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AB InBev Stock Declines on Soft Earnings: Time to Offload?

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Anheuser-Busch InBev SA/NV (BUD - Free Report) , alias AB InBev, has been putting up a dismal show lately, owing to its dismal earnings trend. First-quarter 2018 marked AB InBev’s return to the negative earnings surprise trend, after a beat in the preceding quarter. While solid sales growth and synergies from cost savings continued to aid results, higher sales and marketing expenses ahead of the FIFA World Cup, along with fall in other operating income due to difficult comparisons, were impediments.

Consequently, shares of AB InBev have lost 16.4% in the past three months, wider than the Beverages – Alcohol industry’s 11.7% decline. Moreover, the industry is unfavorably ranked in the bottom 16% (215 out of 255) of the Zacks classified industries. Also, a VGM Score of F indicates that this Zacks Rank #5 (Strong Sell) stock has fallen out of investors’ favor.



Hurdles

Management sees volatility in certain key markets in the future. However, the company’s focus on brand portfolio and solid commercial plans positions it well to deliver strong revenues and EBITA in 2018. Nevertheless, consumers’ shifting preference toward booming craft spirits in the United States might take a toll on volume.

Apparently, in first-quarter 2018, total volume dipped 0.2%, with own-beer volume rising 0.5%, offset by 6.9% decline in non-beer volume. Own-beer volume gained from growth in Mexico, Colombia and Argentina, partly mitigated by softness in the United States and Brazil. On the other hand, non-beer volume was mainly hurt by the weakness in Brazil and Peru.

This, along with the company’s dismal earnings trend, has led analysts to become bearish on the stock, as evident from the downtrend in the Zacks Consensus Estimate. Estimates for the second quarter declined 12 cents to $1.15 per share in the last 30 days. Additionally, in the last 30 days, estimates for 2018 and 2019 dipped 10 cents and 7 cents, to $4.69 per share and $5.42 per share respectively.

Is There Hope for Revival?

Armed with a robust brand portfolio and solid geographic reach, AB InBev keeps introducing near-beer alternatives, along with no- and low-alcohol beers, to address evolving consumers’ preference. Also, the company is poised to gain a dominant share in the global beer market from SABMiller’s buyout.

We also expect the company to benefit from its constant efforts of expansion in the craft beer space, given the rising demand for this category. Though the expansion might take time, we believe that AB InBev is likely to return to its growth trajectory, backed by the strength of Budweiser brand and solid initiatives.

Further, AB InBev delivered robust top-line results in first-quarter 2018, with sales topping estimates and improving year over year. This marked the company’s second straight sales beat and fourth in the last six quarters. Further, the company delivered solid organic revenue growth, backed by ongoing revenue management along with the strong performance of premium brands. Consolidated revenues at the company’s three global brands — Budweiser, Corona and Stella Artois — improved 7.9% globally and 12.2% outside home markets.

Moreover, these factors have collectively helped this Belgium-based retailer to carve an impressive niche, thus, emerging as the strong player in the beer space.

3 Top-Ranked Consumer Staples Stocks

Some better-ranked stocks in the Beverages-Alcohol industry include Kirin Holdings Co. (KNBWY - Free Report) and The Boston Beer Company Inc. (SAM - Free Report) , both sporting a Zacks Rank #1 (Strong Buy). Investors can also count on Inter Parfums Inc. (IPAR - Free Report) in the broader sector, flaunting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kirin Holdings has jumped nearly 9.5% year to date. Further, the company has long-term earnings growth rate of 10%.

Boston Beer has gained nearly 43.4% in the last three months. Moreover, it has long-term earnings growth rate of 9.5%.

Inter Parfums has delivered an average positive earnings surprise of 11.8% in the last four quarters and has long-term earnings growth rate of 12.3%.

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