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AB InBev - full-year guidance maintained, weak US performance

AB InBev's second-quarter revenue grew 7.2% on an organic basis, to $15.1bn. This was driven by price hikes as volumes declined by 1.4%...

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AB InBev's second-quarter revenue grew 7.2% on an organic basis, to $15.1bn. This was driven by price hikes as volumes declined by 1.4%. Revenues grew in all regions except North America, which saw a 9.0% decline.

Underlying operating profit rose 2.2% to $3.6bn, as revenue growth outstripped elevated costs.

First-half free cash flow worsened from an inflow of $265m to an outflow of $464m. Net debt increased from $69.7bn to $73.8bn.

AB InBev reiterated its previous guidance for full-year cash profits (EBITDA) to grow by 4-8%, with revenue growth estimated to run ahead of this level.

The shares rose 3.1% following the announcement.

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Our view

Brewing giant AB InBev has had a reasonable second quarter. Performance showed that revenue and profits are headed in the right direction as growing demand for higher-end drinks continued to help offset rising input costs.

But the key development was that total volumes declined, albeit marginally. This comes as consumers are wrestling with having less cash to spare after a period of high inflation. Where volumes trend from here will be an important metric to watch.

North American performance was also disappointing. This was driven by a sharp decline in Bud Light sales following a controversial and poorly received marketing campaign back in April, which left many choosing to boycott the brand. As a result, it was no surprise to see a big increase in marketing spending this quarter as the group tries to repaint its image in consumers' minds.

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 is sitting at 3.7 times cash profit (EBITDA), a long way from the company's target of 2 times. And considering cash flows were negative this half, it may be a while before this target's reached. The Group's exposure to emerging markets means that if currencies move the wrong way, it could get worse too.

There's no immediate concern though, some 60% of scheduled debt obligations don't need repaying for five years or more and interest payments are very manageable. Nonetheless, we're keen ABI keeps its foot on the pedal where debt reduction's concerned.

AB InBev's enviable portfolio of brands and huge global footprint means revenues should be relatively robust in most conditions. Its long-term growth opportunities shouldn't be dismissed either. But it's hard to get too excited when reducing debt, rather than reinvesting or returning to shareholders, is likely to be a priority for several years to come and there are no guarantees.

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: 3rd August 2023