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AB InBev (BUD) Misses Earnings and Revenue Estimates in Q3

Anheuser-Busch InBev SA/NV BUD, alias AB InBev, reported third-quarter 2019 results, wherein earnings and sales missed estimates. However, both metrics improved year over year. This marked an earnings miss, after beating estimates in the last reported quarter. Meanwhile, sales lagged estimates, after recording a beat in the preceding three quarters.

Overall, shares of AB InBev have gained 39.2% year to date, outperforming the industry’s growth of 25.1%.


Anheuser-Busch InBev SA/NV Price, Consensus and EPS Surprise
Anheuser-Busch InBev SA/NV Price, Consensus and EPS Surprise

Year-over-year phasing mainly stemmed from higher sales and marketing investments in the first half of 2018 due to the FIFA World Cup Russia activation. However, the company incurred lower sales and marketing investments in the second half of 2018. As a result, the company is witnessing more difficult comparison in the second half of 2019 compared with the second of last year.

Underlying earnings per share (normalized EPS, excluding mark-to-market gains related to the hedging of share-based payment programs and impact of hyperinflation) were 94 cents in third-quarter 2019, down 15.3% from $1.11 in the year-ago quarter.

Revenues of $13,172 million grew nearly 2% from the year-ago quarter but lagged the Zacks Consensus Estimate of $13,980 million. The company registered organic revenue growth of 2.7% along with 3% increase in revenues per hectoliter (hl). Organic revenues benefited from the ongoing global premiumization and revenue management initiatives, offset by progress on its smart affordability strategy in some major markets.

Notably, the company is accelerating the smart affordability plan in markets with tough macro-economic conditions. Its initiatives under this plan call for lower revenue per hl but offer incremental profits.

Total organic volume rose 0.5%, with a 0.9% decline in own-beer volume, while non-beer volume was up 4%. The volume decline resulted from declines in China and the United States mainly due to the impact of shipment phasing. However, this was partly offset by strength in Mexico, South Africa and Colombia markets.

Consolidated revenues at the company’s three global brands — Budweiser, Corona and Stella Artois — improved 4.1% globally and 5.2% outside their respective home markets. Further, its High End Company revenues rose about 13.5%. The improvement was mainly backed by the successful execution of the company’s premiumization strategy.

The cost of sales increased 5.7% to $5,140 million and 6.9% organically. Further, organic cost of sales per hl grew 6.7%, driven by considerable increase in commodity costs and transactional currency woes.

The company’s normalized earnings before interest, taxes, depreciation and amortization (EBITDA) were $5,291 million, which dipped nearly 0.4% year over year and was flat with the year-ago quarter’s figure on an organic basis. EBITDA margin contracted 90 basis points (bps) to 40.2% and declined 107 bps organically. The decline mainly resulted from higher cost of sales, and headwinds related to the phasing of sales and marketing investments.

Outlook

For 2019, AB InBev anticipates delivering strong top-line growth, backed by solid brand performance and robust commercial plans. Driven by the smart affordability plan, it now expects revenue per hl to rise slightly below inflation. Nevertheless, the company expects to deliver balanced top-line growth between volume and revenue per hl. Moreover, total costs (sum of cost of sales per hl and SG&A) are expected to be below inflation.

Meanwhile, the company now expects moderate EBITDA growth for 2019 on incremental headwinds witnessed in the third quarter. It anticipates the headwinds to persist in the fourth quarter as well.

The company projects cost of sales per hl to increase in a mid-single digit, wherein currency and commodity headwinds are likely to be offset by cost-management initiatives.

Further, the Zacks Rank #4 (Sell) company reiterated synergy and cost-saving guidance at $3.2 billion, which was announced in August 2016, related to the SABMiller acquisition. Of this, nearly $547 million was reported by SABMiller as of Mar 31, 2016, and about $2,653 million was captured between Apr 1, 2016, and Sep 30, 2019.

For 2019, management anticipates normalized effective tax rate of 25-27%. Net capital expenditure is projected to be $4-$4.5 billion. AB InBev expects modest dividend growth for the near term due to increased importance of deleveraging. However, dividends are likely to grow gradually in the long term.

Three Better-Ranked Stocks in the Beverage Industry

Britvic PLC BTVCY has a long-term earnings growth rate of 4.5% and a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Boston Beer Company, Inc SAM currently has a long-term earnings growth rate of 10% and a Zacks Rank #2 (Buy).

Carlsberg AS CABGY, also a Zacks Rank #2 stock, has a long-term earnings growth rate of 5%.

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Click to get this free report The Boston Beer Company, Inc. (SAM) : Free Stock Analysis Report Anheuser-Busch InBev SA/NV (BUD) : Free Stock Analysis Report Carlsberg AS (CABGY) : Free Stock Analysis Report Britvic PLC Sponsored ADR (BTVCY) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research