Will AB InBev Continue Its Growth Story Amid The Hurdles?

Anheuser-Busch InBev SA/NV (NYSE:BUD) , commonly known as AB InBev has been doing well, backed by its impressive brand portfolio, solid geographical reach and focus on business expansion. Though the company is battling hurdles related to stiff competition, consumers’ changing preferences and slow North American growth, the aforementioned initiatives remain this AB InBev’s growth drivers.

So, let’s take a closer look into the world largest brewer’s growth story and see if it can be sustained amid the industry hurdles.

What’s Driving AB InBev?

AB InBev remains focused on portfolio diversification to resonate with consumers’ evolving drinking patterns. Given the accelerated shift toward low-and no-alcohol products, AB InBev keeps introducing near beer alternatives, along with no- and low-alcohol beers to provide greater choices to consumers. This is evident from the company’s plans to acquire Hiball — manufacturer of healthy, clean and premium energy drinks as well as a provider of organic sparkling water and juices under its Alta Palla brand. Another evidence of AB InBev’s commitment toward portfolio diversification is its contract with Starbucks Corporation (NASDAQ:SBUX) to provide Teavana, a ready-to-drink tea. Notably, management expects the low and no-alcohol beer category to account for about 20% of global beer volumes by 2025.

AB InBev’s expansion in the craft beer space further highlights its practice of exploiting all possible growth avenues. To make the most of this lucrative market, this Belgium-based brewer made numerous acquisitions to strengthen its position in the competitive craft beer space. The company’s strong craft beer portfolio includes well-known names like Karbach, Devils Backbone, Four Peaks, Goose Island and Golden Road among others.

Apart from AB InBev, other alcohol players like The Boston Beer Company, Inc. (NYSE:SAM) and Constellation Brands, Inc. (NYSE:STZ) are also expanding in the craft beer category. Thus, expansion in this space is likely to help AB InBev combat competition and cater to the rising demand.

Well, AB InBev is also gaining from its buyout of SABMiller (LON:SAB), which augmented its presence in the brewing space. Notably, the combined entity has a dominant share in the global beer market. Incidentally, AB InBev has operations spread across North America, Latin America (North, South & West), Europe, Middle East and Africa (EMEA), Asia Pacific. Moreover, SABMiller’s buyout seems to have lowered AB InBev’s exposure to the troubles looming over North America. The company is also likely to gain from solid sales in the emerging market, expected in fiscal 2017.

What’s Troubling AB InBev?

While all is well with AB InBev, the company delivered its sixth consecutive negative earnings surprise in second-quarter 2017, wherein the bottom line fell year over year. This resulted from persistent weakness in Brazil, negative impact of mark-to-market adjustment and increased finance costs. In fact, the company stated that Brazilian economy is recuperating at a slow rate. Further, going forward, the company continues to expect witnessing increased cost of sales due to the lingering currency woes and growth of premium brands. Management also expects a more volatile scenario in some of its core regions.

Nonetheless, the company remains optimistic about Brazil’s long-run outcome. It also projects 2017 sales to be backed by growth of global brands and its commercial plans, including revenue-management initiatives. All said, we believe that AB InBev’s strategic initiatives are likely to keep it going despite the hurdles.

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