AB InBev Posts Unexpected Volume Decline on U.S., Europe

Anheuser-Busch InBev NV, the world’s biggest brewer, reported an unexpected decline in second-quarter volume and lower profit as sales fell in the U.S. and Europe.

The volume of beer sold slid 0.1 percent, excluding acquisitions and disposals. Analysts had anticipated growth, with the median of eight estimates for a 1.3 percent gain.

Revenue was hurt by reduced shipments to U.S. wholesalers, sales to whom fell 2.1 percent, the Leuven, Belgium-based company said today. Western European volume dropped 7.1 percent as consumers in the U.K. reined in spending on brands including Stella Artois, according to AB InBev, which is relying on emerging markets such as Asia and Latin America for growth.

“The second-quarter does not look good,” Pablo Zuanic, an analyst at Liberum Capital, wrote in a note today. The weakness of sales in North America is “partly explained by shipments being flattered in the first quarter from new product launches and the effect being unwound in this quarter.”

AB InBev fell 3.2 percent to 64.17 euros as of the 5:30 p.m. close of trading in Brussels. The shares have increased 36 percent this year, ahead of SABMiller Plc’s 22 percent gain and also outperforming competitors Heineken NV and Carlsberg A/S.

The decline in shipments to U.S. wholesalers reflected changes in the pace and timing of deliveries to avoid peaks of demand in trucking capacity. Profit in the second quarter was also hurt by higher administrative expenses and distribution costs in the U.S. as the company tried to meet demand for new brands including Bud Light Platinum and Bud Light Lime-A-Rita.

‘Silver Lining’

The brands were initially produced in one or two breweries, “and as a result we had to ship a lot of products across the U.S.,” Chief Financial Officer Felipe Dutra said on a call with reporters. “We were somehow victims of our own success.”

So-called normalized earnings before interest, tax, amortization and depreciation slid 4 percent to $3.59 billion, the maker of Budweiser beer said. The median estimate of eight analysts surveyed by Bloomberg News was $3.66 billion.

“The silver lining from the second quarter, if there is one, is that part of the lower margins in North America is explained by the success of Bud Light Platinum and Bud Light Lime-A-Rita,” Zuanic said.

Growth in the volume of new brands helped offset declining sales of Budweiser in the second quarter. Sales direct to retailers fell 0.2 percent, with Budweiser down 6.5 percent.

Rainy Weather

Still, a consumer shift toward more expensive beers meant organic revenue rose 4.7 percent, excluding currency shifts.

High levels of unemployment as well as shifting consumer tastes away from mainstream brads toward craft beers, spirits and wine are hurting sales in the U.S. In Europe, business has been crimped by the debt crisis and weak consumer confidence.

Second-quarter sales in western Europe were hindered by rainy weather, which was “more relevant than the economic impact,” CFO Dutra said today.

SABMiller said June 26 that it saw “depressed” volume across western Europe even as the soccer World Cup boosted sales in countries such as Poland.

AB InBev’s second-quarter volume fell 11 percent at its central and eastern Europe unit, dragged down by tax and price increases in Russia, which Dutra described as “challenging.”

Carlsberg, Russia’s biggest brewer, fell 5.4 percent in Copenhagen trading today after Russian Federation President Putin proposed raising excise taxes on beer. The Danish brewer said May 9 that it expects a “modest” return to growth this year in Russia, the third-largest beer market by volume globally, after declines last year related to tax increases.

Latin America, Asia

AB InBev, which last month agreed to buy the remaining 50 percent of Mexico’s Grupo Modelo SAB for $20.2 billion, reported higher volume in Latin America and Asia.

Sales in Latin America North, which encompasses Brazil, one of the brewer’s biggest markets, rose 3.4 percent. The company expects beer volumes to grow in 2012 even as it passes on the effects of an anticipated tax increase in the country in October by raising prices. Sales in Asia-Pacific, which includes China, the world’s biggest beer market, rose 7.3 percent.

AB InBev expects shipments to “be in the positive territory in the U.S. for the quarters to come” this year, Dutra said. The company expects to increase sales and marketing investments in “mid-to-high single-digits” this year. Revenue per hectoliter will increase by more than inflation.

Normalized earnings per share rose to $1.22 in the quarter from $1 a year earlier, aided by a lower tax rate.


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