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Will Soft Beer Sales Hurt AB InBev's (BUD) Earnings in Q3?

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Anheuser-Busch InBev SA/NV (BUD - Free Report) , also known as AB InBev, is slated to release third-quarter 2018 results on Oct 25. In the last reported quarter, the company delivered positive earnings surprise of 4.7%.

However, the company reported earnings miss in seven out of the last nine quarters.  It recorded an average negative surprise of 2.4% in the trailing four quarters. The Zacks Consensus Estimate for the second quarter is pegged at 86 cents per share, reflecting year-over-year decline of 34.4%. Moreover, estimates witnessed a downtrend in the last 30 days.

The Zacks Consensus Estimate for total revenues of $13.8 billion reflects a decline of 6.8% year over year. Nonetheless, the company delivered positive sales surprise in the last three quarters. While solid sales growth and synergies from cost savings continue to aid results, higher marketing expenses and soft beer sales in the United States remain a deterrent.

How Things are Shaping Up for This Announcement

AB InBev, like most of its peers, is suffering from the industry-wide decline in beer sales. The primary reason for soft beer sales in the United States has been the shift of consumers to healthier drinking options, which has resulted in consumers gravitating to wine and drinks like sparkling water. This industry trend is compelling most of the beer companies to diversify and include newer drinks or innovate the beer range by lowering alcohol content.

As mentioned earlier, AB InBev is not immune to this turmoil in the beer segment as it holds the top spot in the beer industry, controlling about one-third of the global beer market. The company’s diverse portfolio includes more than 500 brands. Its robust range of products includes global beer brands like Budweiser, Corona and Stella Artois. Further, AB InBev sells beer in more than 150 countries.

Notably, the company’s U.S. revenues fell 3.1% in second-quarter 2018 on the back of lower volumes as its flagship brands — Budweiser and Bud Light — continued to lose market share. In the second quarter, Bud Light and Budweiser lost 85 basis points (bps) and 40 bps of total market share, respectively. Further, the company’s own-beer volume dropped 5% in North America due to prevailing industry trends that put pressure on Premium and Premium Light brands.

Consequently, the stock has decreased 7.8% in the past month, wider than the industry’s decline of 2.3%. This reflects a negative investors’ sentiment for the stock ahead of the earnings release.

 



However, AB InBev’s splendid second-quarter 2018 performance, anchored by better-than-expected top and bottom lines, reflects a reversal of its negative earnings surprise trend. Moreover, revenues surpassed estimates for the third straight quarter. The company gained from improving trends in key markets and continued premiumization in majority of its markets.

Though AB InBev witnesses volatility in certain key markets, it anticipates delivering strong top-line and EBITDA growth for the year, backed by solid brand performance and robust commercial plans. Driven by the focus on category development, the company expects net revenues per hl growth to exceed inflation while costs are expected to be below inflation. Moreover, premiumization and revenue-management initiatives are likely to aid revenue per hl growth.

Furthermore, the company expects to witness accelerated growth in the second half of 2018, driven by extension of learnings from its category expansion framework and best practices across markets. It is well positioned to drive category growth across its diverse geographic footprint on an ongoing basis, given its strong portfolio of global and high-end brands.

What the Zacks Model Unveils

Our proven model does not conclusively predict earnings beat for AB InBev this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

AB InBev’s Earnings ESP of 0.00% and Zacks Rank #5 (Strong Sell) make surprise prediction inconclusive.

Stocks Poised to Beat Earnings Estimates

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to deliver an earnings beat:

Archer Daniels Midland Company (ADM - Free Report) has an Earnings ESP of +3.85% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Bunge Limited (BG - Free Report) has an Earnings ESP of +5.28% and a Zacks Rank of 2.

Tractor Supply Company (TSCO - Free Report) has an Earnings ESP of +0.78% and a Zacks Rank #2.

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