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AB InBev – price hikes drive revenue growth as volumes fall

AB InBev shows signs of trouble brewing as volumes slip lower.
AB InBev - full year profit growth at top end of guidance

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AB InBev’s reported fourth-quarter revenue of $14.5bn, up 6.2% on an organic basis. Excluding the accounting benefit of low-quality hyperinflationary sales in Argentina, organic growth was 0.5%. Revenue growth was driven entirely by higher average prices as volumes fell 2.6%, a bigger drop than markets expected.

Underlying operating profit rose 6.9% to $3.5bn, with margins remaining broadly flat as revenue growth largely offset rises in commodity costs.

Full-year free cash flow increased by $0.3bn to $8.8bn. Net debt fell from $69.7bn to $67.6bn at year-end.

In 2024, full-year cash profits (EBITDA) are expected to grow by 4-8% (up 7% in 2023), in line with the group’s medium-term target.

A dividend of €0.82 per share has been declared, up 9%. At 23 February 2024, 90% of the $1.0bn share buyback programme was completed.

The shares fell 2.2% in early trading.

Our view

AB InBev’s fourth-quarter results continued to show signs of trouble brewing. 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.

US performance continues to disappoint, with revenue here falling by a staggering 17.3%, largely due to buyers running down their inventory levels. The fallout from the controversial and poorly received marketing campaign on Bud Light hasn't helped matters either. The only good news here is that the worst of the backlash should be behind AB InBev now.

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. 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 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 around 3.4 times cash profit (EBITDA) at year-end, a long way from the company's target of 2.0 times. That means shareholder returns are likely to take a back seat until debt gets brought down to more palatable levels.

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 in the 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.

Environmental, social and governance (ESG) risk

The food and beverage industry tends to be medium-risk in terms of ESG though some segments like agriculture, tobacco and spirits fall into the high-risk category. Product governance is a key risk industry-wide, especially in areas with strict quality and safety requirements. Labour relations and supply chain management are also industry-wide risks, with other issues varying by sub-sector.

According to Sustainalytics, AB InBev’s management of ESG risk is strong. In 2022, 77% of the group’s products were in returnable packaging or made from majority-recycled content. The group aims to up this to 100% by 2025. The percentage of women at each level of the business has increased in recent years, however, it is still significantly below 50% representation.

AB InBev key facts

All ratios are sourced from Refinitiv, based on previous day’s closing values. 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.

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: 29th February 2024