AB InBev reported first-quarter revenue of $13.6bn, up 1.5% on an organic basis. Growth was driven by 3.7% price hikes and better product mix offsetting a 2.2% decline in volumes.
Underlying cash profit (EBITDA) grew 7.9% to $4.9bn (3% expected) supported by higher sales and prices, as well as lower costs.
Full-year cash profit (EBITDA) guidance has been reiterated, expected to grow by 4-8%, in line with the group’s medium-term target.
The shares rose 2.9% in early trading.
Our view
AB InBev had a decent start to the year, as price hikes helped revenue to keep moving in the right direction. A tight grip on costs also meant that profits bubbled past market expectations.
Volumes declined in the tough US region due to poor weather and the less favourable timing of Easter this year, but the group still managed to gain market share. Early signs suggest trends improved in April, and we remain cautiously optimistic that strong brands like Michelob Ultra and Busch Light can continue supporting the group's efforts to regain share in the region. And with more than 98% of volumes produced locally, we see tariffs having little direct impact on business.
Input cost inflation continues to ease. Alongside production efficiencies, profitability is improving and should continue to do so as long as the group can keep pushing modest price increases onto customers. We think this looks achievable given the strength and diversity of the group’s brands.
In other developed markets like Europe, a trend towards more premium products presents opportunities to help boost margins further. The group owns iconic names like Budweiser, Stella Artois, and Corona, the latter of which is growing at double-digit rates in many markets outside of its home country of Mexico.
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 Colombia was driven by more expensive brands.
Weakness in Argentina and China is weighing on performance. These end markets remain soft, plagued by their own economic troubles. Regardless, the group’s continuing to invest in the regions in preparation of a rebound. We’re optimistic that things will pick up again, but it's difficult to map how long it’ll be before this happens. Until then, it’s likely to hold back overall performance.
Our biggest bugbear remains the balance sheet, which still carries too much debt. Net debt was still sitting at around 2.9 times cash profit (EBITDA) at the last count, a long way from the company's target of 2.0 times. We’d like to see continued focus on bringing this 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 volume growth is proving harder than expected to come by as certain regions continue to weigh down overall performance. Some of this looks priced into the valuation, which is sitting below the long-run average, but further struggles ahead can’t be ruled out.
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 LSEG Datastream, 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.
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