Can Anheuser-Busch Finally Deliver A Beat On Earnings In The Third Quarter?

Anheuser-Busch InBev (NYSE:BUD) is slated to report its third quarter earnings on October 26, marking the fourth time the company will be addressing its shareholders since finalizing the merger with SABMiller. In the last quarter, BUD delivered a miss on its earnings, and this trend has been continuing in the past five quarters. The question, therefore, on everyone’s minds is whether the company can deliver a positive surprise this time around. The company is on track with its integration of SABMiller and divesting some of its assets as part of the merger deal. Despite the divestitures, the combined company holds the top spot in the beer industry, accounting for 30% of the industry’s sales, and 46% of the profits. Below we’ll highlight certain trends taking place, which may have an impact on the company’s earnings.

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 nearly a dozen 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.

Synergies From The Merger

• The company continues to deliver synergies from the combination with SABMiller.
• In the first and second quarter, BUD delivered synergies of $252 million and $335 million, with a large portion of the synergies coming from best practice sharing.
• 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.
• This involves one-off cash costs of ~$900 million, to be incurred in the first three years of the deal closing, of which $382 million has been spent to date.

Importance Of Global Brands

• The combined revenues for the three global brands – Budweiser, Corona, and Stella Artois – grew by 9% in the second quarter, and this strong growth is expected to continue in this quarter as well.
• 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.

See Our Complete Analysis For Anheuser-Busch InBev

Have more questions on Anheuser-Busch InBev? See the links below.

• Here’s How AB InBev Trimmed Business To Make Room For SABMiller
• Does A New Survey Spell Good News For Anheuser-Busch?
• AB InBev’s Revenues Rise Despite Market Share Loss In The US

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