AB InBev results surge by 6.3%, stunning the market

ANHEUSER-BUSCH InBev (AB InBev) has alleviated investors’ concerns that it would go the way of another company with the same backers – Kraft Heinz, which suffered a financial meltdown last week.

Shares of the world’s largest brewer surged as much as 6.3 percent yesterday, the steepest gain in four months, after its fourth-quarter profit beat estimates.

In advance of AB InBev’s report, investors were worried that the brewer would share Kraft Heinz’s fate because both companies have been run under the cost-cutting ethos of 3G Capital. The private equity firm holds a stake in Kraft Heinz and its founders are among the brewer’s biggest shareholders. The ketchup-maker’s stock plunged last week after earnings missed estimates and it wrote down its assets by $15.4 billion (R213.73bn).

“Investors’ nervousness ahead of these results was palpable, in our view, especially so after Kraft Heinz’s shocking results last week,” James Edwardes Jones and colleagues at Royal Bank of Canada wrote in a note to clients.

The maker of Corona and Stella Artois reported a 10 percent increase in adjusted earnings before interest, taxes, depreciation and amortisation, beating the median analyst estimate of 6.5 percent growth. It also pointed to “strong” sales and earnings growth ahead.

AB InBev’s upbeat performance, fuelled by demand in key markets such as Mexico, Colombia and China, echoed earlier results from Heineken and Carlsberg as appetite for global brands grows in the emerging world. The company’s partnership with Oxxo in Mexico, which ended a decade-long exclusivity agreement with Heineken, will help accelerate sales of its beers in Guadalajara and Mexico City, according to the chief executive, Carlos Brito.

“A lot of food companies face deflation and declining volumes,’’ Brito said. “That’s not the case with beer’’ as the opportunity in low- and no-alcohol beers as well as the pull of international premium brands in emerging markets keeps the industry growing.

AB InBev is working on courting wine and spirits drinkers to the beer category, a strategy it inherited from rival SABMiller, acquired in 2016.

While shipments fell in the US, AB InBev is becoming increasingly bullish on the country, where the company is seeking to reinvigorate its staple Budweiser brand. It grew its market share there at the fastest pace since 2012, helped by new releases such as Bud Light Orange and Michelob Ultra Pure Gold, according to Brito. That may may signal more favourable conditions for mass-market brewers there after years of underperformance.

The company’s debt at the end of 2018 was $102.5bn, a fraction higher than the estimated $102.3bn, which shows AB InBev is making headway in paying down some of its gargantuan pile of loans. I Bloomberg