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Anheuser-Busch InBev Swallows U.S. Weakness to Deliver a Mixed Quarter

It's been just over year since Anheuser-Busch InBev (NYSE: BUD) completed its $100 billion megamerger with SABMiller. If the global popularity of its most popular brands is any indication, the brewing juggernaut has never been been stronger. 

But that wasn't enough to completely satisfy the market when AB InBev released mixed third-quarter results late Wednesday; shares fell around 1% on Thursday as investors digested the news. Now that the foam has settled, let's dig deeper to see how AB InBev kicked off the second half of the year.

Image source: Anheuser-Busch InBev.

Anheuser-Busch InBev results: The raw numbers

Metric

Q3 2017

Q3 2016

Year-Over-Year Growth

Revenue

$14.74 billion

$14.21 billion*

3.7%

Normalized profit (attributable to shareholders of AB InBev)

$2.582 billion

$1.363 billion**

89.4%

Normalized earnings per share

$1.31

$0.83**

57.8%

Data source: Anheuser-Busch InBev.  *Reference base, which includes the results of SABMiller as if the combination had taken place at the beginning of Q4 2015, and excludes results of businesses sold since the combination was completed. **As reported. 

What happened with Anheuser-Busch InBev this quarter?

  • By comparison -- and though we don't usually pay close attention to Wall Street's demands -- consensus estimates predicted lower earnings of $1.23 per share but on higher revenue of $14.96 billion.
  • Organic revenue growth was 3.6%.
  • Revenue per hectoliter increased 5%, or 5.4% at constant currencies, thanks to revenue management and premiumization initiatives.
  • Earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 13.8% to $5.733 billion, helped by revenue growth and $336 million of additional synergies and cost savings captured this quarter from the SABMiller combination.
  • Total volumes declined 1.2% year over year, including a 1.5% dip in AB InBev's own-beer volumes and a 0.9% drop in nonbeer volumes. The adverse impact of weather in many parts of the U.S. more than offset strong shipments in Mexico, Argentina, and Africa.
  • Total revenue from AB InBev's three Global Brands increased 1.6% year over year, including:
    • a 2.2% tumble from Budweiser, despite 4.4% growth in international revenue led by Brazil, South Korea, and Chile.
    • 0.9% growth from Stella Artois, led by growth in Argentina and Brazil.
    • 9.6% growth from Corona, including 11.2% growth outside of Mexico led by strength in China, Colombia, and Ecuador.

What management had to say

In a prepared statement, AB InBev management called it a "solid" quarter, in particular lauding the performances of their three main global brands "outside their home markets."

"As we enter the final months of the year," they elaborated, "we will continue to push ourselves toward a strong finish. We have plenty of opportunities ahead of us, and look forward with excitement to further building on our dream of bringing people together for a better world."

Looking forward

AB InBev once again reiterated its broad expectation for total revenue growth to accelerate in fiscal 2017, led by global brands and commercial plans including ongoing revenue management initiatives. In addition, with the merger of SAB continuing to progress well, AB InBev increased its goal for capturing cost synergies from the merger by $400 million to a total of $3.2 billion. So far, AB InBev has yet to capture roughly $1.45 billion of that total, but expects to do so within the next three years.

In the end, AB InBev's top-line shortfall -- at least relative to investors' expectations -- wasn't surprising as the global brewing industry grows ever more crowded. But thanks to its unrivaled reach and solid profitability, AB InBev is more than up for the challenge as it operates from a position of strength. So while its modest share price decline on Thursday is understandable with the stock trading near a 52-week high, I think AB InBev's long-term thesis appears to remain intact.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Anheuser-Busch InBev NV. The Motley Fool has a disclosure policy.