Bloomberg News

AB InBev Sees U.S. Improvement as Bud Light Platinum Aids Growth

February 27, 2013

AB InBev’s Profit Gains on Increased U.S., Brazil Volumes

A sign for Anheuser-Busch InBev NV's Budweiser beer is lit over the scoreboard at Busch Stadium, home of the St. Louis Cardinals, in St. Louis, Missouri. Photographer: Whitney Curtis/Bloomberg

Anheuser-Busch InBev NV (ABI), the beermaker seeking control of Mexico’s Grupo Modelo SAB, anticipates improved profitability in the U.S. after growing share in the country for the first time since 2009.

The brewer feels “much better about the U.S. trends” after three years of “very soft markets” there, Chief Financial Officer Felipe Dutra said today on a conference call.

The introduction of new beers such as Budweiser Black Crown, a stronger version of the American classic, and Bud Light Platinum helped AB InBev post the first volume increase in the U.S. since 2008 last year. Competition from the craft beer industry and spirit makers, along with weakening beer market growth, have pressured sales in North America, the company’s biggest region in terms of both revenue and profitability.

AB InBev’s share of the U.S. beer market increased by more than 0.2 percentage point in the fourth quarter, the first gain since the second quarter of 2009, the company said today as it reported fourth-quarter profit that beat estimates.

The brewer, whose new brands also include Bud Light Lime Lime-A-Rita, is “confident of the potential for margin expansion” in North America, particularly the U.S., it said.

Profitability in the region was hurt last year by increased brand investment, higher distribution expenses and a rise in commodity costs. The North America unit’s margin on so-called normalized earnings before interest, tax, depreciation and amortization narrowed by 1.1 percentage point to 41.8 percent.

A 0.2 percentage point increase in group margin was down to improvements in Latin America and western Europe.

Shares Advance

Excluding some items, group organic Ebitda rose 9.9 percent to $4.39 billion in 2012, the Leuven, Belgium-based company said today, more than the $4.36 billion median estimate of nine analysts surveyed by Bloomberg. Sales also topped predictions, gaining 8.8 percent excluding acquisitions and currency swings, compared with the median estimate of 6.2 percent.

AB InBev shares rose 0.9 percent to 70.40 euros as of 1:20 p.m. in Brussels, reversing an earlier 1.5 percent drop.

The brewer today insisted that its planned $20.1 billion purchase of the rest of Modelo is about seeking growth outside the U.S. after offering to appease antitrust regulators by ceding control of the production and distribution of the Corona maker’s Mexican brands in the U.S. to Constellation Brands Inc. (STZ:US)

Negotiations between the parties are now headed toward a settlement that will give the brewer antitrust approval, people familiar with the matter said this week.

Volume Pressure

A federal judge in Washington agreed to suspend litigation between the U.S. and AB InBev until March 19 as each party tries to reach a resolution. An agreement is “more likely” to be struck near that deadline than much sooner, Chief Financial Officer Felipe Dutra said today on a conference call.

AB InBev said today that first-quarter volume in the U.S. will be hurt by “short-term” pressure on consumer disposable income. Bad weather and the earlier timing of the Carnival holiday in Brazil will also weigh on volume in the first three months. The company will focus on its “premiumization strategy” of selling pricier types of beer, and will introduce products including a strawberry version of Lime-A-Rita in the U.S., Dutra said.

AB InBev has been narrowing the price gap between so-called premium beers in the U.S., such as Michelob Ultra, and sub- premium brands like Busch. The difference is now 23 percent, Chief Executive Officer Carlos Brito told reporters in Leuven.

Worldwide beer volume at AB InBev fell for a third straight quarter in the last three months of 2012, sliding 0.3 percent, led by declines in China, where cold, wet weather stinted sales.

Market Share

Volume in Brazil, its second-biggest market, rose 2.9 percent in the quarter, aided by price promotions as the government partially postponed a tax increase announced Sept. 28. Market share in the country fell 0.5 percentage point in the year, reaching an average 68.5 percent after price increases.

AB InBev said it expects distribution expenses and the cost of sales per hectoliter to increase by mid-single digits on an organic basis in 2013. Sales and marketing expenses will rise by high-single digits, the company said.

Capital spending will increase to about $3.7 billion this year as the brewer ramps up investment in capacity expansion in Brazil and China, and in beer innovation.

The company raised its dividend to 1.70 euros ($2.22) a share and will move to semi-annual payments, the first of which will be in this November and May 2014.

To contact the reporter on this story: Clementine Fletcher in London at cfletcher5@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net


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