AB InBev (BUD) Misses On Q1 Earnings, Reiterates Outlook

World’s largest brewer Anheuser-Busch InBev SA/NV (NYSE:BUD) , also known as AB InBev, posted first-quarter 2017 results. This marks the company’s second quarter as a combined entity with SABMiller (LON:SAB). Both the top line and bottom line improved year over year in the quarter. While revenues marked its second consecutive beat, earnings lagged estimates for the fifth straight time.

The lower-than-expected bottom line could be largely attributable to persistent weakness in Brazil. Nonetheless, management remains positive about Brazil’s performance in the long-run, as it anticipates recovering some revenues in the country, this year itself.

However, AB InBev’s stock has declined 7.2% in the past one year, underperforming the Zacks categorized Beverages–Alcoholic industry’s gain of 2.8%.

Q1 Highlights

Normalized earnings per share of 74 cents surged 45% from 51 cents earned in the year-ago quarter, though it lagged the Zacks Consensus Estimate of $1.00.

Revenues for the quarter advanced 37.5% to $12,922 million, also surpassing the Zacks Consensus Estimate of $12,870 million. Further, the company registered organic revenue growth of 3.7% on the back of a 4.5% rise in revenues per hectoliter (hl) on a constant geographic basis. This improvement resulted from ongoing revenues management and premiumization initiatives, along with robust performance by superior brands. Also, revenues per hl advanced 4.3% on a reported basis.

Moreover, revenues for the company’s three global brands, namely Budweiser, Corona and Stella Artois, increased 12.1% in the first quarter. Global brands revenues for the quarter comprised 18.2% growth at Corona, a 21.1% rise in Stella Artois and a 7.3% upside at Budweiser.

Total volumes dipped 0.5%, including a 0.2% slip in the company’s beer volumes. Gains from volume growth in China, Mexico and Brazil were countered by volume declines witnessed in Columbia, South Africa and the U.S.

Cost of sales escalated 38.4% year over year to $5,229 million, while organically the same increased 5.4%. Organic cost of sales per hl rose 6.2% due to negative foreign currency translations, partly compensated by synergies, efficiencies and procurement savings. On a constant geographic basis, cost of sales per hl jumped 6.6%.

The company’s normalized earnings before interest, taxes, depreciation and amortization (EBITDA) soared 38.9% year over year to $4,809 million, while growing 5.8% on an organic basis – on the back of cost synergies and other operating income. This was partially curbed by the increased cost of sales. EBITDA margin expanded 40 basis points (bps) to 37.2%, while organically, the same increased 76 bps.

Other Developments

Management stated that the company is well on track with SABMiller’s integration, and realized synergies worth $252 million in this regard, during the first quarter.

Also, on Apr 12, the company announced that it has concluded the sale of its indirect stake in Distell Group Limited, to Public Investment Corporation (SOC) Limited in order to win the South African Competition Tribunal’s sanction for its deal with SABMiller.

Outlook

Following the quarter, management reiterated its previously issued outlook for 2017. Owing to greater volatility in some of its core regions, AB InBev still projects revenues growth in 2017 to be backed by robust growth of global brands and its commercial plans, including revenues management initiatives.

For 2017, AB InBev continues to expect cost of goods sold per hl, on a constant geographic basis, to increase in the low-single digits range, in spite of adverse currency movements and premium brand growth. Selling, general and administrative (SG&A) expenses are estimated to remain flat, driven by savings in overhead costs that will be reinvested to boost strength of its brands. Management expects normalized effective tax rate for 2017 in the range of 24–26%.

Additionally, AB InBev anticipates incurring nearly $3.7 billion as net capital expenditure for 2017. Also, the company expects dividend growth to be modest in future.

Zacks Rank & Key Picks

AB InBev currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same industry include Compania Cervecerias Unidas, S.A. (NYSE:CCU) and Constellation Brands, Inc. (NYSE:STZ) each sporting a Zacks Rank #1 (Strong Buy) and Heineken N.V. (OTC:HEINY) with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Compania Cervecerias has jumped 10% in the last three months. Further, the company has witnessed positive estimate revisions for 2017, in the past 30 days.

Constellation Brands, with a long-term earnings growth rate of 17.8%, has a splendid earnings surprise record. Also, it has surged 16.3% in the last three months.

Heineken has gained nearly 19.2% in the last three months. Moreover, it has a long-term earnings growth rate of 7.6%.

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