The Belgium based world’s largest brewer with a global market share of 25%, AB InBev (BUD, Financial) reported profit of $2.29 billion this quarter as against $1.42 billion from the same quarter last year. Owing to decline in sales from its key market US, the company also had a few drawbacks in the results.
Cheering points
Owing to decreased beer demand in the US and dollar going strong, AB InBev still managed to pick up a good net profit led by derivatives gain in the first quarter. Derivatives recorded a gain of $757 million, which were used to hedge share prices given to employees as compensation. Revenues for the current quarter stood out at $10.5 billion though a little less than last year’s $10.6 billion.
Demand are on a high for the company’s products in China, Brazil and even Russia, which is going through a rough phase. From Brazil, the brewer’s second-largest market, beer sales volumes were up by 1% even after weakening economic situation in the country. Though the beer sales from Brazilian market were not considerably high but still the company managed to push up revenues per hectoliter by 11% owing to inflation recorded at 8% in the country and the popularity of Budweiser and recently launched Corona and Skol Beats Senses. From Brazil itself, the company looks forward to continuous growth and expects revenues to improvise in 2015. Mexico also saw improved growth where volumes grew 2.2%. In China, the Budweiser brand led to increase in market share by 100 bps to 16.7% in the first quarter. From China, volumes surged 4.7% as a result of increased sales in Budweiser and Harbin. Corona too saw a growth of 2.7% with notable results in Australia, Italy and Canada while Stella Artois witnessed 1.2% growth in US. The markets also accepted higher-priced beers, which added to the revenues.
U.S. plays the spoil sport
As an after-effect of job cut done by AB InBev last year and ongoing negotiations with labor unions, the company booked losses in sales in US. Otherwise too, there were several factors leading to weakened results in the company’s largest market. Many of its flagship brands including Budweiser and Bud Light lost customers and the market share depleted as a result. The company needs to match with the changing tastes of US consumer that is craft beers as compared to AB InBev’s Lagers present in the mass-market. All efforts look like going in vain by the company to resolve this shortcoming. The company did launch some innovative marketing and advertising campaigns but despite minor success, profits couldn’t be picked up.
Future Plans
The company looks forward positively to gaining back market share with a good start to the year which should catalyze the enthusiasm to drive for more in the quarters to come. Even the M&A rumors of the market between top four brewers has been casted away by AB InBev as it announced a $1 billion share buyback earlier this year and has been able to complete 50% of the projected buyback till May 1st 2015. Brazil will continue to be in the company’s focus as they call it ‘a resilient market’. Future of the company looks promising with all efforts being put in to change the current market notion about company from ‘Bearish’ to ‘Bullish’.
