AB InBev (BUD) Q1 Earnings Lag, Global Brands Aid Sales Beat

Anheuser-Busch InBev SA/NV BUD, alias AB InBev, reported first-quarter 2018 results, wherein earnings lagged estimates while sales topped. This marked the company’s return to the negative earnings surprise trend, after recording a beat in the preceding quarter. With this, the company delivered negative earnings surprise in eight of the last nine quarters. Moreover, revenues surpassed estimates for the second straight quarter, reflecting a beat in four of the last six quarters.

Overall, shares of AB InBev have lost 9.3% in the past month, wider than the industry's decline of 5.6%.

Q1 Highlights

Normalized earnings per share of 73 cents declined from 74 cents in the year-ago quarter. The bottom line also lagged the Zacks Consensus Estimate of 79 cents.

Anheuser-Busch InBev SA/NV Price, Consensus and EPS Surprise

Anheuser-Busch InBev SA/NV Price, Consensus and EPS Surprise | Anheuser-Busch InBev SA/NV Quote

Revenues improved 1.2% to $13,073 million, surpassing the Zacks Consensus Estimate of $12,829 million. The company registered organic revenue growth of 4.7%, courtesy of 5.3% rise in revenues per hectoliter (hl) on a constant-geographic basis. The increase stemmed from ongoing revenue management initiatives along with the strong performance of premium brands. Also, revenues per hl advanced 4.9% on a reported basis.

Consolidated revenues at the company’s three global brands — Budweiser, Corona and Stella Artois -- improved 7.9% globally and 12.2% outside home markets.

Total volumes dipped 0.2% with own-beer volumes rising 0.5%, offset by a 6.9% decline in non-beer volumes. Own-beer volumes gained from growth in Mexico, Colombia and Argentina, partly mitigated by softness in the United States and Brazil. On the other hand, non-beer volumes were mainly hurt by the weakness in Brazil and Peru.

Cost of sales dropped 4.6% year over year to $4,988 million while the same rose 1.3% organically. Further, cost of sales per hl grew 1.5%. On a constant-geographic basis, cost of sales per hl increased 2.4%.

The company’s normalized earnings before interest, taxes, depreciation and amortization (EBITDA) were $4,989 million, up 3.7% year over year and grew 6.6% on an organic basis. The increase was driven by solid top-line growth as well as gains from cost synergies, partly negated by higher sales and marketing expenses ahead of the FIFA World Cup along with a fall in other operating income due to difficult comparisons. EBITDA margin expanded 100 basis points (bps) to 38.2% while the same increased 70 bps organically.

Outlook

AB InBev issued guidance for 2018. Though management sees volatility in certain key markets, it anticipates delivering strong top-line and EBITDA growth for the full year, backed by solid brands performance and robust commercial plans. In fact, driven by the company’s growth model that focuses on category development, net revenues per hl growth is likely to exceed inflation while costs are expected to come below inflation.

With first-quarter results, coming slightly ahead of initial expectations, the company expects accelerated growth through the rest of 2018, particularly in the second half.

Nonetheless, this Zacks Rank #3 (Hold) company reiterated the synergy and cost-savings guidance of $3.2 billion that was announced in August 2016. With the majority of the synergies already captured, the company expects to achieve synergies of nearly $900 million in the next 2-3 years.

For 2018, management anticipates normalized effective tax rate of 24-26%. Net capital expenditures are projected between $4 billion and $4.5 billion. AB InBev envisions dividend growth to be modest in the future.

Three Hot Picks in the Beverages – Alcohol Space

Some better-ranked stocks in the same industry are The Boston Beer Company, Inc. SAM, Brown-Forman Corporation BF.B and Ambev S.A. ABEV. While Boston Beer sports a Zacks Rank #1 (Strong Buy), Brown-Forman and Ambev carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boston Beer has long-term earnings growth rate of 9.5%. Moreover, the stock has surged 9.3% in the past month.

Brown-Forman has surged 40.7% in the past year. The company delivered an average positive earnings surprise of 9.3% in the last four quarters.

Ambev, with long-term earnings growth rate of 23.8%, has improved 4% in the past year.

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