Anheuser-Busch InBev motors on, but US beer market could be key in 2011

Anheuser-Busch InBev motors on, but US beer market could be key in 2011

Well, did you really expect anything else? Anheuser-Busch InBev is entering 2011 with both analysts and company management in confident mood about the brewer's prospects.

In 2009, Anheuser-Busch InBev confounded its critics by disposing of non-core businesses at a rocket's pace, following InBev's record-breaking US$52bn takeover of A-B. In 2010, the Budweiser brewer has consolidated its position to the point where some observers have even talked about the group's return to the acquisitions arena.  

One could look at A-B InBev's full-year results and wryly note that, after years of building a global empire, it's actually Brazil - where it all began for AmBev - that has provided the backbone for sales growth in 2010.

However, the advantage of all that M&A is that, these days, A-B InBev's Brazilian exec team sits atop the global beer industry tree. They don't look like being dislodged in the near future, either.

A-B InBev's net profits actually fell in 2010, by 12.7% to $4bn, and initial coverage of the group's results focussed on this point. But, the group's share price spiked in yesterday's trading and was up by another 1% by midday today (4 March).

Analysts were resoundingly-positive about the brewer's underlying performance. "Results were overall very strong," said Sanford Bernstein in a note.

Stifel Nicolaus inched up its guidance for the group's EBITDA in 2011 by around 1%, to $15.4bn. "We also consider better-than-expected pricing power and announced plans for added cost cuts [to be] a source of funds for increasing rates of sales & marketing investment in 2011," said Stifel analysts.

Of course, there remain challenges for the business. The first quarter of 2011 looks set to be weak due to heavy rains in Brazil, while beer consumption in the US and Western Europe is still in decline.

Group CEO Carlos Brito was clear in his assessment of the brewer's challenge for 2011: topline growth and ongoing debt reduction. A-B InBev's net debt to EBITDA ratio was 2.9 at the end of 2010 and the group wants a ratio of two by 2012. 

In terms of sales, the brewer is hoping to use Budweiser and Stella Artois to spearhead premium beer consumption in emerging markets such as Brazil. In the US, the brewer's volumes sales declined less steeply in the fourth quarter and it highlighted signs that unemployment among its core male market has begun to fall.

Price rises have helped to buoy the group's net sales in the US. The Wall Street Journal's Renée Schultes said of the firm's US strategy: "A-B InBev is pinning its hopes on efforts to encourage drinkers to switch to more-expensive premium beers by narrowing the price gap to cheaper brands."

On costs, a big topic of conversation for many food and drink firms so far this year, A-B InBev looks pretty solid. The $2.25bn synergy target from the A-B deal, which is already higher than originally projected, looks like being surpassed this year. Meanwhile, the brewer said that it only expects low single-digit cost rises in 2011 and that it is well-hedged against soaring commodity prices.

Cashflow generation is good and the group has doubled its dividend for 2010 to EUR0.8 (US$1.1) per share. "We continue to believe the firm's scale, brand strength, and operating leverage will generate solid long-term shareholder returns," said Morningstar analyst David Sekera in a note.

Bearing in mind what's gone before, one is unlikely to bet against the group's ability to both improve sales growth and cut debt in 2011? In which case, would oneu bet against a return to M&A in 2012? The bigger problem for A-B InBev might be finding something to buy.