Text size
American investors shouldn’t be surprised by Anheuser-Busch InBev’s strong second quarter. They need to look beyond the U.S. boycott of Bud Light.
Joe Raedle/Getty Images
Arguably the most famous New Yorker cover depicts the View of the World from ninth Avenue, in which Manhattan is at its center and makes up its bulk. It’s a self-admittedly myopic map, but one that demonstrates how easy it is to forget the rest of the globe, no matter one’s location.
It’s that same impulse that’s led to confusion about how Anheuser-Busch InBev (ticker: BUD) reported such strong second-quarter results despite the ongoing U.S. boycott of its Bud Light brand, which is no longer country’s best-selling beer.
Shares of
AB InBev
jumped last week after it reported an overall strong quarter, as earnings per share came in ahead of expectations, and organic growth climbed. The Bud Light brand was certainly a drag, with second-quarter volume down double digits in North America, but this region accounts for only about a quarter of AB InBev’s business, and the company’s U.S. Bud Light sales an even smaller portion of that.
The company’s global presence is something that bulls have repeatedly noted amid the domestic furor about Bud Light’s marketing partnership with transgender influencer Dylan Mulvaney and subsequent management response, a point that Barron’s has made as well.
“With Bud Light issues in the U.S. now discounted in estimates and management keen to push back on further incremental negative U.S. narratives, investors can return to look at the bigger ABI picture,” noted Citi analyst Simon Hales following the report.
The world view is certainly a brighter one: Organic revenue jumped in all of AB InBev’s segments outside of North America, and the company enjoyed strong pricing power as well.
While analysts are divided about the how permanent Bud Light’s market share losses are, Gimme Credit’s Dave Novosel writes that the second quarter demonstrated that for AB InBev overall, it might not matter. “The promising outlook for the rest of its portfolio suggests the company will do just fine if the stabilization at Bud Light is maintained.” Indeed, the brand’s sales decline did start to level off at the end of the second quarter.
“AB InBev has been able to boost price even in weaker economies since consumers have responded to premiumization efforts,” Novosel noted in a new research report out Thursday.
While Bud Light’s troubles weighed on operating margins in the second quarter, and Novosel expects they will be weak in the second half of the year as well, he doesn’t think they will be hit as hard, and notes that many commodity costs will lessen for the company. In addition, he writes that although AB InBev’s free cash flow was negative in the first half, he writes that kind of seasonal outflow isn’t unusual, and estimates that the company will still notch free cash flow of roughly $4 billion for the year as a whole.
That should allow it to continue to lower its leverage, continuing its pattern in recent years.
Ultimately, he—like others—argues that Bud Light’s American woes won’t slow down AB InBev’s broader global gains, allowing the company to deliver organic revenue growth in the mid- to high-single-digit range over the near term, and maintained his Buy rating on the company’s debt.
AB InBev is up 1.3% in recent trading to $57.24. Although it’s still down 4% for the year, it’s climbed more than 7% from its spring lows.
Write to Teresa Rivas at [email protected]
Source: https://www.barrons.com/articles/bud-light-ab-inbev-stock-price-earnings-sales-bcef5fd9?siteid=yhoof2&yptr=yahoo