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AB InBev (BUD) Stock Down on Q3 Earnings Miss, Drab View
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The world’s largest brewer, Anheuser-Busch InBev SA/NV (BUD - Free Report) , also known as AB InBev, posted third-quarter 2016 results, wherein both top and bottom lines fell short of our estimates, alongside declining year over year.
Despite a solid show across most of its markets, the company’s results were majorly hurt by a disappointing Brazilian performance, which in turn was marred by difficult consumer trends, tough year-over-year comparisons and unfavorable currency movements. The company also trimmed its revenue guidance for 2016, which along with the dismal quarterly report, caused its stock to drop 3.8%.
Normalized earnings per share of 83 cents slumped 18.6% from $1.02 earned in the year-ago quarter and lagged the Zacks Consensus Estimate of $1.19 by a wide margin.
Revenues for the quarter fell 2.3% to $11,109 million, missing the Zacks Consensus Estimate of $11,402 million. However, the company registered organic revenue growth of 2.8% on the back of a 3.8% rise in revenues per hectoliter (hl). This improvement resulted from its ongoing revenue management and premiumization initiatives, largely offset by softness across Brazil. Also, revenue per hl advanced 3.1% on a constant geographic basis.
Revenues for the company’s three global brands, namely Budweiser, Corona and Stella Artois, increased 8.7% in the third quarter. This comprised 14.8% growth at Corona, a 12.2% rise in Stella Artois and a 4.8% upside at Budweiser.
Total volumes dipped 0.9%, including a 0.2% fall in the company’s own beer volumes. This was mainly attributable to the 4.1% drop in Brazil owing to a weak industry and unfavorable year-over-year comparisons, somewhat compensated by decent Mexican volume growth.
Cost of sales fell 1.1% year over year to $4,393 million, while organically the same escalated 3.9%. Organic cost of sales per hl rose 4.9% due to negative foreign currency translations (particularly in Brazil), partly countered by the U.S. performance. On a constant geographic basis, cost of sales per hl jumped 5.3%.
Battered by the Brazilian disaster, the company’s normalized earnings before interest, taxes, depreciation and amortization (EBITDA) declined 8.4% year over year to $4,032 million, while slipping 2% on an organic basis. EBITDA margin contracted 240 basis points (bps) to 36.3%, while organically, the same contracted 178 bps.
Other Developments
On Oct 10, 2016, AB InBev concluded its long-awaited merger with SABMiller plc, thus creating a combined entity with seven of the top 10 important beer brands across the global brewing space. We believe that this collaboration is likely to benefit both the companies by bringing their individual solid brand portfolios and innovative teams together. Also, their robust geographical reach would enable the combined giant to serve all major beer markets that have sturdy growth potential.
During the reported quarter, management announced an interim dividend of 1.60 euros per share for 2016. Also, the company expects modest dividend growth in the future.
Outlook
Owing to the unpleasant Brazil scenario, AB InBev curtailed its revenue outlook for 2016. The company now expects organic net revenue per hl growth for 2016 to be in line with inflation (on a constant geographic basis). Earlier, the company had projected growth to be ahead of inflation.
Further, AB InBev continues to expect cost of goods sold per hl, on a constant geographic basis, to increase in the low single-digits range, considering adverse currency movements and growth in premium brands.
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 for 2016 are expected to grow in the high single to low double digits range. Management reiterated its normalized effective tax rate guidance for 2016 in the range of 22–24%.
Additionally, AB InBev still anticipates incurring nearly $3.7 billion as net capital expenditure for 2016.
Constellation Brands has seen positive estimate revisions for the current fiscal year over the past 30 days. Also, its spectacular earnings surprise history and long-term growth rate of 17.9% bode well.
Molson Coors has to its credit a long-term EPS growth rate of 6% and positive estimate revisions over the past 30 days.
Craft Brew Alliance, with a long-term EPS growth rate of 25%, has witnessed positive estimate revisions for 2016, over the past 60 days.
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AB InBev (BUD) Stock Down on Q3 Earnings Miss, Drab View
The world’s largest brewer, Anheuser-Busch InBev SA/NV (BUD - Free Report) , also known as AB InBev, posted third-quarter 2016 results, wherein both top and bottom lines fell short of our estimates, alongside declining year over year.
Despite a solid show across most of its markets, the company’s results were majorly hurt by a disappointing Brazilian performance, which in turn was marred by difficult consumer trends, tough year-over-year comparisons and unfavorable currency movements. The company also trimmed its revenue guidance for 2016, which along with the dismal quarterly report, caused its stock to drop 3.8%.
Q3 Highlights
ANHEUSER-BU ADR Price, Consensus and EPS Surprise
ANHEUSER-BU ADR Price, Consensus and EPS Surprise | ANHEUSER-BU ADR Quote
Normalized earnings per share of 83 cents slumped 18.6% from $1.02 earned in the year-ago quarter and lagged the Zacks Consensus Estimate of $1.19 by a wide margin.
Revenues for the quarter fell 2.3% to $11,109 million, missing the Zacks Consensus Estimate of $11,402 million. However, the company registered organic revenue growth of 2.8% on the back of a 3.8% rise in revenues per hectoliter (hl). This improvement resulted from its ongoing revenue management and premiumization initiatives, largely offset by softness across Brazil. Also, revenue per hl advanced 3.1% on a constant geographic basis.
Revenues for the company’s three global brands, namely Budweiser, Corona and Stella Artois, increased 8.7% in the third quarter. This comprised 14.8% growth at Corona, a 12.2% rise in Stella Artois and a 4.8% upside at Budweiser.
Total volumes dipped 0.9%, including a 0.2% fall in the company’s own beer volumes. This was mainly attributable to the 4.1% drop in Brazil owing to a weak industry and unfavorable year-over-year comparisons, somewhat compensated by decent Mexican volume growth.
Cost of sales fell 1.1% year over year to $4,393 million, while organically the same escalated 3.9%. Organic cost of sales per hl rose 4.9% due to negative foreign currency translations (particularly in Brazil), partly countered by the U.S. performance. On a constant geographic basis, cost of sales per hl jumped 5.3%.
Battered by the Brazilian disaster, the company’s normalized earnings before interest, taxes, depreciation and amortization (EBITDA) declined 8.4% year over year to $4,032 million, while slipping 2% on an organic basis. EBITDA margin contracted 240 basis points (bps) to 36.3%, while organically, the same contracted 178 bps.
Other Developments
On Oct 10, 2016, AB InBev concluded its long-awaited merger with SABMiller plc, thus creating a combined entity with seven of the top 10 important beer brands across the global brewing space. We believe that this collaboration is likely to benefit both the companies by bringing their individual solid brand portfolios and innovative teams together. Also, their robust geographical reach would enable the combined giant to serve all major beer markets that have sturdy growth potential.
During the reported quarter, management announced an interim dividend of 1.60 euros per share for 2016. Also, the company expects modest dividend growth in the future.
Outlook
Owing to the unpleasant Brazil scenario, AB InBev curtailed its revenue outlook for 2016. The company now expects organic net revenue per hl growth for 2016 to be in line with inflation (on a constant geographic basis). Earlier, the company had projected growth to be ahead of inflation.
Further, AB InBev continues to expect cost of goods sold per hl, on a constant geographic basis, to increase in the low single-digits range, considering adverse currency movements and growth in premium brands.
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 for 2016 are expected to grow in the high single to low double digits range. Management reiterated its normalized effective tax rate guidance for 2016 in the range of 22–24%.
Additionally, AB InBev still anticipates incurring nearly $3.7 billion as net capital expenditure for 2016.
Zacks Rank
AB InBev currently carries a Zacks Rank #2 (Buy). Other well-ranked stocks in the beverages-alcohol industry include Constellation Brands Inc. (STZ - Free Report) , Molson Coors Brewing Company (TAP - Free Report) and Craft Brew Alliance, Inc. , each with a Zacks Rank #2 as well. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Constellation Brands has seen positive estimate revisions for the current fiscal year over the past 30 days. Also, its spectacular earnings surprise history and long-term growth rate of 17.9% bode well.
Molson Coors has to its credit a long-term EPS growth rate of 6% and positive estimate revisions over the past 30 days.
Craft Brew Alliance, with a long-term EPS growth rate of 25%, has witnessed positive estimate revisions for 2016, over the past 60 days.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>