AB InBev halves dividend as beer remains out of favor
Firm continues to struggle with falling beer sales
Anheuser-Busch InBev SA slashed its dividend Thursday as it reported weaker profit and lower volumes in several key markets, underscoring the Budweiser maker’s struggle with declining beer consumption.
The Belgian company—which also owns Stella Artois globally and Corona outside the U.S.— halved its dividend, saying its focus was on paying down debt over returning cash to shareholders. Shares fell sharply in response, dropping more than 9 % in European trading.
“We can’t remember a more disappointing set of figures from AB InBev,” said RBC analyst James Edwardes Jones, noting that most regions had missed analysts’ estimates for volume growth.
For the third quarter, the world’s largest brewer reported a profit of $956 million, compared with $2.06 billion in the same period a year earlier. Results were dragged down by one-time items and losses tied to some hedges. Adjusting for these, profit was $2.23 billion, compared with $2.34 billion a year earlier.
Revenue declined to $13.28 billion from $14.74 billion but rose on an organic basis by 4.5%, as the company sold more of its pricier brands. Volumes on an organic basis, which excludes the sale of the African soft drinks business, grew 0.2%, which AB InBev said reflected growth in Europe, Mexico and many African markets, partly offset by Brazil and Argentina.
In the U.S., AB InBev’s big brands continued to bleed market share in the third quarter, with Budweiser losing 0.35 percentage point and Bud Light losing 0.9 percentage points in the third quarter.
The brewer has struggled to woo consumers back to its legacy lager brands, despite new innovations like orange flavored Bud Light and limited-edition, pricier variants of Budweiser it said have performed well. Americans are increasingly opting for spirits and wine over beer. When they do drink beer, hoppy IPAs and other craft beers are often the tipple of choice. One consistent tailwind for AB InBev is Michelob Ultra, which appeals to more health-conscious drinkers, and again grew in the third quarter.
Overall, the company’s North America organic volumes dropped 0.5% in the quarter, while U.S. market share declined by 0.5 percentage point.
AB InBev, in response, has snapped up a string of craft beer brands in the U.S. On Thursday it said—despite the dividend cut— it remains open to more M&A. It has also expanded internationally, launched premium versions of its beer in many markets and is simultaneously launching more affordable lines in an attempt to woo consumers up and down the income ladder.
For the third quarter, volumes in Brazil dropped 3.3% although revenue climbed 2.1% thanks to higher prices. AB InBev said the country’s beer industry had suffered overall as disposable incomes grew marginally and consumer confidence stayed negative.The company launched a new, affordable brand brewed with cassava—a woody shrub native to South America—in the Northeast, produced by local farmers.
In South Africa, volume and revenue both declined as the company said consumers penny pinched amid tax and petrol price increases. There too AB InBev moved to make its beer more affordable, last year launching a returnable one liter glass bottle it said has now gained in popularity.
In China, Budweiser grew strongly, helping the Belgian brewer report a 1% rise in volumes there.
AB InBev’s results stand in contrast to those of international rivals.
Heineken NV Wednesday reported its organic beer volumes climbed 4.6% for the third quarter helped by strong growth in the Americas, Africa, the Middle East and Eastern Europe.
The same day, Carlsberg A/S bumped up its earnings estimates for the year, saying a warm summer in Western Europe and good progress on its cost savings plan had resulted in a stronger-than-expected third quarter.
AB InBev cut its interim dividend to 80 euro cents a share from 1.60 euro ($1.83) and said it intends to propose a final dividend of 1 euro for fiscal 2018, which would result in a total dividend payment for the year of 1.80 euro.
“Clearly, dividend cuts are not positive signs,” said Liberum analyst Nico von Stackelberg. However, he said the move would help the company’s balance sheet, and build confidence in the debt market, positioning AB InBev to make another big acquisition.
The Budweiser brewer is built on a string of huge deals, the latest being its 2016 $100 billionplus acquisition of global no. 2 brewer SABMiller PLC.
Once the market gets past its initial response, the dividend cut could be a positive for the stock, potentially reversing the discount at which it is trading against peers, said Bernstein analyst Trevor Stirling.