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Why the coronavirus could hurt Budweiser beer

Brian Sozzi
Editor-at-Large

Sales for Anheuser-Busch InBev (BUD) could soon run dry in China as the coronavirus epidemic grips the country.

China comprises about 9% of Anheuser-Busch Inbev’s estimated $55 billion in annual sales this year, points out veteran beverage analyst Laurent Grandet of Guggenheim in a new note to clients. With the country at a virtual standstill — and no signs of economic activity picking up aggressively this month as coronavirus fears run rampant — demand for beer sales is likely to fall off a cliff.

At the same time, Budweiser’s cost base in China is likely to remain high as it operates 33 facilities in China, including a brewery in Wuhan. Grandet notes Anheuser-Busch InBev is also building a new brewery for Corona in China, which he believes will supply the country and surrounding country with the Mexico-inspired beer brand.

The one-two punch of plunging sales and elevated costs in China could wallop Bud’s bottom line in the first half of 2020.

Anheusher-Busch InBev didn’t immediately return Yahoo Finance’s request for comment on the status of its China operations.

CHICAGO, IL - SEPTEMBER 15: In this photo illustration, bottles of Miller Lite and Bud Light beer that are products of SABMiller and Anheuser-Busch InBev (respectively) are shown on September 15, 2014 in Chicago. Illinois. Shares of SABMiller have surged to an all-time high today on speculation of a takeover bid by Anheuser-Busch InBev, the world's largest brewer. (Photo Illustration by Scott Olson/Getty Images)

Grandet estimates that for every five point swing in China sales growth, it could hurt the company’s overall organic sales growth by 40 to 50 basis points. “We are reducing our price target to $97 (previous $105) due to lowering our valuation multiples which reflects the higher degree of earnings risk associated with coronavirus, especially if the virus spreads to South-East Asia and Africa where ABI has significant sales exposure,” Grandet said.

Budweiser isn’t alone in the food space as seeing its financials at risk of coronavirus, which as of Tuesday has killed 1,000 people. Grandet points out that yogurt-maker Danone also gets roughly 9% of its sales from China, Coca-Cola around 5%.

“From a consumer standpoint, it is highly likely that coronavirus will have a measurable impact on food and beverage sales both in retail and food service as the Chinese government has effectively quarantined an estimated 45 million people. Also given the travel restrictions around the globe, companies with large travel retail businesses could see a significant impact,” cautions Grandet.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Watch The First Trade each day here at 9:00 a.m. ET or on Verizon FIOS channel 604. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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