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Beerworkers Archive


Post date: 05/03/2011 - 16:10

AB-InBev Shares up Again

Shares in Anheuser-Busch InBev are up 250% from late 2008 lows hit after Belgium's InBev bought the maker of Budweiser beer. The gains came partly as the company reaped cost savings from the acquisition, powering a 12 percentage-point improvement in AB InBev's U.S. operating profit margin.

Shares in Anheuser-Busch InBev are up 250% from late 2008 lows hit after Belgium's InBev bought the maker of Budweiser beer. The gains came partly as the company reaped cost savings from the acquisition, powering a 12 percentage-point improvement in AB InBev's U.S. operating profit margin.

With such acquisition-related benefits having largely run their course, investors are worried about what comes next. Brewers are still struggling with sluggish beer markets in the developed world, where consumers remain under strain. And when AB InBev reports first-quarter results Wednesday, volumes will likely have grown just 1% year over year, estimates J.P. Morgan. Earnings per share are expected to rise 35% to 76 cents a share.

But fears AB InBev is tapped out ignore its efforts to stimulate revenue growth. Around a quarter of the company's U.S. beer volumes are in lower-priced brands like Busch and Natural Light. That is where it concentrated price increases last September to narrow the 25% price difference to premium beers Budweiser and Bud Light. A smaller gap should mean AB InBev cannibalizes fewer sales in its largest market.

Raising prices is risky, even if some rivals have done likewise, while the cost of gasoline has soared and unemployment among young males -- a key demographic -- remains high. Indeed, volumes have declined in the wake of last fall's price rises for second-tier brands.

Yet AB InBev is winning more Bud Light drinkers. Plus, pricier brands like its Belgian import Stella Artois are growing rapidly in the U.S. These helped increase revenue per 100 liters of beer sold in the U.S. by 4.1% in the fourth quarter.

Sales of AB InBev's premium brands should help elsewhere, too. AB InBev plans this year to start selling Budweiser in Brazil, where premium brands are only a small portion of the beer mix. Overall, the company is expected to post first-quarter revenue of about $8.9 billion, up about 8% from the prior year.

With its stock trading at 16.6 times forecast 2011 earnings, according to FactSet, AB InBev is at a discount to SABMiller, even though that brewer is expected to have lower earnings growth. AB Inbev faces tougher going, but its shares may still offer refreshment.