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Factors Likely to Decide AB InBev's (BUD) Fate in Q4 Earnings

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Anheuser-Busch InBev SA/NV (BUD - Free Report) , also known as AB InBev, is slated to release fourth-quarter 2018 results on Feb 28. In the last reported quarter, the company delivered negative earnings surprise of 4.7%.

Moreover, the company reported earnings miss in eight out of the last 10 quarters.  It recorded average negative surprise of 0.3% in the trailing four quarters. The Zacks Consensus Estimate for the fourth quarter is pegged at $1.15, reflecting year-over-year growth of 10.6%. Moreover, estimates remained unchanged in the last 30 days.

The Zacks Consensus Estimate for total revenues of $13.9 billion reflects a decline of 5% year over year. While the company has been witnessing improving trends in key markets and continued premiumization in most of its markets, higher marketing expenses and soft beer sales in the United States remain deterrents.

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 resulted in consumers gravitating to wine and drinks like sparkling water.

Major consumer trends, such as premiumization, health and wellness, along with demographic changes in the population, are causing a segment mix shift within beer. This industry trend is compelling most of the beer companies to diversify and include newer drinks or innovate the beer range by lowering the 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. Notably, AB InBev’s U.S. revenues fell 1.4% in the first nine months of 2018, mainly attributed to lower volumes as its flagship Budweiser and Bud Light brands continued to lose market share. In the third quarter, Bud Light and Budweiser lost 90 basis points (bps) and 35 bps of the total market share, respectively.

Consequently, the stock has decreased 20.8% in the past six months, wider than the industry’s decline of 8.8%.

Despite the bleak recent results, the company’s three global brands like Budweiser, Corona and Stella Artois continue to reflect strength. Consolidated revenues for the global brands improved 7.7% globally and increased 10.6% outside home markets in the third quarter. Budweiser gains from strong revenue growth outside of the United States and sustained momentum from its global sponsorship of the FIFA World Cup. Moreover, expansion in new markets such as Colombia, Nigeria and South Africa is contributing to its performance.

Stella Artois is witnessing growth from both established and expanded markets. The strength in global brands reflects the company’s potential to grow, backed by improving trends in key markets and continued premiumization in the majority of its markets.

Though AB InBev sees 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 revenue per hl growth to exceed inflation while costs are expected to come 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 the extension of learnings from its category expansion framework and best practices across markets. It believes that it is well positioned to drive category growth across its diverse geographic footprint on an ongoing basis, given the strong portfolio of global and high-end brands. AB InBev envisions dividend growth to be modest in the near term due to increased importance of deleveraging.

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 #4 (Sell) make surprise prediction inconclusive.

As it is, we caution against stocks with a Zacks Ranks #4 or 5 (Strong Sell) going into an earnings announcement, especially when the company is seeing a negative estimate revision.

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:

Turning Point Brands, Inc. (TPB - Free Report) has an Earnings ESP of +11.11% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Foot Locker Inc. (FL - Free Report) has an Earnings ESP of +2.25% and a Zacks Rank of 2.

Abercrombie & Fitch (ANF - Free Report) has an Earnings ESP of +0.94% and a Zacks Rank #2.

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