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AB InBev - US performance struggles but full-year guidance intact

AB InBev's third-quarter revenue grew 5.0% on an organic basis, to $15.6bn.

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AB InBev's third-quarter revenue grew 5.0% on an organic basis, to $15.6bn. Excluding the accounting benefits of low-quality hyperinflationary sales in Argentina, organic growth falls to 1.6%. Revenue growth was driven entirely by higher average prices as volumes declined 3.4%. The group's largest market, North America, saw revenue and volumes decline by 12.7% and 17.1% respectively.

Underlying cash profit (EBITDA) of $5.4bn was up 4.1% on an organic basis, with margins getting squeezed slightly due to rising commodity costs.

Full-year EBITDA guidance has been maintained, expected to grow in the 4-8% range.

The group has announced a $3bn tender offer for its bonds, as well as a $1bn share buyback programme which is expected to complete within 12 months.

The shares rose 3.4% following the announcement.

View the latest AB InBev share price and how to deal

Our view

AB InBev's third-quarter results were a bit of a mixed bag, with some signs of trouble brewing. The near double-digit price hikes were enough to offset volume declines and helped revenue tick higher. But stripping out the positive accounting impact of low-quality hyperinflationary sales in Argentina, revenue was only marginally up.

The North American performance continues to disappoint, as both revenue and volumes came in below market expectations. The fallout from the controversial and poorly received marketing campaign on Bud Light hasn't helped matters on this front. The only good news here is that the worst of the backlash should be behind AB InBev now. Bud light sales look to have bottomed out, rebasing around 30% lower which provides plenty of room for growth in future periods.

As a result, it was no surprise to see a continued focus on marketing spending as the group tries to repaint its image in consumers' minds. And since the quarter-end, a multi-year deal's been struck with the UFC to plaster the Bud Light logo around the octagon again. The deal's worth more than $175m, which is no small investment even for a company of AB InBev's size.

Looking past some of the noise, in other developed markets a trend towards more premium products presents the opportunity to boost both margins and revenues. That's played into the group's hands as strong brands like Budweiser, Stella and Corona have reaped the rewards of the shift.

Footholds in less-developed markets from Latin America to Sub-Saharan Africa mean there's scope for huge volume growth in the years ahead. Premiumisation is a trend that's making its way into these regions too. Growth in Mexico, Brazil and Columbia was driven by more expensive brands.

Our biggest bugbear is the balance sheet, which is carrying too much debt. Net debt was sitting at 3.7 times cash profit (EBITDA) at the half-year mark, a long way from the company's target of 2.0 times. The $3bn tender offer should help move this dial in the right direction, but it was the announcement of a $1bn share buyback programme that caught markets by surprise. This signals management's confident that it can push leverage below 3.0 times by year-end, at which point a large portion of the benefits from deleveraging are captured, freeing up cash to be spent elsewhere in the business.

AB InBev's enviable portfolio of brands and huge global footprint means it's got a finger in just about every pie. Long-term growth prospects shouldn't be dismissed, but near term the declining volume trajectory is cause for concern. To some extent, that's outside of the group's control and relies on economic conditions improving. For now, we prefer other names in the beverages sector.

AB InBev key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

Overseas dividends can be subject to withholding tax which may not be reclaimable.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Aarin Chiekrie
Aarin Chiekrie
Equity Analyst

Aarin is a member of the Equity Research team. Alongside our other analysts, he provides regular research and analysis on individual companies and wider sectors. Having a keen interest in global economics, he knows how macro-events can impact individual companies.

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Article history
Published: 31st October 2023