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AB InBev - on track for guidance

First quarter revenue increased 11.1% to $13.2bn, reflecting growth across most geographies and continued premiumization

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First quarter revenue increased 11.1% to $13.2bn, reflecting growth across most geographies and continued premiumization. Total volumes were up 2.8% and revenue per hectolitre rose 7.8%. Higher costs meant underlying cash profit (EBITDA) didn't rise as fast, with 7.4% growth to $4.5bn.

For the full-year, the group expects underlying cash profit to grow between 4-8% and capital expenditure of $4.5bn-$5bn.

The shares rose 3.4% following the announcement.

View the latest AB InBev share price and how to deal

Our View

Despite increasing commodity and supply chain costs, AB InBev is continuing to push on with the recovery. We're not there yet, and it'll likely take another couple of years for profits to fully recover. But sales have improved with easing restrictions and the group's managing to drive volumes higher whilst pushing prices up with more premium options.

And because AB InBev has such high fixed costs, as sales increase profits should come along for the ride. (A brewery is a lot more efficient when it's working at full capacity). Of course, the opposite's also true, which is why it's been a tough couple of years.

In 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 Michelob Ultra, 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. We're already starting to see this in action, and it looks like 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.

Whilst it may seem counterintuitive, we were a little disappointed to see management proposing a dividend for the full year, as opposed to focusing on debt reduction. Despite selling a minority stake in Budweiser APAC for $5.8bn, and the $10.8bn sale of the Australian business, debt was still a whopping 4.0 times underlying cash profits at the full-year mark. Granted that has come down a touch, partly because profits are up. But it's, some way ahead of its peers and higher than we'd like.

It's pleasing therefore, to hear efforts to reduce the total debt levels have wiped off $70m in net interest costs since this time last year. It looks like progress is going in the right direction, something to keep a close eye on.

AB InBev's enviable portfolio of brands and huge global footprint means revenues should be robust in most conditions. Its long-term growth opportunities shouldn't be dismissed either. But debt is a problem, and we have trouble being more positive while the balance sheet looks the way it does.

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.

First Quarter Results

Total North American volumes fell 4.2% and own beer volumes 3.2%. Revenue rose 1.4% to $3.8bn. In the United States total revenue rose 2.1%, reflecting higher average prices as consumers favoured more premium brands. In Canada volumes and revenues both fell by low-single digits, but the group outperformed the market. Underlying cash profits (EBITDA) for the division fell 1.7% to $1.4bn.

In the Middle Americas revenue rose 13.3% to $3.1bn, with total volumes up 3.6% and own beer volumes up 4.3%. Mexico was a strong performer, with revenue growth in the low teens. Underlying cash profits rose 9.6% to $1.5bn.

In South America, total volumes and own bear volumes rose 4.8% and 1.5% respectively. Revenue rose 24.5% to $2.7bn. Brazil and Colombia both delivered double digit revenue growth. Underlying cash profits for the region rose 15.4 % to $846m.

In the Europe, Middle East and Africa volumes grew 13.9%, with own beer up 14.0%. Revenue was 24.1% higher at $1.8bn and underlying cash profits grew 32.3% to $500m. Europe benefited from a partial recovery of bar and restaurant sales and posted double-digit top and bottom-line growth, as did South Africa which benefited from a favourable comparable period last year.

In the Asia Pacific region volumes fell 2.8% and revenue grew 1.2% to $1.6bn. Underlying cash profits rose 6.3% to $611m. New restrictions in China impacted key channels and volumes fell 4.3%.

AB InBev's Global Export and Holding Companies saw a 21.9% drop in volumes and underlying cash losses widened by 30.8% to $300m.

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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Published: 5th May 2022