps organically. This increase was driven by organic sales growth, robust brand mix from premiumization and ongoing cost discipline. This was partly negated by significant commodity and currency headwinds.


AB InBev reiterates the encouraging guidance for 2019. The company anticipates delivering strong top-line and EBITDA growth for the year, backed by solid brand performance and robust commercial plans. Driven by increased focus on category development, it expects to deliver balanced top-line growth between volume and revenue per hl.  Net revenue per hl growth is likely to exceed inflation while costs (sum of cost of sales and SG&A) are expected to be below inflation. Premiumization and revenue-management initiatives are likely to aid revenue per hl growth.

The company projects cost of sales per hl to increase in a mid-single digit, with currency and commodity headwinds to be offset by cost-management initiatives.

Further, this Zacks Rank #3 (Hold) company reiterated synergy and cost-saving guidance at $3.2 billion that was announced in August 2016. Of this, nearly $547 million was reported by SABMiller as of Mar 31, 2016, and about $2,604 million was captured between Apr 1, 2016, and Jun 30, 2019. The company expects to achieve remaining synergies of nearly $50 million by the end of 2019.

For 2019, management anticipates normalized effective tax rate of 25-27%. Net capital expenditure is projected between $4 billion and $4.5 billion. AB InBev envisions dividend growth to be modest in the near term due to increased importance of deleveraging. However, dividends are likely to grow gradually in the long term.

Three Better-Ranked Stocks in the Beverage Industry

Castle Brands, Inc. ROX witnessed positive revisions for the current-year EPS estimate in the last seven days. The stock carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

PepsiCo Inc. PEP currently has a long-term earnings growth rate of 7% and a Zacks Rank #2.

Craft Brew Alliance, Inc. BREW, also a Zacks Rank #2 stock, reported positive earnings surprise of 20.8% in the last reported quarter.

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