AB InBev halves dividend as beer sales slide in US market
- AB InBev said revenue in the third quarter fell to $13.28 billion from $14.74 billion, but rose 4.5% on an organic basis as the beer giant sold more of its premium brands. The company posted a profit of $956 million compared with $2.06 billion in the same quarter a year earlier as hedging weighted on results. If these one-time expenses were removed, profit was $2.23 billion versus $2.34 billion a year earlier.
- In the U.S., AB InBev's largest market, sales to retailers and wholesalers both declined 0.5%, but overall revenue grew 1.5% as the company benefited from the sale of more premium brews. It continued to cede market share in some categories with Budweiser losing 0.35% points and Bud Light losing 0.9% points during the third quarter. Michelob Ultra remained a bright spot, helping the company's premium beer gain 0.9% in share.
- The brewer of Stella Artois and Devil's Backbone slashed its dividend in half as the company focuses on improving its balance sheet. "Growth in the short term (of the dividend) is expected to be modest," the company said in a statement. AB InBev's stock plunged 10% to $73.82 in mid-morning trading.
AB InBev's quarter revealed more of the same for the world's largest brewer as its key brands continue to give up market share and Americans opt for more craft brews, wines and spirits. The company's legacy brands, such as Budweiser and Bud Light, remain challenged despite efforts by the company to introduce premium varieties like Bud Light Orange and Budweiser Reserve Series that includes one variety aged on Jim Beam bourbon barrel staves. Michelob Ultra posted another solid quarter as the company benefited from consumer demand for healthier brews.
"We can't remember a more disappointing set of figures from AB InBev," RBC analyst James Edwardes Jones said in a Wall Street Journal story, noting that most regions had missed analysts' estimates for volume growth.
During the third quarter, volumes in Brazil declined by 3.3% even as revenue grew by 2.1% as the company benefited from a price increase. A drop in disposable income in South Africa pushed volumes and revenue lower. In China, Budweiser helped volume increase 1.0% despite an overall negative industry trend, resulting in market share gains and revenue growth of 7.4%.
While the company stunned the market with the decision to slash its dividend, the move could prove to be a prudent one. It added a great deal of debt with the $100 billion blockbuster merger in 2016 with SABMiller. "With respect to M&A, we will continue to consider suitable opportunities when and if they arise, subject to our strict financial discipline and deleveraging commitment," AB InBev said in a statement. It's evident that AB InBev is laying the ground work for another deal at some point, so having a strong balance sheet will make that more palatable if the company decides to act.
AB InBev has introduced new beers, purchased craft brewers and tried to reinvigorate sales of its core brands to turn around its business, but to no avail. Another purchase of a beer company could give AB InBev possession of trendy brews or enable it to strengthen its presence in other faster-growing regions around the world. It could venture into the cannabis space, like Constellation Brands or Molson Coors, but that is unlikely to deliver the immediate impact to its bottom line that the company sorely needs.
To be sure, AB InBev is not the only major brewer to face a challenging market. Molson Coors, which is scheduled to report earnings next week, said in August that it is "aggressively addressing" volume declines in its important North American market. Molson Coors will be worth watching to see if its efforts are succeeding, or if it's running into the same problems as AB InBev despite what appears to be a valiant effort to better align with shifting consumer trends.
Follow Christopher Doering on Twitter