Aluminum Tariff Lift & More Factors To Keep Aiding AB InBev

Anheuser-Busch InBev SA/NV (NYSE:BUD) , alias AB InBev, has everything working in favor of it from displaying a robust sales trend, growth of global brands to a strong outlook. These favorable traits, along with the recent lifting of import taxes on steel and aluminum from Canada and Mexico, improve prospects of this alcoholic beverage giant.

Notably, this Zacks Rank #3 (Hold) company has been witnessing solid momentum in the recent past, with its stock up 30.4% year to date compared with the industry’s growth of 21.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The U.S. Government Calls Off Aluminum Tariffs

In mid-May, the U.S. government reached a deal with Canada to remove tariffs on steel and aluminum imports. This move was promptly echoed by the Canada and Mexico governments, announcing the removal of retaliatory tariffs on a variety of American goods, from metals to food. This cleared the key roadblock for the North American trade pact called the U.S.-Mexico-Canada Agreement (USMCA), which was signed in 2018.

The removal of tariffs on aluminum is likely to boost the soda and alcohol beverage companies, which use imported aluminum for manufacturing cans. These companies have been experiencing the brunt of 10% tax on imported aluminum since its imposition last year. With the easing of these taxes, beverage companies are expected to have enough capital for innovation, product development and expansion. This is also likely to relieve some burden from the profit and loss statements of the beverage companies, which were incurring increased costs due to rising tariffs.

That said, it is clear that AB InBev will also be a beneficiary of this move by the U.S. government, along with its counterparts like The Boston Beer Company (NYSE:SAM) , Brown-Forman BF.B and Constellation Brands (NYSE:STZ) .

Apart from this development, let’s explore other reasons why AB InBev stock is witnessing strong momentum.

Other Factors Aiding Stock Growth

AB InBev is witnessing robust sales growth on improving trends in key markets and continued premiumization in the majority of its markets. Further, the three global brands — Budweiser, Corona and Stella Artois — continued to witness robust growth. In first-quarter 2019, consolidated revenues for the company’s global brands improved 8.5% globally and 14% outside their respective home markets.

Moreover, in the first quarter, AB InBev delivered the second straight sales beat and its fifth positive sales surprise in the trailing six quarters. It registered organic revenue growth of 5.9%, courtesy of 4.6% rise in revenues per hectoliter (hl) and strong volume growth. Top-line results were aided by global premiumization and ongoing revenue management initiatives. Further, healthy performances in key markets — including Brazil, China, the United States, Europe, Colombia and Nigeria — boosted the top line. Total organic volume advanced 1.3%, with own-beer volume rising 1% and non-beer volume up 4.9%.

Furthermore, the company anticipates delivering strong top-line and EBITDA growth for 2019, backed by solid brand performance and robust commercial plans. Driven by increased focus on category development, it expects to deliver balanced top-line growth between volume and revenue per hl. Net revenue per hl growth is likely to exceed inflation while costs (sum of cost of sales and SG&A) are expected to be below inflation. Premiumization and revenue management initiatives are likely to aid revenue per hl growth.

Simultaneously, AB InBev is on track to reach its synergy and cost-savings target of $3.2 billion that was announced in August 2016, following the acquisition of SABMiller (LON:SAB). Of this, nearly $547 million was reported by SABMiller as of Mar 31, 2016, and about $2,491 million was captured between Apr 1, 2016, and Mar 31, 2019. Clearly, the company has captured about $3,038 million of synergies since the announcement. Capture of synergies and cost savings in the first quarter were nearly $100 million, mainly driven by business integration efforts. It expects to achieve the remaining synergies of nearly $150 million by the end of 2019.

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