How Much Does Anheuser-Busch InBev Spend On Cost Of Sales And Marketing?

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Anheuser-Busch InBev

Anheuser-Busch InBev’s (NYSE: BUD) expenses are largely driven by cost of sales (COS) and distribution, sales and marketing (DSM) cost. The two expense heads together account for about 62% of revenues as of 2018, reflecting a drop from 66% in 2016, primarily due to benefits from the SABMiller acquisition. This decline from 66% to 62% has added a little over $2 billion to the company’s profits, which translates into additional earnings of $1.06 per share in 2018. COS and DSM cost is further expected to drop to about 61% of revenues in 2019 and 2020, as volumes decline and a large part of revenue growth would be driven by premiumization. Over recent years, though total expenses have steadily increased, revenue has seen some fluctuation. This has led to volatility in total expenses as % of revenue, with the metric decreasing to 83.7% in 2017 before rising to 89.6% in 2018 on the back of lower revenues. To understand the trend in all major expense items and what is driving the change, view the Trefis interactive dashboard – How Does Anheuser-Busch InBev Spend Its Money?

Total Expenses

  • Anheuser-Busch’s total expenses as % of revenue decreased in 2017 before increasing to 89.6% in 2018 due to higher finance cost and increased tax outgo, along with the drop in revenues.
  • However, the metric is projected to decline in the near term led by higher revenues and the company’s focus on deleveraging

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Breakdown Of Anheuser-Busch InBev’s Total Expenses

Cost of Sales

  • Cost of sales as % of revenue has steadily declined from 39.1% in 2016 to 37.3% in 2018.
  • Though cost of sales per hectoliter increased due to higher commodity prices, as a % of revenue it decreased due to lower volume sold and a sharper rise in revenue, which was led by increased prices and premiumization.
  • The metric is expected to decline further to ~36.8% by 2020, led by faster growth in revenue and continued synergy benefits from SABMiller.

Distribution, Sales and Marketing

  • Distribution, sales and marketing cost as % of revenue has been declining over recent years from 27% in 2016 to 25% in 2018.
  • Though the company has been spending more due to the FIFA World Cup 2018, as a % of revenue it decreased due to faster growth in the top line.
  • Additionally, though freight cost increased, lower volume sales have driven the metric downward.
  • We expect this cost to decline further to about 24% of revenue in 2019 and 2020 as no major marketing campaign is scheduled in the near term.

Administrative Expense

  • Administrative cost decreased in 2018 leading it to drop to 6.3%, as a % of revenue.
  • However, with the company listing its Asia-Pacific business in Hong Kong, the additional expenses related to this would drive administrative expenses as a % of revenue to about 6.5%

Net Finance Expense

Non-Recurring Net Finance Cost

  • Non-recurring net finance cost increased from 1.2% in 2017 to 3.6% in 2018 due to higher mark-to-market losses. The metric is expected to be stable around 3% in the near term.

Restructuring Cost

  • Restructuring cost was high in 2017 due to the SABMiller acquisition in late 2016.
  • However, cost went down in 2018 as the integration expenses reduced.
  • With most of the integration already behind the company, restructuring cost as % of revenue is set to drop further to about 0.5% of revenue.

Acquisition Cost

  • Acquisition cost has been declining post 2016 after the acquisition of SABMiller.
  • With most of the acquisition costs already incurred and with the company already having spent money to recover the Budweiser distribution rights in Argentina from Compañia Cervecerías Unidas S.A., the metric is expected to remain around 0.1% in the near term.

Other Expense/(Income)

  • Other income has decreased in 2018, due to lower income from associates and joint ventures, decrease in proceeds from sale of property and license fee, along with one-time expense related to a European Union investigation.
  • However, other income is expected to increase going forward, in the absence of one-time expenses.

Effective Tax Rate

  • Effective tax rate increased sharply from 17.3% in 2017 to 33.3% in 2018, mainly due to non-deductible mark-to-market losses and changes in tax legislation in some of the countries.
  • The metric is expected to remain around 30% going forward.

 

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