Anheuser-Busch InBev Revenues: Why Asia-Pacific Is Key In Fall As Well As Surge

Anheuser-Busch InBev’s (NYSE: BUD) Asia-Pacific segment, which sells premium and sub-premium (value) beer brands in the Asia-Pacific (APAC) region, has seen its revenue decline from $7.8 billion in 2017 to $7.2 billion in 2019. We expect these revenues to drop sharply to $6.5 billion in 2020.

There are several factors behind the revenue decline:

• The primary factor behind revenue decline in 2019 was lower volume sales in China, which largely declined through the year. The two-fold reason behind this drop was (i) a continuous decline in Chinese GDP right from Q1 2018 to almost reaching a 30-year low by the end of 2019, and (ii) change in regulation which prohibits sales of alcoholic drinks after 2 a.m.
• Things have taken a turn for the worse since 31^st January 2020 when the WHO announced a global health emergency in wake of the coronavirus crisis. This outbreak has forced people to stay indoors with major global cities being locked down, leading to a drop in demand for alcohol.
• Though AB InBev makes online sales in China, this route also suffered a huge setback with the virus outbreak having originated in China, leading to supply bottlenecks on account of the lock down.
• Online sale of liquor being illegal in major markets such as India has also affected sales in the APAC region, which will be reflected in lower revenues.

But then why is APAC so important for the company? Why doesn’t BUD focus more on North America which saw its revenues remain stable in 2019 and is the largest division for the company? This is because:

• North America is a more saturated market compared to APAC, which gives the company limited scope to penetrate further. Additionally, BUD mainly sells premium brands in North America, which makes further premiumization difficult.
• On the contrary, APAC provides huge opportunity for BUD with its vast population and under-penetration in developing economies. The e-commerce business in China, which BUD has been focusing on for more than a year, has gained positive response since its inception. Further, the company’s latest strategy of focusing on premiumization is well suited for the APAC region.
• Even though the revenue share of Asia-Pacific segment has remained almost stable at 13.8% from 2017 to 2019, expectations of a surge in revenue share over the next 2 years is likely to help APAC remain one of the most important segments for the company’s business model, as we detail in our interactive dashboard Anheuser-Busch InBev Revenues: How Does BUD Make Money?

Company Overview

• Anheuser-Busch InBev is the world’s largest brewer by volume and one of the world’s top five consumer products companies by revenue. It produces, markets, distributes, and sells over 500 beer and other malt beverage brands. Some of its beer brands include global brands such as Budweiser, Stella Artois, and Corona, international brands such as Hoegaarden, Leffe, and Beck’s, and popular local brands such as Bud Light, Brahma, and Antarctica.
• Anheuser-Busch InBev’s Asia-Pacific segment has been key to the company’s stock price over recent years. We discuss Anheuser-Busch InBev valuation analysis in full, separately.

Revenue Overview

Anheuser-Busch InBev reported $52.3 billion in total revenues for full-year 2019. This includes 6 operating segments, of which the 3 key segments are-

• North America: $15.5 billion revenue in 2019 (30% of total revenue).
• Latin America West: $9.9 billion revenue in 2019 (19% of total revenue)
• Asia-Pacific: $7.2 billion revenue in 2019 (14% of total revenue)

Our interactive dashboard highlights all the components of Anheuser-Busch InBev’s revenues and compares changes in the company’s top line with peer Diageo.

Asia Pacific will continue to face pressure

• Asia-Pacific segment, which sells premium and sub-premium (value) beer brands saw sales decline from $7.8 billion in 2017 to $7.2 billion in 2019. This is expected to further go down sharply to $6.5 billion in 2020.
• The decline in 2020 is likely to be driven by significant drop in volume sold due to lock down in all major cities.
• Volume sales decreased from 97.5 million hectoliters in 2018 to 94.2 million hectoliters in 2019. Volume is further expected to go down to below 85 million hectoliters in 2020.
• However, if the spread and impact of COVID-19 is contained in the second half of 2020, the APAC segment is likely to be the fastest growing segment for the company in 2021, with a projected revenue addition of about $1 billion.
• This comes to over 19% of the total incremental revenue of $5.2 billion projected for the company as a whole in 2021.

Our dashboard analysis details how all segments of Anheuser-Busch are expected to perform in 2020 and 2021.

Conclusion

Though 2020 is likely to be a difficult year for Anheuser-Busch InBev, with every segment seeing a decline in sales, in the post-coronavirus scenario of 2021, we expect the company to add $5.2 billion to its revenue, of which $1 billion (>19%) is likely to be contributed by APAC. The revenue share of APAC is projected to increase from 13.8% in 2019 to 14.6% in 2020 (despite revenue decline as other segments are expected to fare worse) and to over 15% in 2021.

Trefis estimates Anheuser-Busch InBev’s stock to have a fair value of $54, which is roughly 26% higher than the current market price.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. The complete set of coronavirus impact and timing analyses is available here.

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