A-B InBev will spend this year focussing on its core business

A-B InBev will spend this year focussing on its core business

Shares in Anheuser-Busch InBev, the world's largest brewer, fell by as much as 4% in early trading yesterday (4 March) as the firm’s full-year profits fell short of analyst estimates.

The brewer yesterday reported a 16.6% rise in underlying full-year profits, but the brewing giant echoed rivals by warning that beer markets are expected to remain weak in 2010.

EBITDA reached $13bn for the 12 months to the end of December, compared to equivalent combined earnings of $12bn for the separate InBev and A-B businesses in 2008. In the fourth quarter, underlying profits rose to $3.11bn, excluding one-time charges, from $2.81bn a year earlier. That was less than the $3.35bn median estimate of ten analysts in a Bloomberg survey.

Shares slid yesterday by as much as 4.2% to EUR36.25 (US$49.26), the most in a month for the firm.

Bernstein Research analyst Trevor Stirling believes the firm is being “appropriately cautious” with its outlook. Yet one analyst told Reuters that, while there weren’t any “big surprises” in the quarter, the lack of “over-delivery” above consensus expectations, something the analyst said A-B InBev is known for, was “disappointing”.

"The tone of the group is much more prudent than it typically is," the analyst said. "That's contributed as well, and if you look at the valuation compared to Heineken or Carlsberg it looks expensive and there really isn't anything to back that up.”

The amount of beer sold by A-B InBev in the final quarter of 2009 declined in every region except for northern Latin America, where an increase in Brazilian beer sales was driven by new product releases.

The maker of Budweiser, Stella Artois and Becks has readily admitted that it faces a challenging start to 2010 because US consumers were drinking less.

The US beer market, CEO Carlos Brito admitted yesterday, will remain weak while the economy continues to struggle and unemployment remains high.

"Until the economy gets better, we're going to have some tough years," Brito said at a press conference.

“The US was getting worse after they put prices up and that impact will continue in 2010,” Andrew Holland, an analyst at Evolution Securities told Bloomberg. “The run rate as they go into the New Year is not great.” Holland has a “neutral” recommendation on the shares.

Toronto Star analyst Ann Gilpin maintained her fair value estimate of the firm as she echoed the market’s thoughts that soft consumer spending inevitably may limit volume growth for the brewer.

“We were not surprised to see A-B InBev report a 4.1% decline in depletion volume in the US in the fourth quarter, given the weak beer industry and declining volume reported by other competitors, like Molson Coors,” she said.

Concerns raised over A-B InBev's net debt - which was at $45.2bn at the end of 2009 - receded as it went over its commitment of divesting $7bn-worth of assets by about $2bn.

They were further alleviated last week when a $17bn long-term bank financing package was announced.

The firm yesterday confirmed it is working on a fresh round of cost savings beyond the close of its current synergies programme in 2011.

"We are working hard to find additional synergies beyond 2011," CFO Felipe Dutra told analysts at the brewer's full-year results conference call. "We are not quantifying [them] at this stage," he added.

Yet Gilpin believes that while the brewer continues to pay off debt, which stands at a ratio of 3.7 versus 4.7 last year, most of the debt paydown has been driven by divestitures, which she says, are now mostly exhausted.

“We expect a slower level of deleveraging in the future, especially as the bulk of synergies with A-B have been achieved,” Gilpin said.

A-B InBev is hopeful that those synergies and cost cuttings will result in higher EBITDA for the year.

After a year of shaving costs, juggling debt in the wake of the financial crisis and offloading units to help pay for the $52bn takeover in July 2008, the firm says it is now back to focusing on growing its core business.

"The integration of Anheuser-Busch is essentially complete," it said, adding that it now has a "much improved balance sheet" and was not planning to divest any more parts of the company.

Share were down 0.33% to EUR36.40 at 12.55 CET in trading today.