AB Inbev (BUD) Q1 2016 Earnings

posted in: Earnings Call, Notes | 0

AB Inbev (BUD) CEO Carlos Brito said Mexico enjoyed robust results while the Brazil region struggled mostly due to political turmoil

“The first quarter saw a strong performance in Mexico as well as improving volume trends in the U.S. and Europe. However, Brazil faced one of its most challenging quarters in many years due to the weakening macroeconomic conditions in the country and a tough comparable. The industry in China was also soft due to economic headwinds.  Volumes were significantly impacted by results in Brazil, as expected, where our beer volumes fell by 10%, although our volume trends in Brazil in April were significantly better than the first quarter.  Brazil is facing a tough macroeconomic environment with continuing pressure on consumer disposable income.”

Brand perception of their Bud Light offering is improving

“Our business in Mexico is doing great, and we’re excited about the prospects going forward. In the U.S., industry volumes returned to growth, and we’re seeing very good volume growth with our Above Premium brands. Bud Light volume trends are also heading in the right direction. In Brazil, our brands enjoy high consumer preference, and the premium category continues to grow.”

Have had to divest a large number of brands in order to gain regulatory approval for their acquisition of SAB Miller 

“I’d like to give you an update on the proposed combination with SABMiller. When we made the initial announcement in November last year, we said we would be proactive in addressing any potential regulatory considerations and we have made good progress in all four of the markets where regulatory clearance is a precondition to making the formal offer to shareholders. We have announced the sale of SABMiller’s interest in MillerCoors in the U.S. and in CR Snow in China, as well as the disposal of certain of SABMiller’s premium brands and related businesses in Europe, including Peroni and Grolsch. Also, last week, we announced our decision to divest of SABMiller’s Central and Eastern Europe business and brands. Of course, all of the disposals are subject to the closing of the main transaction.”

China beer volume growth slowed but the company took market share from competitors 

“oving now to China, China beer industry volumes declined by around 4% in the first quarter due to economic headwinds. Our own volumes were down just over 1% in the quarter versus the tough first quarter last year, wherein our volumes grew by 4.7%. We estimate we gained approximately 45 bps of market share in the quarter, reaching a level of 19% market share.  We believe the Core+, Premium and Super Premium segments have the greatest long-term growth potential within the industry. Our brands in these segments represent more than 50% of our total China volumes and are well positioned with strong brand health metrics.”

AB Inbev (BUD) CFO Luis Dutra said the company was able to issue debt at an average rate of 3.2% in order to fund their SAB Miller acquisition 

“As Brito mentioned earlier, we have made good progress with the prefunding of the SABMiller transaction, with three bond issuances in the first quarter. Slide 23 contains a summary of these issuances, which resulted in net proceeds of $61.6 billion and an average coupon of 3.2%.”

AB Inbev (BUD) CFO Luis Dutra said they recognize they have strong integration abilities after doing dozens of acquisitions over the last few decades

“M&A remains a core competency, and we’ll always be ready to look at opportunities when and if they arise, subject to our strict financial discipline. Surplus cash flow should be returned to shareholders. Our goal is for a dividend to be a growing flow, consistent with the non-cyclical nature of our business; and dividend yield, the earnings payout, free cash flow payout, will always remain references in determining the amount of the appropriate dividend payment.”

AB Inbev (BUD) CEO Carlos Brito explained how they are viewing the exploding craft brewery segment

“In terms of craft, ]we think we made a lot of progress. The idea that we have on craft is a simple one. I mean, we are the market leader in the U.S. Craft is a growing and very profitable segment. It is one where we are under-represented. So it’s a two-fold strategy. First, we have crafts of our own, like, for example, Shock Top, just to give one example. Second, we acquired some.  If you think that there are 4,000 craft brewers in the U.S. and we acquired less than 10, if you put it all together. But it’s important to have some of those because, first, you bring some amazing craft partners to join us and to continue to help our brewers to continue to create the very best beers and styles in the marketplace. So that has been great. We’re very happy with our craft development in the U.S.”