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AB InBev (BUD) Lags Q1 Earnings & Revenues, Retains View

The world’s largest brewer, Anheuser-Busch InBev SA/NV BUD, also known as AB InBev, started 2016 on a dismal note as the company’s top and bottom lines for the first quarter fell short of estimates.

Normalized earnings per share of 51 cents declined 63.6% from $1.40 earned in the year-ago quarter. Quarterly earnings were also significantly short of the Zacks Consensus Estimate of 87 cents. However, underlying earnings per share were flat with last year.

Revenues for the quarter declined 10.1% year over year to $9,400 million and missed the Zacks Consensus Estimate of $9,891 million. The company registered organic revenue growth of 3.1% on the back of a 4.9% rise in revenues per hectoliter (hl). The improvement resulted from the company’s ongoing revenue management and premiumization initiatives. Also, strong volumes at its premium brands contributed to the 5.2% rise in revenue per hl, on a constant geographic basis.

Revenues for the company’s three global brands, namely Budweiser, Corona and Stella Artois, increased 5.9% in the first quarter.

Total volumes dipped 1.7%, including a 1.4% fall in own beer volumes and a 5.7% decline in non-beer volumes. During the quarter, the company witnessed strong volume growth in Mexico, while the U.S. and Europe also showcased improving trends. However, volume growth in Brazil remained muted.

Cost of sales declined 10% year over year to $3,778 million, while organically the same rose 1.8%. Cost of sales per hl rose 3.6% due to negative foreign currency translations, coupled with higher depreciation from recent investments and product mix, partly offset by savings in purchase costs and efficiencies. On a constant geographic basis, cost of sales per hl increased 4%.

The company’s normalized earnings before interest, taxes, depreciation and amortization (EBITDA) fell 12.7% year over year to $3,462 million, but grew 2.5% on an organic basis. EBITDA margin contracted 120 basis points (bps) to 36.8%, while organically the same fell 20 bps.

Other Developments

AB InBev is on track to obtain the necessary approvals for its proposed merger with SABMiller plc SBMRY and expects to close the deal in the second half of 2016.

In Nov 2015, AB InBev entered into a deal to buy all issued and to-be-issued share capital of SABMiller. Per the agreement, SABMiller stockholders will receive GBP 44.00 per share, along with a partial share alternative (“PSA”) offered for 41% of SABMiller shares.

The combined company will be the largest global beer maker, brewing nine of the world’s top 20 beers and generating annual sales of $55 billion. The merger is expected to be completed in the second half of 2016.


AB InBev outlined its guidance for 2016. The company expects organic net revenue per hectoliter, on a constant geographic basis, to grow ahead of inflation based on continued management initiatives and a better mix. Cost of goods sold per hectoliter, on a constant geographic basis, is anticipated to increase in the mid single-digits range, driven by unfavorable currency impacts and growth of its premium brands.

Sales and marketing investments are expected to grow in the high single to low double-digits range, particularly in the first half of the year. The increase will be backed by greater investments in its brands and global platforms in the long term. The normalized effective tax rate for 2016 is expected in the range of 22–24%.

Additionally, AB InBev set its capital expenditure guidance for 2016 at nearly $4 billion, reflecting a $300 million decline from 2015. The capital spending is expected to be mainly directed toward investments in consumer and commercial initiatives, and capacity expansion.

Currently, AB InBev has a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks in the beverages-alcohol industry include Constellation Brands Inc. STZ and Brown-Forman Corporation BF.B, both carrying a Zacks Rank #2 (Buy).

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BROWN FORMAN B (BF.B): Free Stock Analysis Report
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