Hedging Gains And Premiumization Help Anheuser-Busch InBev To Beat Consensus In Q1 2019

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Anheuser-Busch InBev

Anheuser-Busch InBev (NYSE: BUD) released its Q1 2019 results on May 07, 2019. The company reported revenue of $12.6 billion in Q1 2019, marking a decline of 3.9% on a y-o-y basis. Lower revenue was mainly driven by poor performance in Argentina, Australia, and Canada, offset by double-digit growth in Brazil. Additionally, deconsolidation of Coca-Cola Beverages Africa (CCBA) had an adverse impact on sales growth in the EMEA (Europe, Middle East and Africa) region. Excluding the impact of any deconsolidation/sale, BUD’s revenues witnessed an impressive organic growth of 5.9%, driven by rising sale of beer and non-beer volume, global premiumization, and revenue management initiatives. Adjusted earnings came in at $1.27 per share in Q1 2019, much higher than $0.73 in the year-ago period, driven by significant mark-to-market gains on hedging, premiumization, and synergies from the acquisition of SABMiller.

We have summarized the key announcements in our interactive dashboard – How did Anheuser-Busch InBev fare in Q1 2019 and what is the full year outlook? In addition, here is more Consumer Staples data.

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A Quick Look at BUD’s Revenue Sources

BUD reported $54.62 billion in Total Revenues in Fiscal 2018. This included 4 primary revenue streams:

  • Latin America: $21.85 billion in FY 2018 (40% of total revenue). This includes sales of BUD’s local and international beer brands in Colombia, Honduras, Mexico, Peru, Cuba, Brazil, Argentina, and many other countries spread across Latin America North, South, and West.
  • North America: $15.92 billion in FY 2018 (29% of total revenue). This division includes BUD’s U.S. and Canada businesses. In addition, it also includes the Global Export and Holding Companies business, which includes the company’s headquarters and countries in which products are sold only on an export basis, where Anheuser doesn’t have any operations or production activities.
  • EMEA (Europe, Middle-East and Africa): $8.37 billion in FY 2018 (15% of total revenue). This includes sale of global and local beer brands in UK, Ireland, France, Italy, Spain, Russia, and export activities in Europe and the Middle East.
  • Asia-Pacific: $8.47 billion in FY 2018 (16% of total revenue). This includes BUD’s business in Australia, China, India, Japan, New Zealand, South Korea, Vietnam, and other South and Southeast Asian countries.

A] Revenue Trend

Latin America

  • Latin America revenues declined by 4.3% (y-o-y) in Q1 2019, driven by a weak demand condition due to shifting consumer mix and the challenging macro-economic situation in Argentina and Peru.
  • However, volume increased in Mexico and Columbia due to rising market share of Corona and Victoria along with new initiatives in the beer category which continued to gain share.

North America

  • Revenue increased by 0.6% (y-o-y) in Q1 2019, driven by premiumization and increasing market share.
  • BUD’s above core portfolio gained 90 bps of market share, led by Michelob Ultra, Bon & Viv Spiked Seltzer, and other innovations in the segment.
  • Though the mainstream segment faced pressure, the portfolio had a slight share gain, driven by the improved performance of value brands led by the Natural family, while Budweiser and Bud Light share trends remained unchanged.

EMEA (Europe, Middle-East and Africa)

  • Revenue in the region declined mainly due to deconsolidation of Coca-Cola Beverages Africa (CCBA) and lower beer sales.
  • However, the segment witnessed organic revenue growth of 2.4%, driven by volume growth and market share gains in UK, France, and Belgium, coupled with the introduction of a new brewery in Nigeria.

Asia-Pacific

  • Decline of 2% (y-o-y) in Asia-Pacific revenues in Q1 2019 was mainly driven by currency headwinds and lower volumes in Australia.
  • However, the segment saw organic growth of 4.5% in revenues during the quarter, led by increasing premiumization and strong overall performance of the company’s e-commerce business.

B] Expenses and Profitability

  • Total expenses declined by 13.6% (y-o-y) in Q1 2019, mainly due to a significant mark-to-market gain relating to the hedging of BUD’s share-based payment programs.
  • BUD reported a mark-to-market gain of $951 million in Q1 2019, related to the hedging of its share-based payment programs, which led to net finance income for the company, as against a large finance cost over recent quarters.
  • Effective tax rate declined to 20.1% in Q1 2019 from 28% in Q1 2018, on the back of large non-deductible mark-to-market losses that were present in the year-ago period.
  • Net income margin increased sharply to 20% in Q1 2019, from about 11% in Q1 and Q4 2018, mainly due to large finance income and lower effective tax rate.

Full Year Outlook

  • We expect revenue to increase by 1.9% to about $55.6 billion in 2019. Higher revenue would mainly be driven by the company’s focus on and initiatives to double the sales of its premium brands in the near future.
  • Net income margin is expected to increase from 12.4% in 2018 to approximately 16.8% in 2019, driven by synergies from acquisition ($150 million remaining to be achieved in 2019) and lower interest expense due to BUD’s focus on deleveraging.
  • New bond issuance of $15.5 billion in February 2019, to pay-off its existing higher interest debt, is expected to contribute to growth in the company’s bottom line.

Trefis has a price estimate of $90 per share for BUD’s stock. We believe that growth in the stock price would be driven by rising sales in emerging markets and synergies and productivity savings achieved due to acquisition, coupled with the company’s focus on lowering debt, which would, in turn, translate into better margins in the medium term.

 

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