AB InBev reported second-quarter revenue of $15.3bn, up 2.7% on an organic basis (market consensus: 3.5%). Growth was driven entirely by higher average prices, as volumes slipped 0.8% lower.
Underlying operating profit rose 11.9% to $3.9bn, as production efficiencies and a tight grip on operational costs helped improve margins.
Free cash flows improved from an outflow of $0.5bn to an inflow of $0.9bn. Net debt increased from $67.6bn to $70.4bn over the first half of the year.
Full-year cash profit guidance (EBITDA) has been reiterated, expected to grow by 4-8% (up 7% in 2023), in line with the group’s medium-term target.
The shares rose 2.0% following the announcement.
Our view
AB InBev’s second-quarter revenue growth fell slightly short of market expectations, as modest price hikes helped offset a marginal decline in beer volumes.
Performance in the US remained weak, as revenue declined in the period. This was partly attributed to the fallout from Bud Light’s controversial and poorly received marketing campaign.
However, there could be reasons for investors to become slightly more positive on the group's outlook. The Bud Light boycott is unlikely to get any worse and it’s now been over a year since the boycott began in April 2023. That makes for easier comparative numbers from now on, meaning there could be room for upside surprises as we move through 2024.
Input cost inflation is also easing. Alongside production efficiencies, that’s boosting profitability 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 both margins and revenues. That's played into the group's hands as strong brands like Corona and Stella Artois have reaped the rewards of the shift.
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.
Our biggest bugbear remains the balance sheet, which is carrying too much debt. Net debt was sitting at around 3.4 times cash profit (EBITDA) 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 gets 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. The outlook appears to be improving and long-term growth prospects shouldn't be dismissed. But in the near term, volume growth is likely to remain soft. To some extent, that's outside of the group's control and relies on economic conditions improving. For now, we prefer other names in the beverages sector.
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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