AB InBev (BUD) on Track With Its Growth Efforts: Apt to Hold?
AB InBev BUD has been gaining from continued consumer demand for its brand portfolio. Accelerated digital transformation, pricing actions and continued premiumization bode well. This led to robust top-line growth in second-quarter 2023.
Revenues of $15,120 million improved 2.2% from the year-ago quarter. The company registered organic revenue growth of 7.2%, primarily driven by robust revenue per hectoliter (hl) growth and improvement across more than 85% of its markets. It also witnessed double-digit top-line growth across four of its five operating regions.
Revenues reflected strong performances of its three global brands — Budweiser, Corona and Stella Artois — which advanced 18.4% outside their home markets in the second quarter. The Corona brand grew 23.7%, Stella Artois improved 14.5% and Budweiser increased 16.9% outside their home markets. Revenue per hl was up 9% on an organic basis, backed by revenue-management initiatives, the expansion of the beer category across the company’s key markets and premiumization efforts.
Backed by the continued business momentum, the company outlined its view for 2023, which seems encouraging. For 2023, AB InBev expects EBITDA growth of 4-8%, in line with its medium-term outlook and our estimate of 4%. It anticipates revenue growth to be higher than EBITDA growth, driven by strong volume and pricing. We estimate 6% revenue growth in 2023.
Moving on, AB InBev has been investing in developing a diverse portfolio of global, international and crafts and specialty premium brands in its markets. Apart from the premium brands, the company’s global brands lead the way in premiumization. The company’s above core portfolio grew revenues in the mid-teens in second-quarter 2023, driven by strength in Modelo Especia.
BUD is focused on expanding its Beyond Beer portfolio, which has also been aiding the top line. The Beyond Beer trend has recently been gaining popularity due to the rise in demand for low-alcoholic or non-alcoholic drinks. Notably, the Beyond Beer portfolio contributed more than $385 million to the total revenues in second-quarter 2023. The global Beyond Beer business’s revenues improved in the mid-single digits in the second quarter, driven by the expansion of Brutal Fruit in Africa and the Vicky portfolio in Mexico.
It has been rapidly growing its digital platform, leveraging technology, such as B2B sales and other e-commerce platforms, including BEES and Zé Delivery. The company’s digital transformation initiatives have been on track, with B2B digital platforms contributing about 64% to its revenues in the second quarter. The company noted that the monthly active user base of BEES reached 3.3 million users as of Jun 30, 2023.
However, AB InBev continued to witness higher costs and soft margin trends in the second quarter, owing to commodity headwinds and higher supply-chain costs in some markets.
The cost of sales increased 3.3% on a reported basis and 9.2% on an organic basis to $7,019 million in the second quarter. SG&A expenses declined 4.6% year over year to $4,707 million but increased 9.4% on an organic basis. Higher SG&A expenses can be attributed to elevated supply-chain costs.
Consequently, the company’s normalized earnings before interest, taxes, depreciation and amortization (EBITDA) were $4,909 million, which fell 3.7% year over year on a reported basis. The normalized EBITDA margin contracted 190 basis points (bps) on a reported basis and 69 bps organically to 32.5%. The decline in organic EBITDA can be attributed to commodity cost headwinds and increased sales and marketing investments.
Also, underlying EPS (normalized EPS, excluding mark-to-market gains and losses related to the hedging of share-based payment programs, and the impacts of hyperinflation) of 72 cents in second-quarter 2023 fell 1.4% from 73 cents in the year-ago quarter.
Wrapping Up
All said, we expect AB InBev’s robust demand, digital transformation and continued premiumization to offset cost headwinds. The Zacks Rank #3 (Hold) stock has gained 15.5% in the past year compared with the industry’s growth of 2%.
Image Source: Zacks Investment Research
The PEG ratio (a great indicator of value) comes in at 1.71, which is far better than the industry average of 1.88. Clearly, BUD is a solid choice on the value front from multiple angles. Topping it, a VGM Score of B and a long-term earnings growth rate of 10.8% speak volumes.
Stocks to Consider
Flowers Foods FLO emphasizes providing high-quality baked items. The company currently carries a Zacks Rank #2 (Buy). The expected EPS growth rate for three to five years is 2.3%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales suggests growth of 6.7% from the year-ago period’s actual. FLO has a trailing four-quarter earnings surprise of 7.6% on average.
The J. M. Smucker Company SJM, which manufactures and markets branded food and beverage products, presently has a Zacks Rank of 2. SJM has a trailing four-quarter earnings surprise of 14% on average.
The Zacks Consensus Estimate for The J. M. Smucker’s current financial-year earnings suggests growth of 6.8% from the year-ago reported figure.
Utz Brands Inc. UTZ manufactures a diverse portfolio of salty snacks. It currently carries a Zacks Rank #2. UTZ’s expected EPS growth rate for three to five years is 11.4%.
The Zacks Consensus Estimate for Utz Brands’ current fiscal-year sales suggests growth of 3.7% from the year-ago reported numbers. UTZ has a trailing four-quarter earnings surprise of 12.3% on average.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
The J. M. Smucker Company (SJM) : Free Stock Analysis Report
Anheuser-Busch InBev SA/NV (BUD) : Free Stock Analysis Report
Flowers Foods, Inc. (FLO) : Free Stock Analysis Report
Utz Brands, Inc. (UTZ) : Free Stock Analysis Report
