AB InBev’s Revenues Rise Despite Market Share Loss In The US

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Anheuser-Busch InBev

Anheuser-Busch InBev (NYSE:BUD) delivered mixed second quarter results on July 27, posting earnings of $0.95, 2 cents short of expectation, and revenues of $14.18 billion, in line with estimates. As expected, the growth accelerated in the quarter, driven by premiumization efforts, which helped boost the growth in both developed and developing economies.  The company was able to deliver substantial growth in profits, from $152 million in the corresponding prior year quarter to $1.5 billion, as a result of its merger with SABMiller.

The integration of the two companies is carrying on as planned, with savings of $335 million reported in the quarter, far more than the first quarter’s figures. Earlier in the year, the company raised its savings target from $2 billion to $2.8 billion; however, given the significant savings already captured, it is highly likely the end total exceeds $2.8 billion. Since the combination of the two beer giants, the company sells twice as much beer as its next closest rival – Heineken. Looking ahead, the second half of the year looks bright for the company, given the strong growth rates achieved in China, Europe, and its new market – South Africa. Furthermore, its bigger brands, such as Stella, Corona, Budweiser, and Hoegaarden, are expected to drive growth in the future.

Global Brands Lead The Brigade

  • Revenues of the three global brands of the company – Budweiser, Corona, and Stella Artois – increased almost 9%.
  • Budweiser revenues grew by 5.7%, with 11.7% growth in revenues outside of the US. This was driven by strong growth in China, as well as improvement in Brazil and the UK.
  • Stella Artois revenues grew by 6.6%, driven mainly by growth in Argentina and South Korea.
  • Corona had a solid quarter as well, with revenues growing 16.6%, with 26.2% growth in revenues outside of Mexico, as a result of strong growth in the UK, Australia, and China.
  • The company continues to fuel the growth of these brands by leveraging their enormous commercial platforms, while also expanding to new markets such as Australia, Peru, Colombia, and South Africa.

US & Brazil Disappoint, But Other Markets Deliver

  • Slowdown in the sales in the US, at a higher rate than that in the market, resulted in market share loss of ~105 basis points in the quarter, and 85 basis points in the first half.
  • Despite soft top line results in the US, margins improved as a result of better cost management, and increased sales of its ‘Above Premium’ segment.
  • Beer volumes increased, with significant growth seen in South Africa, Mexico, and Australia, despite a decline witnessed in the US, Brazil, and Colombia.
  • Brazil was the only market to see profit declines, owing to a challenging political and macroeconomic environment.
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Diversifying The Portfolio

  • BUD recently announced the acquisition of organic energy drink maker Hiball, which is expected to close in the third quarter of this year.
  • While this is a small deal (Hiball has 20 employees and had sales of $40 million in the past 12 months), it is newsworthy as it implies a move towards non-beer categories. The company may also want to jump on the organic/natural drinks bandwagon.
  • Anheuser has the distribution network to make Hiball increase its scale immensely.
  • The company already sells carbonated soft drinks in the Latin American market, where it is a bottler for PepsiCo.
  • BUD also struck a deal with Starbucks last year to make, bottle, and distribute the ready-to-drink Teavana tea line.
  • The company is also trying to make in-roads in the craft beer industry, with partnerships with 10 craft breweries.
  • The company’s craft portfolio is growing ahead of the industry, at double digit rates, driven by organic growth, as well as expanded distribution.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Anheuser-Busch InBev

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