AB InBev Sees Improving Beer Market Trends in U.S., Brazil

Anheuser-Busch InBev NV (ABI), the world’s biggest brewer, said it sees the beer market in the U.S. improving and forecast a return to growth in Brazil this year helped by the soccer World Cup.

The U.S., where beer volumes have been falling, will benefit from a strengthening economy, while the Mexican market should also resume growth, AB InBev said today as it reported fourth-quarter earnings growth that beat estimates. The maker of Budweiser, Stella Artois and Brahma gets about four-fifths of profit from those countries, Brazil and Canada.

AB InBev has been balancing sluggish sales in Brazil and the U.S. by selling more expensive beers and reducing costs in regions including Mexico, where it agreed to buy the rest of Corona maker Grupo Modelo SAB in 2012 for $20.1 billion. The brewer is seeking to cut $1 billion of expenses from Modelo by 2016 and said today it had already saved $460 million.

“ABI is set to benefit from a number of tailwinds this year,” Jonathan Fyfe, an analyst at Mirabaud, wrote in a note. “Self-help in the form of Mexican synergies is also particularly useful. There is really no question that 2014 will be a better year for the group than 2013.”

AB InBev shares rose as much as 1.8 percent in Brussels and were up 1.7 percent at 75.50 euros at 1:20 p.m., giving the company a market value of 121 billion euros ($166 billion).

Beating Estimates

Earnings before interest, taxes, amortization and depreciation, excluding some items, were $5.2 billion in the fourth quarter, Leuven, Belgium-based AB InBev said. That compares with a $5 billion median estimate of 11 analysts surveyed by Bloomberg, and represented so-called organic growth of 13 percent, compared with the estimate of 10 percent.

Full-year so-called normalized Ebitda was $17.2 billion, an organic increase of 8.1 percent, aided by sales of more expensive beers and cost-cutting at Modelo. Currency fluctuations reduced profit on that basis by $753 million.

Organic revenue rose 3.3 percent after a 4.6 percent fourth-quarter increase, while volume of its own beers fell 2 percent in the fourth quarter and in the year.

Organic measures exclude the effects of acquisitions and currency swings.

AB InBev said it’s focusing on “the world’s most significant beer profit pools,” highlighted by the expansion into Mexico and the planned return to South Korea through the purchase of Oriental Brewery Co. Ltd.

Cold Weather

AB InBev agreed to buy back Oriental last month, five years after selling it to KKR & Co. to pay down debt following InBev NV’s $52 billion acquisition of Anheuser-Busch Cos. in 2008. The company said today it plans to grow Oriental Brewery’s brands in South Korea and abroad, as well as distribute beers including Budweiser, Corona and Hoegaarden in the country.

Like competitor MillerCoors LLC, AB InBev has been battling weakening sales of mainstream brands in the U.S. amid economic pressures and a shift in consumer preferences toward so-called craft brands, spirits and wine. Total U.S. sales to retailers fell 1.8 percent in 2013, with AB InBev’s sales falling 2.9 percent as it focused on selling pricier brands. The Bud and Bud Light brands lost about 15 basis points of market share last year. U.S. sales improvements this year may be hurt in the first quarter after cold weather swept the country, the company said.

Beer volume in Brazil, where Budweiser is sponsoring this year’s World Cup, slid 4.3 percent last year. AB InBev’s market share fell to 67.9 percent, it said. Chief Financial Officer Felipe Dutra said today he expected the World Cup to add 1 to 2 percentage points of beer market volume in Brazil this year.

Greater Contributions

AB InBev said sales and marketing spending this year will be increased by “a low- to mid-teens percentage,” weighted to the first half as it invests behind the World Cup and new brands. It also said it would look to boost sales in the north-and south-east of China, and to make “selected acquisitions” in the country, where it sells Budweiser and Harbin.

AB InBev’s four biggest markets, the U.S., Brazil, China and Mexico, account for almost half of the world’s beer industry volume. Developing markets represented 64 percent of the brewer’s beer volume in 2013, “and the potential for greater contributions from these regions is an important driver of future value creation for AB InBev,” the company said.

The company plans to reduce net debt to two times Ebitda after this year, a level it is “very comfortable with,” Dutra said. “Around that level, you should be expecting us to combine a dividend and buyback to keep capital structure around the optimum level, provided there is no M&A.”

To contact the reporter on this story: Clementine Fletcher in London at cfletcher5@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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