Anheuser-Busch InBev SA/NV BUD, alias AB InBev, has been in a good spot thanks to the continued business momentum due to relentless execution, investment in its brands and accelerated digital transformation. The expansion of the Beyond Beer portfolio and investments in B2B platforms, e-commerce and digital marketing bode well. The premiumization of the beer industry has been a key growth opportunity for AB InBev.
AB InBev reported sales and earnings in the first quarter of 2023. The top line benefited from strong consumer demand for its portfolio, consistent execution of its strategy and strength of the beer category globally. Accelerated digital transformation also contributed to the top-line growth in the quarter.
The Zacks Consensus Estimate for AB InBev’s 2023 sales suggests growth of 7% from the year-ago period’s reported numbers.
However, BUD continued to witness higher costs and soft margin trends in the first quarter, owing to commodity headwinds and higher supply-chain costs in some markets. This also weighed on the company’s bottom-line results.
This Zacks Rank #3 (Hold) stock has declined 3.8% in the past year compared with the industry’s and Consumer Staple sector’s fall of 3.1% and 2.5%, respectively. The stock’s performance also compared unfavorably against the S&P 500’s growth of 3.2% in the same period.
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Here’s Why BUD Looks Poised for Growth
AB InBev is positioned to gain form the premiumization of the beer industry in the long term. The company has been investing to develop a diverse portfolio of global, international and crafts and specialty premium brands in its markets. Apart from the premium brands, the company’s global brands lead the way in premiumization.
BUD’s above core portfolio grew revenues by mid-teens in first-quarter 2023. The increase was driven by continued double-digit growth of Michelob ULTRA in the United States and Mexico and double-digit growth of Original and Spaten in Brazil. The company’s three global brands — Budweiser, Corona and Stella Artois — advanced 15.4% outside its home markets in the first quarter. Corona brand grew 11.9%, Stella Artois improved 13.3% and Budweiser increased 17.8%, outside of its respective home markets.
The company is steadfastly growing its Beyond Beer portfolio, including products like Ready-to-Drink beverages like canned wine and canned cocktails, hard seltzers, cider and flavored malt beverages. The Beyond Beer trend has been recently gaining popularity due to the rise in demand for low-alcoholic or non-alcoholic drinks. The company remains focused on expanding its Beyond Beer portfolio, which has also been aiding the top line.
The Beyond Beer portfolio contributed more than $325 million to the total revenues in first-quarter 2023. The global Beyond Beer business’ revenues improved low-single digits in the first quarter. The company witnessed 75% revenue growth in Brazil as Beats activated demand during the return of Carnival. In the United States’ spirits-based ready-to-drink segment, the company’s Cutwater and NUTRL vodka seltzer together delivered revenue growth of more than 50%.
AB InBev has been rapidly growing its digital platform, leveraging technology, such as B2B sales and other e-commerce platforms, including BEES and Zé Delivery. The company is witnessing acceleration in the B2B platforms, e-commerce and digital marketing trends, which has been aiding growth in the past few months.
The company’s digital transformation initiatives have been on track, with B2B digital platforms contributing about 62% of its revenues in the first quarter. BUD noted that the monthly active user base of BEES reached 3.1 million users as of Mar 31, 2023. Its direct-to-consumer ecosystem, including Ze Delivery, TaDa and PerfectDraft, generated more than $100 million in revenues in first-quarter 2023, reflecting low-teens growth year over year.
Backed by the continued business momentum, AB InBev outlined its view for 2023. For 2023, the company expects EBITDA growth of 4-8%, which is in line with its medium-term outlook. It anticipates revenue growth to be higher than EBITDA growth, driven by strong volume and pricing.
Headwinds to Overcome
AB InBev continues to fall prey to the commodity cost inflation and higher supply-chain costs in some markets. Higher commodity costs mainly resulted from increased aluminum and barley prices. BUD continued to witness higher costs and soft margin trends in the first quarter.
The cost of sales increased 8.8% on a reported basis and 14% on an organic basis in the first quarter. SG&A expenses rose 5.5% year over year and 10.3% on an organic basis. Higher SG&A expenses can be attributed to elevated supply-chain costs.
Consequently, the company’s gross margin contracted 70 basis points (bps) to 54.1%, on a reported basis in the first quarter. On an organic basis, gross margin declined 35 bps. Normalized EBIT margin contracted 30 bps year over year to 24.6% in the first quarter. On an organic basis, normalized EBIT margin declined 39 bps.
Stocks to Consider
We have highlighted three better-ranked stocks from the Consumer Staple sector, namely Monster Beverage MNST, Brown-Forman (BF.B) and Molson Coors TAP.
Monster Beverage currently sports a Zacks Rank #1 (Strong Buy). The company has an expected EPS growth rate of 22.9% for three to five years. Shares of MNST have rallied 30.5% in the past year.
The Zacks Consensus Estimate for Monster Beverage’s current financial year sales and earnings per share suggests growth of 12.5% and 38.4%, respectively, from the year-ago period’s reported figures. MNST has a trailing four-quarter negative earnings surprise of 4.1%, on average. You can see the complete list of today's Zacks #1 Rank stocks here.
Brown-Forman has a trailing four-quarter earnings surprise of 5.7%, on average. It currently carries a Zacks Rank #2 (Buy). Shares of BF.B have declined 4.4% in the past year.
The Zacks Consensus Estimate for Brown-Forman’s current financial year sales suggests growth of 6.5% from the year-ago period's reported figure. Meanwhile, the consensus estimate for earnings indicates a decline of 5.2% from the year-ago quarter.
Molson Coors currently has a Zacks Rank #2. TAP has a trailing four-quarter earnings surprise of 32.1%, on average. Shares of TAP have rallied 16.7% in the past year.
The Zacks Consensus Estimate for Molson Coors’ current financial year sales and earnings suggests growth of 5.3% and 5.9%, respectively, from the year-ago period’s reported figures. TAP has an expected EPS growth rate of 4.2% for three to five years.
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