Dive Brief:
- AB InBev pummeled earnings estimates with 5% revenue growth and 1% volume growth in the second financial quarter, according to an earnings release from the company. A strong performance from the company’s top brands in countries like South Africa, China and Argentina offset weak results in the U.S. and Brazil.
- Results were also boosted by cost savings achieved through SABMiller, which AB InBev acquired last year for $100 billion. The company reported savings of $335 million and plans to save $2.8 billion over the next four to five years.
- “2017 has been off to a good start and we will continue to push ourselves to deliver good results throughout the balance of the year,” the company stated in its release. “While the second half of the year looks promising, our focus remains on growing the global beer category as well as generating top-line growth in a sustainable way to position ourselves for long term success.”
Dive Insight:
AB InBev’s global footprint, which expanded considerably with the company’s $100 billion acquisition of SABMiller last year, provided a major boost in this latest financial quarter. In South Africa, the company’s revenues jumped 13.4% while in China revenues grew 7.2%. In Argentina, volume grew an impressive 20%.
Much of this international growth came through AB InBev’s top beer brands Budweiser, Stella Artois and Corona, which collectively saw revenues increase 9%. Budweiser, despite its U.S. struggles, grew revenues by 11.7% outside the country and posted an overall 5.7% revenue gain. AB InBev also singled out Corona in its earnings report, noting that the Mexican brand’s sales jumped 16.6% atop strong demand in the U.K., Australia and China.
These results helped offset soft performances in the U.S. market, where beer drinkers are increasingly turning to craft brews, and in Brazil, which has been battling a financial recession. In past financial quarters, the struggles in Brazil, which is AB InBev’s second-largest market outside the U.S., cut deeply into the company’s results. AB InBev noted that the country’s slowly improving economy should further boost its performance in the second half of this year.
AB InBev also got a boost from synergies and cost-cutting measures driven by its SABMiller acquisition and by a global workforce reduction of 5,500 jobs. This quarter, the company reported $335 million in cost savings, and reiterated its plans to save $2.8 billion over the next four to five years.
Boosting its performance in the U.S., where revenues declined 0.2% in the second quarter and 1.3% for the first half of the year, is a top priority for AB InBev. This spring, the brewer announced it would invest $500 million this year to improve distribution and marketing for its brands, and $2 billion total by 2020.
Bud Light, the best-selling beer in the U.S., embodies many of the struggles AB InBev is having with its mainstream beer offerings. Since 2010, Bud Light’s U.S. market share has slipped from 19% to 16%. In addition to growing craft beer consumption, Bud Light is struggling against Mexican brands like Modelo Especial, which recently overtook Bud Light as the leading beer in the key Los Angeles market. AB InBev has invested in splashy marketing campaigns that have failed to move the dial, and is hoping its new “Famous Among Friends” campaign can help improve results.
Proving the old mantra “if you can’t beat ‘em, join ‘em,” AB InBev is also, like many other large brewing companies, buying up craft beer brands. Recent acquisitions include Wicked Weed and Devils Backbone Brewing. These purchases should contribute to the company’s craft segment growth, though the U.S. Justice Department warned the company late last year that gobbling up smaller companies may be anti-competitive. Undeterred, AB InBev responded less than two months later by acquiring Texas’s Karbach Brewing Co., one of the country’s fastest-growing craft brewers.