Analysts keep the love for Anheuser-Busch InBev

Analysts keep the love for Anheuser-Busch InBev

Anheuser-Busch InBev this week joined its rivals in reporting weak consumer demand for beer across much of Europe and North America, but analysts still think the brewer is in a promising position. Here, just-drinks examines the market reaction.

It is perhaps a mark of the lofty expectations on Anheuser-Busch InBev that its share price fell and subsequently struggled for momentum this week. Investors have become so accustomed to the shiny numbers churned out by this brewing behemoth on a quarterly basis.

There was a little spasm in the beer universe, then, when the firm reported that net sales and earnings dipped in the third quarter of 2010. Naturally, A-B InBev had a soothing response; essentially that if you remove currency differences and disposals - the so-called non-recurring items - then you will find that sales and profits in its core business increased over the same period of 2009.

Sales of $9.3bn for the quarter beat analyst conensus and normalised EBIT, generally used as an indicator of underlying performance, increased by 11% to almost $2.9bn. As for the sales decline in the US and Europe, everybody was expecting that. Brazil continued to motor nicely, with A-B InBev's beer volumes up by 12% in a market that its AmBev subsidiary already dominates, while China and Russia also showed gains.  

Many analysts were quite willing to focus on the positives, even in the US, where A-B InBev failed to increase volume sales despite having handed out free Budweiser to half a million consumers in the quarter.

Stifel Nicolaus analysts said: "Efforts are underway to further expand margins in the US, where mix improved and, consistent with our channel checks, September’s pricing increases are described as “implemented according to plan” and favourable to future revenue-per-hectolitre gains."

They said that better-than-expected global volume sales and EBITDA bode well. "We take this as a sign of even better long-term earnings power than previously estimated."

Sanford Bernstein, another analyst group, said that A-B InBev's profits would accelerate in the fourth quarter, as predicted by the brewer itself, and would then rise again in 2011. Bernstein predicted A-B InBev's EBITDA would rise by 16% in the fourth quarter of 2010. "Importantly, US trends on improved volumess, price-mix and raw materials should extend into 2011 and Brazil will continue to benefit from positive foreign exchange hedges," it said.

Many in the press also fancied A-B InBev's momentum, particularly in the US. Renee Schultes, writing for the Wall Street Journal, said that A-B InBev was gambling with consumers' loyalty by raising the price of its beers during difficult economic times. But, Schultes cited UBS analysis as saying that, if the brewer can make the prices stick and if the US beer market returns to limited growth in 2011, A-B InBev could increase its operating margins by close to 50% in the US.

Other publications also focused on price. Reuters led with both A-B InBev and its rival, MillerCoors, "reaping rewards", even though consumers drank fewer beers in the third quarter. However, the Financial Times, which has never been known to offer up easy praise, led with A-B InBev's volume "slump" in the US.

There is a new book out on InBev's $52bn takeover of Anheuser-Busch, entitled: Dethroning the King: The Hostile Takeover of Anheuser-Busch. In it, author and Financial Times journalist Julie Macintosh suggests that the Busch family got complacent with their business.

Of the challenges InBev's management faces in the US and in integrating the A-B business, complacency is one thing that investors probably don't need to worry about. A-B InBev's financial prospects continue to look strong.