The world’s largest brewer – Anheuser-Busch InBev SA/NV (BUD Quick QuoteBUD - Free Report) – also known as AB InBev, posted dismal bottom-line results for second-quarter 2016 while its top line surpassed. Further, the company updated its guidance for 2016.

Normalized earnings per share of $1.06 declined 12.4% from $1.21 earned in the year-ago quarter. Quarterly earnings were also short of the Zacks Consensus Estimate of $1.09.

Revenues for the quarter fell 2.2% year over year to $10,806 million while it surpassed the Zacks Consensus Estimate of $10,773 million. The company registered organic revenue growth of 4% on the back of a 5.9% rise in revenues per hectoliter (hl). The improvement resulted from the company’s ongoing revenue management and premiumization initiatives. Also, strong volumes at its premium brands contributed to the 6.1% rise in revenue per hl, on a constant geographic basis.

Revenues for the company’s three global brands, namely Budweiser, Corona and Stella Artois, increased 8.4% in the second quarter. This comprised a 13% growth at Corona, 9% rise in Stella Artois and nearly 6% upside at Budweiser.

Total volumes dipped 1.7%, including a 0.8% fall in own beer volumes and a 9.7% decline in non-beer volumes. The quarter marked another quarter of solid volume growth in Mexico, while the U.S. also showcased improving trends. However, volume growth in Brazil and Argentina remained muted due to unfavorable macroeconomic factors.

Cost of sales declined 5.3% year over year to $4,225 million, while organically the same rose 0.8%. Organic cost of sales per hl rose 2.5% due to negative foreign currency translations coupled with unfavorable product mix, partly offset by savings in purchase costs, efficiencies and an improved mix of inputs from vertical operations. On a constant geographic basis, cost of sales per hl increased 1.4%.

The company’s normalized earnings before interest, taxes, depreciation and amortization (EBITDA) fell 3.5% year over year to $4,011 million, but grew 4.3% on an organic basis. EBITDA margin contracted 50 basis points (bps) to 37.1%, while organically the same expanded 8 bps.

Other Developments

AB InBev is on track with its proposed merger agreement with SABMiller plc and has recently received approval from the U.S. regulators. However, the Justice Department has levied some conditions in order for the deal to be approved. One of these mandates requires Anheuser to sell SABMiller’s U.S. business to Molson Coors Brewing Company (TAP Quick QuoteTAP - Free Report) as the Justice Department fears the lack of competition that could arise as the combined company will control about 30% of the global beer market.

Further, the company awaits the approval of Chinese regulators before launching the formal offer to SABMiller shareholders.

Additionally, the company has announced a revised and final proposal following the Brexit vote, which has lowered the value of the deal as the offer was made in pounds. AB InBev has now offered GBP 45 per share, up from its previous proposal to buy the company for GBP 44 per share. AB InBev expects to close the deal in 2016.

Outlook

AB InBev outlined its guidance for 2016. The company expects organic net revenue per hl, on a constant geographic basis, to grow ahead of inflation based on consistent management initiatives and a better mix. The company now expects cost of goods sold per hl, on a constant geographic basis, to increase in the low single-digits range, below its previous forecast of mid single-digits growth. The lowered guidance reflects benefits from procurement savings, efficiencies and an increased mix of returnable glass bottles in Brazil.

The company continues to invest for the development of its brands and global platforms for the long term. As a result, sales and marketing investments are expected to grow in the mid to high single-digits range for the second half of 2016, compared to an increase of high single to low double-digits range guided for the first half of 2016. The company reiterated its normalized effective tax rate guidance for 2016 in the range of 22–24%.

Additionally, AB InBev lowered its capital expenditure guidance for 2016, projecting about $3.7 billion in capital spending versus $4 billion of spending expected earlier.

Currently, AB InBev has a Zacks Rank #5 (Strong Sell).

Stocks to Consider

A better-ranked stock in the beverages-alcohol industry include Constellation Brands Inc. (STZ Quick QuoteSTZ - Free Report) carrying a Zacks Rank #2 (Buy).

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