Anheuser-Busch InBev gets credit for margin management

Anheuser-Busch InBev gets credit for margin management

Anheuser-Busch InBev has impressed analysts with full-year rises in net sales and profits, but flat volumes could be an issue. Here, just-drinks examines the market reaction to the brewer's numbers.

There are two ways of looking at Anheuser-Busch InBev's full-year numbers. On the one hand, a near-8% rise in global net sales and 45% hike in net profits demonstrates admirable financial management; something analysts and investors have come to expect from the 'Goldman Sachs' of brewing.

On the other hand, the Budweiser brewer did not sell any more beer in 2011 than it did in 2010. Indeed, it actually sold a little bit less, thanks to declines in the US, Russia and UK. Brazil proved sluggish and China was unable to pick up the slack on its own. Sure, this hides some impressive performances, such as that of the Budweiser brand, which has an increasingly international reach to thank for a rise in global volumes. But, the headline volume figure is hardly overwhelming.

How much does this matter? Opinion seems to vary. Writing in the Wall Street Journal, Andrew Peaple said that a 3% drop in group beer volumes in the US, in particular, "should make investors wary of buying another round".

In addition, Stifel Nicolaus analysts highlighted concern that A-B InBev's volumes in Brazil in the fourth-quarter were "disappointing". Beer sales in the country are expected to improve in 2012 thanks to a 7.5% increase in the national minimum wage, but the analysts warned that the extent of any improvement remains hard to predict.

That said, most of the reaction to A-B InBev's figures translated into praise for the brewer's ability to offset flat sales with price rises and operational cost savings, at the same time as investing in innovation, such as with Bud Light Platinum in the US.

Sanford Bernstein analysts announced that they have increased profits forecasts on A-B InBev by 9% and 7% for 2012 and 2013, respectively. Stifel analysts, despite their words of warning, were similarly upbeat on the months ahead. "We think this means high “risk” of another 40%+ dividend increase over the next year, potentially as soon as year-end," the said in a note.

On the brewer's conference call yesterday, much of the questioning focused on what A-B InBev plans to do about acquisitions, if anythin. The unspoken potential target throughout this conversation was clearly Kingway Brewery in China.

A-B InBev's CEO, Carlos Brito, kept everybody guessing. "We don’t feel pressured to do anything," he told analysts, when questioned on acquisitions in general. He maintained that the firm is well-balanced between developing and developed markets.

But, Brito added that the firm has a "fiduciary obligation" to look for opportunities. He confirmed that the group is looking at growth via both greenfield investment and acquisitions in China, which he sees as being "in a consolidation phase".   

The firm is clearly in a position to do deals if it wants to. Yet, the general impression is that, barring bolt-on deals in China, A-B InBev knows there is more work to do in its own house and will be spending 2012 getting that into order.