In the Spotlight – Anheuser-Busch InBev
A shift in demand for premium beers in western markets and a cautious second-half outlook has taken some of the shine off a strong first half performance from Anheuser-Busch InBev, writes Michelle Russell.
A-B InBev said this week that EBITDA rose 18.5% to $3.596bn for the second quarter of 2009 to the end of June, compared with a predicted $3.221bn in a Reuters poll of 15 analysts. Profits for the quarter rose to $1.07bn from $836m a year earlier.
Wim Hoste, analyst at KBC Securities in Belgium, said profits were higher than expected, with excellent cost management. "This was a good set of results," he added.
Rob Mann, consumer goods analyst at Liberum Capital, noted: "They did a very large deal (with Anheuser-Busch), and bought themselves some stability. Those (profit) margins are pretty stunning."
However, the brewer yesterday warned of a continued slowdown in demand for beer in the second half of the year. It said consumers were now switching to cheap "value" brands.
"We have strong operating momentum going into the second half of 2009, but recognise that many challenges remain. The beer industry, while resilient in most of our key markets, is not immune to economic pressures," chief executive Carlos Brito said.
The shift marks a reversal of a dominant industry trend in recent years, whereby consumers "traded up" to premium brands on higher profit margins.
Customers are now "trading down" and switching to other drinks such as wine and cheaper brands.
But it seems competitors are weathering the same stagnant beer market. London-based SABMiller's recent sales volumes were flat, and Danish brewer Carlsberg reported a 6% volume drop in the latest quarter.
"All the brewers are getting hurt from the global economic downturn," said Hoste. "A-B InBev is no exception."
Felipe Dutra, AB InBev's CFO remaining upbeat about the group's performance.
"While recognising the industry has been weak, and there's no indication of short-term improvement, we have been performing well, market-share wise," he told reporters.
Analysts, however, are suggesting that brewers are now in the same boat as other consumer goods companies such as Procter & Gamble and Unilever, who are introducing cheaper products to compete with own-label brands and discounters.
Andrew Holland, beverages analyst at Evolution Securities, told the Financial Times: "The long-term trend is to trade up . . . but that trend has now reversed." He said the situation was unlikely to improve until unemployment stopped rising.
A-B InBev's executive team, led by Brito, yesterday said the group remained on-track to realise $1bn of cost savings from the merger in 2009 alone - a goal Hoste said is starting to look "conservative," given the company's track record.
"A-B InBev is reducing its ratio of debt to earnings and is in the enviable position of not needing to sell assets in a fire sale", said Hoste. "They are not a forced seller. They can choose their deals or just let them go if the price is not right or the structure is not right."
The brewer has already achieved $610m of those savings by trimming the company's workforce in the US and the UK, cutting sales and marketing costs and using the brewer's increased size to get better deals from its suppliers.
Morning Star analyst Ann Gilpin, however, said she remains cautious of what she believes is a potentially "excessive" cost-cutting programme in the US, which could affect top-line growth and thus profit growth.
"It is clear that the global beer market is declining. We think the next few months could be particularly tough for this brewing giant," Gilpin said.
A-B InBev shares were down 5.3% at EUR27.2 at 1409 GMT yesterday. Some investors appeared to be alarmed by the brewer's cautious outlook and disappointing sales number, analysts said.
"Management is being cautious, but we're in an environment where investors are nervous," said Trevor Stirling, Sanford Bernstein analyst.
"Clearly, the operating results of the second quarter were strong and well-ahead of everybody's expectations," he added.
And so analysts are forecasting a mixed picture for the remainder of 2009, according to Forbes. Sales in the US are expected to become slightly weaker in the third quarter as Bud Light Lime added 2% in sales in the same quarter last year.
Nonetheless, sales are expected to improve in Brazil and in Western Europe.
Mann believes the group's shares have come "a long way" from a "terribly depressed level".
"It is clear that the quantum of improvement from here is likely to be less," he added. "There is still plenty left to happen, though. The story isn't over. This is now an American business with a very powerful Latin American franchise."
Trade unions in Belgium claimed victory last night as they agreed to end worker blockades of Anheuser-Busch InBev breweries in return for talks with the group on alternatives to its proposed job cuts ...
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