AB-InBev lowers 2019 profit target

Belgium | AB-InBev has lowered its annual profit forecast after its third quarter results were dragged down by higher marketing costs in China, while price rises in South Korea and Brazil drove volumes down. Immediately, its share price sagged, wiping USD 20 billion off its market value.

The maker of Stella Artois and Budweiser reported lower than expected sales and profits for the quarter, prompting it to scale back its annual target for EBITDA growth, saying it would be “moderate” instead of the previous “strong”.

AB-InBev’s Chief Financial Officer Felipe Dutra pointed out: “Overall the third quarter was challenging due to some material headwinds that were flagged in the second quarter. Nevertheless we are not satisfied with the results.”

Turnover was USD 13.2 billion, below analysts’ expectations of USD 13.4 billion. EBITDA was flat over the same quarter last year. Making matters worse, total volumes dropped 0.5 percent, with own-beer volumes declining 0.9 percent. Analysts had counted on 0.8 percent growth. This alone makes it near impossible for the Budweiser brewer to arrive at a decent volume growth at the end of this year.

In the US, its biggest market, market share losses for its mainstream beers Bud Light and Budweiser accelerated. AB-InBev has kind of got used to seeing its volume sales shrink in North America. But this summer the drop was more pronounced: -3.3 percent. In the past, AB-InBev saw customers migrate to craft beer, wine and cocktails. Since this year there is another competitor: hard seltzer.

In Brazil, AB-InBev’s second most important market, it sold 0.6 percent less beer. EBITDA fell 16.5 percent. Even in that large a market, the brewer has been struggling for several years because of an ongoing economic downturn. It cannot have helped that its local unit AmBev hiked prices, while competitors (step forward Heineken!) chose to discount theirs. The Dutch brewer controls 20 percent of the local market, while AmBev has 70 percent. Heineken’s price attack came with an advance warning. According to the Belgian newspaper De Tijd, Heineken said over a year ago that it would lower its prices in Brazil to attract more customers. Strangely enough, Heineken also reported that it has been losing ground in Brazil. De Tijd concludes that smaller players must have picked up customers.

Even in China, sales declined slightly as volumes fell 6 percent year-on-year, partly due to weakness in sales to bars. A price rise in South Korea, which dented demand there, will be reversed, the company commented in its maiden results for Budweiser APAC, its recently floated unit in Hong Kong.