In the Spotlight - Less is More for Anheuser-Busch InBev

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Does it matter that Anheuser-Busch InBev did not sell any more beer in the first half of 2011 than it did in the first half of 2010? Here, just-drinks examines the market reaction to the Budweiser brewer's latest figures.


Investors in Anheuser-Busch InBev were momentarily spooked yesterday (11 August), after weak consumer demand for beer meant that the brewer missed most analysts' estimates for first-half net sales growth. Volumes were as flat as a six-month-old, open bottle of Budweiser.

And yet, even as beer sales struggled in the brewer's two biggest markets of the US and Brazil, it still didn't do badly. Price rises enabled net sales to rise by 4.6% in the half-year, to US$18.95bn. EBITDA, exlcuding one-off items, rose by 6%. By today, investors appeared to be placated by A-B InBev' strategy of selling less beer for more money in key markets. At 1600 CET today, the group's share price was up by around 2% for the week.

Morningstar analyst Dave Sekera said that the results "support our thesis that, by executing its strategy to concentrate its efforts and marketing spending on its premium focus brands, the firm will realise enhanced mix shift to higher-margin products and capture new volume growth over time". 

Commenting on A-B InBev's strategy to raise beer prices, Sanford Bernstein said: "Some commentators view this robust price-mix as a misguided drive to inflate short-term margin at the expense of volumes. In contrast, we view it as a sign of the strength of ABI's key franchises and the rational pursuit of short- and long-term profit-maximisation."

In short, volume problems are not an issue right now. Part of the weakness in North America may already be priced into the stock, according to Bernstein, which said the brewer's stock has been lightweight when compared to its rivals so far this year.

"With approx 50% of its profit stemming from the US, we believe A-B InBev's current underperformance is likely due to investors' scepticism about the US beer market, combined with anxieties about Brazil's growth trajectory," Bernstein said in a note today. Brazil and the US make up around three quarters of the brewer's EBIT, Bernstein estimates.

Continuing with this theme, Renee Schultes, writing in the Wall Street Journal, said: "With the Brussels-listed shares falling 16% this year, A-B InBev looks decidedly cheap." The so-called 'stub' A-B InBev, which excludes AmBev in Brazil and the 50% non-controlling stake in Grupo Modelo, is trading at a lower price than when InBev acquired A-B in late 2008, Schultes noted.

With unemployment among young males in the US at its worst level for 20 years, and with Budweiser having leaked market share for the last decade, A-B InBev remains in a dogfight to stabilise and reposition its beer portfolio in the country. There are signs that it is doing this. Budweiser's market share has been flat since January 2011, on a rolling 12-month basis, while volume sales of high-end beers rose by nearly 20% for the half-year, with Stella Artois up by 22%, A-B InBev said.

In Brazil, A-B InBev believes there is much less cause for concern. Volumes, it said, are expected to pick up once more in late 2011, boosted by a higher minimum wage and extra capacity for the group in the country's north-east region.

There were snippets of good news for A-B InBev elsewhere. In the UK, the group lost market share but said that Stella Cidre has gained a 16% volume share of the premium cider market after only three months since launch. In China, meanwhile, A-B InBev volumes rose by 11% for the six months.

To summarise, most observers seem prepared to cut A-B InBev some slack. This goodwill, though, is dependent on the brewer pushing through more price increases in the US and rekindling volume growth in Brazil, certainly before the beginning of 2012.

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