AB InBev’s reported third-quarter revenue of $15.0bn, up 2.1% on an organic basis (market consensus: 3.0%). Growth was driven entirely by higher average prices as total volumes slipped 2.4% lower, largely due to double-digit declines in Asia.
Underlying operating profit rose 8.9% to $4.1bn, helped by more sales of premium beer, production efficiencies, and a tight grip on operational costs.
Full-year cash profit (EBITDA) guidance has been raised from 4-8% to 6-8%, which is more in line with current market forecasts of 8.4% growth.
A $2bn share buyback programme has been confirmed and is expected to complete within the next 12 months.
The shares fell 3.8% in early trading.
Our view
AB InBev’s third-quarter revenue growth fell short of market expectations as sharp volume declines in Asia weighed on performance. But thanks to a continued shift from consumers towards more premium and profitable beers, the group’s full-year profit targets got nudged higher, but that just brought things up in line with current market expectations.
Performance in the US has started to improve. It’s been over a year since the controversial and poorly received Bud Light marketing campaign. That’s created easy comparable periods and AB InBev’s now seeing the benefit of this as brands like Michelob Ultra and Busch Light are helping the group claw back some market share in the region.
Input cost inflation continues to ease. Alongside production efficiencies, profitability is improving and should continue to do so as long as the group can keep pushing modest price increases onto customers. We think this looks achievable given the strength and diversity of the group’s brands.
In other developed markets like Europe, a trend towards more premium products presents the opportunity to boost margins further. The group owns iconic names like Budweiser, Stella Artois, and Corona, the latter of which is growing at double-digit rates outside of its home country of Mexico.
Footholds in less-developed markets from Latin America to Sub-Saharan Africa mean there's scope for huge volume growth in the years ahead. Premiumisation is a trend that's making its way into these regions too. Growth in Brazil and Columbia was driven by more expensive brands.
Weakness in Asia, and China in particular, has really weighed on performance. These end markets remain soft, plagued by their own economic troubles. Regardless, the group’s continuing to invest in the region in preparation of a rebound. We’re optimistic that things will pick up again, but it's difficult to map how long it’ll be before this happens. Until then, it’s likely to hold back overall performance.
Our biggest bugbear remains the balance sheet, which is still carrying too much debt. Net debt was sitting at around 3.4 times cash profit (EBITDA) back at the half-year mark, a long way from the company's target of 2.0 times. That means shareholder returns are likely to take a back seat until debt is brought down to more palatable levels.
AB InBev's enviable portfolio of brands and huge global footprint means it's got a finger in just about every pie. Long-term growth prospects shouldn't be dismissed, but volume growth is proving harder than expected to come by as certain regions continue to weigh down overall performance. Some of this looks priced into the valuation, which is sitting below the long-run average, but further struggles ahead can’t be ruled out.
Environmental, social and governance (ESG) risk
The food and beverage industry tends to be medium-risk in terms of ESG though some segments like agriculture, tobacco and spirits fall into the high-risk category. Product governance is a key risk industry-wide, especially in areas with strict quality and safety requirements. Labour relations and supply chain management are also industry-wide risks, with other issues varying by sub-sector.
According to Sustainalytics, AB InBev’s management of ESG risk is strong.
In 2022, 77% of the group’s products were in returnable packaging or made from majority-recycled content. The group aims to up this to 100% by 2025. The percentage of women at each level of the business has increased in recent years, however, it is still significantly below 50% representation.
AB InBev key facts
All ratios are sourced from Refinitiv, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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