Budweiser Brewer Issues Profit Warning, Sending Shares Sharply Lower -- Update

By Saabira Chaudhuri 

Anheuser-Busch InBev SA warned its full-year results would be weaker than expected after slowing sales growth in the U.S. and efforts to woo drinkers overseas hurt revenue in the third quarter.

The weak results and downbeat outlook sent shares down more than 10% in early trading, underscoring that the Budweiser brewer still faces big challenges despite recent moves to trim its enormous debt pile.

The world's biggest brewer has for years grappled with declining volumes in the U.S. -- its largest market -- as Americans abandon mainstream lagers like Bud and Bud Light in favor of craft beers, spirits or nonalcoholic drinks. In response, AB InBev has tried to sell pricier beers in developed markets, while pushing deeper into emerging markets with cheaper drinks.

But its effort to attract new drinkers in markets like Brazil and Colombia limited sales in the third quarter and is expected to hurt full-year figures.

AB InBev said revenue per hectoliter grew 3% in the quarter, compared with 4.2% a year earlier. For the full year, it said growth by that measure would be slightly below inflation, having previously expected growth above inflation. It also warned of "moderate" rather than "strong" growth in earnings before interest, taxes, depreciation and amortization.

For the third quarter, the Belgian company reported a profit of $3 billion, up from $959 million in the year-earlier period. On an underlying basis -- stripping out gains tied to hedging and the impact of hyperinflation -- profit dropped to $1.87 billion from $2.19 billion.

Revenue rose to $13.17 billion from $12.92 billion. Overall volumes of nonalcoholic and alcoholic drinks edged down 0.5% globally, missing analyst estimates for growth of 0.8%. Organic revenue grew 2.7%, missing estimates for 4.7%.

The company blamed lower sales in China and South Korea, higher commodity costs and foreign-exchange headwinds for the weaker earnings. It said price increases in Brazil also resulted in lower demand.

AB InBev has been working to reduce its debt, amassed after a string of acquisitions including its landmark purchase of SABMiller. It recently agreed to sell its Australia business and listed its Asia arm. On Friday, it said it was on track to hit a net-debt-to-Ebitda ratio of below four times by the end of 2019, one year earlier than it previously expected.

The SABMiller deal was a key part of the company's strategy to expand in emerging markets as volumes slow in the West.

AB InBev described its affordability strategy for emerging markets as "a vital component to reaching new consumers and introducing beer to new occasions." In Colombia, the company has been selling more one-liter beer bottles, in Brazil it is selling brands made with ingredients grown by local farmers, and in Ecuador it launched a new one-liter returnable glass bottle to keep prices down.

The company -- which makes one out of every four beers world-wide -- has also bought craft brewers, and pushed pricier brands and nonalcoholic drinks. It said Friday those efforts were working, with revenue globally rising even as beer volumes fell 0.9%.

Volumes again dropped in the U.S., where AB InBev lost 0.85 percentage point of market share in the quarter. The rising popularity of hard seltzerhurt the company, which is still developing its portfolio of low or no-sugar hard seltzer brands. On Thursday, the company said it plans to launch a new hard seltzer brand, Bud Light seltzer.

Write to Saabira Chaudhuri at [e-mail]

(END) Dow Jones Newswires

October 25, 2019 04:47 ET (08:47 GMT)

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