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FutureStarrAB InBev BUD +0.87% Beats Profit Expectations Despite Selling Less Beer
AB InBev, the world's largest brewery, reported a stronger-than-expected profit for the fourth quarter despite selling less beer. It more than made up for lower volumes with higher prices; core profit rose 7.6% on an equivalent basis.
CEO Carlos Brito has a track record of making aggressive acquisitions and cutting costs that have allowed AB InBev to remain at the top. But this strategy may have reached its limit.
According to data from International Spirits and Wine Research (ISWR) agency, beer sales worldwide decreased 1.6% in the third quarter of 2016. This decline was primarily caused by weakness in China and Brazil; gin however experienced an increase in global sales of 3.7%.
A weak economy has had a detrimental effect on beer demand, particularly in emerging markets where disposable incomes are rising. As prices for beers rise, people are opting to drink them less frequently as a result.
Accordingly, beer market share is declining while spirits are becoming more sought-after. This trend looks set to continue into the future as people seek out more options when it comes to their alcoholic beverages.
AB InBev is looking to capitalize on this trend by expanding its product offering and developing new items. For instance, it plans on increasing its Lo-No alcohol beverage portfolio from 15 percent of global beer volumes by the end of 2025.
It has also begun investing in nonalcoholic beverage options such as hard seltzers and ciders, as customers become more health-conscious and seek alternatives to traditional beer.
Although this has had a detrimental effect on overall beer sales, AB InBev's bottom line has benefited. The company is expanding its presence in Latin America - which accounts for 70% of their total market share - and recently released Montejo, a Mexican-style lager, into the United States.
The brewer anticipates a rebound in its U.S. beer sales this quarter after experiencing a 2.1% contraction in Q1 due to improving macroeconomic conditions. This could include more jobs and higher incomes, which AB InBev's premium brands such as Bud Light and Budweiser could benefit from such trends.
Another factor that could positively impact AB InBev's fourth-quarter results is the start of spring in America, when beer consumption typically increases. Furthermore, Grupo Modelo, the brewer's Mexican import segment, is launching several new beers that are expected to drive significant volume sales in America.
AB InBev's profit this quarter exceeded expectations despite declining beer sales. The company's net revenue rose 4.7%, which was a promising sign for investors. This growth was largely attributed to stronger demand for its core Budweiser brand.
AB InBev (BUD +0.87%) beat profit forecasts this quarter despite selling less beer in North America than expected. The world's largest brewery, which produces Budweiser and Stella Artois beers, reported first-quarter revenue that rose 11.1% to $13.2 billion due to strong sales of premium beers.
AB InBev remains confident in its 2018 outlook despite the decrease, believing in both its portfolio and the resilience of the brewing industry despite global economic slowdown.
In addition to Budweiser and Stella Artois brand growth, AB InBev also reported beer-only revenue increased by 4.7% due to the launch of new products over the past 12 months - Bud Light Platinum, Bud Light Lime Lime-A-Rita, and Bud Light Straw-Berry Rita.
Although volume sales of beer decreased, AB InBev experienced an increase in the price per unit sold. This is encouraging news for the company as it pursues a strategy of premium brands at higher prices and expanding into alternative beverages.
Generation Z is increasingly turning towards non-alcoholic drinks, so AB InBev is expected to make progress in this space. A non-alcoholic version of its iconic Budweiser brand is set for launch in 2020, while Mexican import brand Montejo began selling last year in California, Arizona, Texas, and New Mexico - home to over 70% of America's Hispanic population.
The beer industry has proven to be resilient, yet it faces challenges due to a global pandemic and other factors. AB InBev announced lower-priced packages for customers on tighter budgets as well as new products with greater value.
However, beer as a category is facing stiff competition from hard seltzers used to create drinkable cocktails. These beverages can be ordered and delivered by online ordering platforms like Drizly; according to the firm, beer sales on Drizly have declined two percentage points over the past year while spirits sales increased by one point.
The beer industry is facing numerous obstacles, such as an aging population and economic uncertainty. To combat these challenges, AB InBev has responded by focusing on high-margin products and new brews that compete with alternatives to beer. Furthermore, they are targeting emerging markets with rising disposable incomes and strong beer demand.
The company reported that, despite lower volumes and higher inflation, it exceeded its profit expectations for the third quarter. Net profit for that period totaled EUR460 million compared to EUR483 million during the same period last year.
AB InBev has been increasing its sales through the launch of new products and expansion into emerging markets like Brazil and Mexico. It offers premium brands such as Bud Light and Budweiser to these customers in these countries, with an aim to raise average revenue per unit volume over time. Furthermore, AB InBev also plans on launching new items in the United States over time to further enhance its growth prospects.
Heineken has a longstanding presence in Europe. With an estimated market share of 28% in the European beer market, Heineken's sales have recently suffered due to a slowing economy and higher excise duties.
Heineken and its rivals are feeling the impact of this, with Heineken trying to increase its share in the European beer market by raising prices and selling more premium products. Furthermore, it plans on expanding internationally by adding more beer brands to its portfolio as well as introducing more varieties of its iconic brand Heineken.
Factors such as an increasing young adult population and increased demand for lager and ale beers are driving growth in the global beer industry. Other drivers include new product introductions and shifting taste preferences among consumers.
Another factor affecting the beer industry is the coronavirus pandemic. The crisis caused major disruption, with bars and restaurants closing their doors while people stayed home sick. But now things have been put back together again, bringing back production into breweries across America.
Asia remains the world's leading beer-producing region. While production decreased 1.4% from last year, this decline was primarily due to a decrease in China, the leading beer producing nation. On the other hand, Vietnam and India experienced growth rates of 20.1% and 2.5% respectively, bringing global beer production volume up to about 189 million kiloliters overall.
AB InBev's Asia-Pacific segment experienced strong revenue growth this year, and it appears likely that they will continue to benefit from this region into 2021. This will contribute to their total revenue forecast of around $5.2 billion for 2021.
Africa saw beer volume grow organically by 10.4%. This growth was led by strong performances in Nigeria and the Democratic Republic of Congo, where AB InBev's premium portfolio outperformed, as well as Russia, Ivory Coast and Rwanda. Both low- and non-alcoholic portfolios experienced double-digit increases.
Brazil, where AB InBev operates its Budweiser brewery, experienced volume sales declines and the Brazilian real appreciated against the dollar. While these factors presented a headwind to AB InBev in October and December, price increases in October and December more than offset these effects.
The brewery experienced an impressive surge in exports, which accounted for nearly all of its organic volume growth of 4%. This marked a major change for the company and should enable it to surpass profit expectations going forward.
North America, AB InBev's most profitable segment, is expected to remain strong in 2020 and 2021. On the other hand, other segments of the brewery could experience losses this year and potentially face a negative impact in 2021.
In the United States, AB InBev's lager and light beer segments continue to experience difficulties. While these categories remain the largest by case sales, they have seen their market share decrease over recent years.
Craft beer has seen a recent surge in popularity with younger adults, leading its market share in the country to reach 12%.
AB InBev remains the world's leading brewer by volume and boasts one of the highest profit margins in the industry, but it can be a challenging business to run. To improve profitability, they have implemented changes such as hiring a new CMO and creating an additional role for Chief Growth Officer.