AB-InBev needs SABMiller tonic
When releasing its third quarter 2016 results on 28 October 2016, AB-InBev not only reported a surprise drop in profits, but the world’s number one brewer also cut its revenue forecast for the full year, saying it no longer expects sales growth to beat inflation in 2016 because of declining volumes in Brazil.
Brazil is AB-InBev’s second-largest market, where a drop in consumption was compounded by a decision to delay price increases into the fourth quarter.
Analysts and media hacks concurred that the weakness in Brazil and a flat US market highlight the brewer’s need for SABMiller’s markets with high growth potential. More than ever, AB-InBev will be relying on achieving the USD 1.4 billion of annual savings it has said it can get from taking over SABMiller.
“One would have to seriously question a positive stance on standalone AB- InBev,” Eamonn Ferry, an analyst at Exane BNP Paribas, reportedly argued in a note to investors. “The thesis for us here is very centered on the acquisition of SABMiller.” In plain English: If AB-InBev had not bought SABMiller it would be in serious trouble with investors now.
AB-InBev’s profits measured in EBITDA dropped 2 percent in the quarter, whereas analysts had expected 4.5 percent growth.
Brazil is going through one of its most difficult years of the past decade and the fourth quarter will be tough, AB-InBev’s CFO Felipe Dutra said. Fortunately, AB-InBev is not alone. Nestlé, Danone and Unilever too are wrestling with a consumer slump and inflation in the South American country.
The brewer also announced a 2 percent drop in SABMiller’s beer volume because of some challenges in Africa and a transport strike in Colombia.
The SABMiller results were not consolidated in AB-InBev’s figures, and they excluded joint ventures and assets that were sold or are up for sale.