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In Focus: Anheuser-Busch In Bev

The quickest way to build a fortune in the markets? Bet on an Anheuser-Busch InBev Q3 revenue miss. Investors that have done it are raking in the dough.

After the bell rang on Friday Anheuser-Busch In Bev (BUD) was down 10% on the day following another third quarter revenue miss. At this point Q3 revenue misses are just Anheuser-Busch In Bev’s thing. In Q3 2016 the company reported $11 billion in revenue and a revenue miss of $271 million. Q3 2017 the company reported revenue of $14.7 billion, with a revenue miss by $310 million. Q3 2018 the company reported $13.2 billion and a revenue miss of $709 million, and the current Q3 2019 miss was $537 million on $13.1 billion of revenue.

In 2016 the stock was down 1.3% following the miss. In 2017, the stock gained 1% after the revenue miss, likely because the company beat EPS estimates by $0.01. In 2018 the stock gapped down 9.3% off the news of the revenue miss, and in 2019 the stock is down 10%.

Source: Yahoo

In 2016 volume declines in Brazil led to negative revenue growth in the region, and was one of the issues contributing to the revenue miss. Another, was a volume decrease in South Korea. In 2017 hurricanes Harvey and Irma were to blame for the revenue miss during the quarter, during that quarter, the company also reported a loss of market share.

In 2018 it was Brazil again. The beer industry declined by approximately 2.5% in the region, due to what AB InBev called a challenging consumer environment. There was also a loss of market share in the region after a price adjustment. AB InBev also admitted to a shrinking beer industry in the U.S, as well as major consumer trends, such as premiumization, health and wellness, along with demographic changes in the population which caused a segment mix shift within beer.

In Q3 2019 issues in Brazil still persist. The company described it as a difficult macroeconomic environment, resulting in beer volume declines of 3% and also noted that performance was impacted by higher cost of sales, resulting from the timing of commodity and transactional currency hedges, as expected. In addition the company said results were weighed by higher raw material costs, adverse currency swings and weaker volumes in South Korea and Brazil.

At this point, I'm setting my alarm for October 2020, with a reminder to short BUD heading into the company's Q3 earnings.

What's a Beer Loving Investor to Do?

AB InBev currently trades at its 52 week low. The stock is 20% off its 52 week high, and 37% off its 2016 high of $131.41. From my point of view this doesn't seem like a beaten down undervalued company. BUD appears to be a huge conglomerate having trouble navigating the current landscape.

The company has pointed out that the U.S. beer market is shrinking, which isn't a complete loss for investors, Americans are still drinking, they're just not drinking beer like they were in the past. Hard seltzers have been the new wave. In 2018 spiked seltzer was a $550 million business, three years before, it was a $3 million business. There's still money to be made by investing in alcohol, just not beer.

AB InBev has thrown their hat into the seltzer ring with their Bon & Viv and Natty Light Seltzers, and they're also prepping a Bud Light Hard Seltzer. AB InBev was late in taking hard seltzers seriously, and when they decided to take it seriously, they marketed their seltzers towards women, a mistake that revealed how out of touch the company is with the market.

Bud has major issues to fix before I would buy or recommend the stock. Brazil for instance continues to be a recurring issue, A shrinking beer market in the U.S. doesn't do the company any favors, and it being late to embrace hard seltzers puts the company well behind the competition (White Claw and Truly account for 85% of the market). And AB InBev's numbers are another issue for another day, but $100 billion in debt to $7 billion in cash and cash equivalent gives you an idea of what kind of balance sheet the company is working with.

AB InBev needs something, a shot in the arm to get it back on track. But I don't know what that something is. Adding a third seltzer to their line up though isn't what I think the company needs, but I do think it's a part of the problem. We often hear the term "Too big to fail," but can a company be too big to succeed? A Google search reveals AB InBev has 400 different beer brands, 400!

I don't foresee the company divesting anytime soon, but serious effort should be made to tighten the ship, all the ships, and to work towards getting lean in all phases across all brands. Only then can the company stop the annual Q3 misses and get the stock back on track. Until then, set your alarm for AB InBev's Q3 2020 release and try to act surprised when they announce another revenue miss.


What is The Seville Report

The Seville Report is our attempt to bring world class investment research to people who feel world class investment research isn't available to them. We also want to demystify the stock market for people who wouldn't normally think of putting their money in the stock market. Our research comes quarterly via our newsletter, The Seville Report. We use the website and this blog to share thoughts and ideas about the markets and different companies.

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