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Global Brands Bolster AB InBev's Sales, High Costs Remain Woe

Zacks Equity Research

Anheuser-Busch InBev SA/NV BUD, alias AB InBev, is witnessing robust top-line trends, owing to persistent strength in its three global brands — Budweiser, Corona and Stella Artois. Additionally, the company’s global premiumization and ongoing revenue management initiatives have been key drivers of sales growth in the past few quarters.

Notably, AB InBev’s sales beat in first-quarter 2019 marked its second straight beat as well as the fifth positive surprise in the trailing six quarters. Moreover, the company registered organic revenue growth of 5.9%, courtesy of an increase in revenues per hectoliter (hl) and robust volume growth. Total organic volume advanced 1.3%, with own-beer volume rising 1% and non-beer volume up 4.9%. Further, healthy performances in key markets — including Brazil, China, the United States, Europe, Colombia and Nigeria — boosted the top line.

Global Brands Witness Strong Growth

In first-quarter 2019, consolidated revenues for the company’s three global brands improved 8.5% globally and 14% outside their respective home markets. Budweiser witnessed revenue growth of more than 15% outside the United States, driven by strong growth across China, Brazil, the U.K. and Colombia. Corona, the most premium global brand, sustained its growth momentum, with revenues up 15.7% outside its home country, Mexico. Most of this growth was driven by strength in Brazil, Colombia, the U.K., China and Canada. Stella Artois revenues grew 8%, aided by double-digit revenue growth in more than 30 countries — including Brazil, South Korea and Mexico.

Furthermore, its High End Company delivered revenue growth of nearly 20%. Strength in global brands reflects the company’s potential to grow, backed by improving trends in key markets and continued premiumization in the majority of its markets.

Top-Line Growth to Continue in 2019

Backed by robust performances across the board, the company provided an optimistic view for 2019. It anticipates strong top-line and EBITDA growth in 2019 based on solid brand performances 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.

This robust top-line trend has been driving the stock higher year to date. Clearly, the AB InBev stock has gained 39.1% compared with the industry’s growth of 26.9%.


Bottlenecks in AB InBev’s Growth Story

However, adverse currency translations and commodity cost inflation are some of the main bottlenecks in AB InBev’s growth trajectory. Higher commodity costs mainly stem from increased aluminum and barley prices. Additionally, cost of sales increased 6% organically in the first quarter while cost of sales per hl grew 4.6%.

For 2019, the company projects cost of sales per hl to increase in a mid-single digit as currency and commodity headwinds will only be partly offset by cost management initiatives.

Apart from these, tough beer industry environment along with unfavorable macroeconomic conditions in Argentina and South Africa are weighing on its bottom line. In South Africa, revenues declined in a mid-single digit in the first quarter due to lower volume stemming from the shift of the Easter holiday to the second quarter this year alongside lower consumer demand.

Ongoing macroeconomic challenges and a continued segment mix shift toward the premium segment (where the region still has lower market share) impacted consumer demand. In Argentina, volume declined in the mid-teens in the first quarter due to the difficult macroeconomic environment.


Despite these headwinds, we expect the company’s top-line momentum to continue in the quarters ahead. As already noted, sales are likely to gain from continued premiumization efforts as well as ongoing revenue management initiatives alongside strength in global brands. With expectations of mixed outcomes from these pros and cons, AB InBev currently has a Zacks Rank #3 (Hold).

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Keurig Dr Pepper, Inc KDP has a long-term earnings growth rate of 15.4% and a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Anheuser-Busch InBev SA/NV (BUD) : Free Stock Analysis Report
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