AB InBev Needs Megabrew Tonic as Shares Dive on Profit Miss

  • Budweiser maker cuts full-year revenue forecast on slowdown
  • Belgian brewer’s shares decline as much as 6% in Brussels

Anheuser-Busch InBev NV shares plummeted as the brewer missed profit estimates for the sixth straight quarter, illustrating clearly why the Budweiser maker needed to spend $103 billion buying SABMiller Plc.

The stock fell as much as 6 percent, the most since June. The drop imperiled the company’s position as Europe’s biggest company by market value, a status it only gained this month when the takeover was completed after a yearlong process.

The biggest area of weakness was Brazil, AB InBev’s second-largest market, where slack consumption was compounded by a decision to delay price increases into the fourth quarter. Shares of the company’s Brazilian unit, Ambev SA, led decliners on Brazil’s benchmark Ibovespa index.

The brewer also acknowledged that cracks are appearing in the U.S. craft beer boom. More than ever, AB InBev will be relying on achieving the $1.4 billion of annual savings it has said it can get from combining with SABMiller.

“One would have to seriously question a positive stance on standalone AB InBev,” Eamonn Ferry, an analyst at Exane BNP Paribas, wrote in a note to investors. “The thesis for us here is very centered on the acquisition of SABMiller.”

The shares were down 4.1 percent at 107.50 euros as of 2:34 p.m. in Brussels, cutting the company’s market value to about 217 billion euros ($237 billion). Nestle SA, which this month was displaced by the brewer as Europe’s biggest company by market capitalization, is valued at the equivalent of $228 billion. Ambev stock dropped 2.7 percent to 18.98 reais at 10:34 a.m. in Sao Paulo.

In addition to reporting a surprise drop in third-quarter profit, AB InBev cut its revenue forecast, saying it no longer expects sales growth to beat inflation in 2016 because of declining volume in Brazil.

Adjusted earnings before interest, taxes, depreciation and amortization fell 2 percent in the quarter, whereas analysts had expected 4.5 percent growth.

Brazil is going through one of its most difficult years of the past decade and the fourth quarter will be tough, Chief Financial Officer Felipe Dutra said on a call with reporters. AB InBev joins Nestle, Danone and Unilever in wrestling with a consumer slump and inflation in the South American country.

AB InBev’s Ebitda in Brazil declined by 33 percent, driven by currency hedges linked to the cost impact of the real’s devaluation. The drag is expected to continue in the fourth quarter and ease in mid-2017, the company said. Revenue dropped 6.8 percent in that market as the brewer delayed adjusting prices until the fourth quarter, AB InBev said.

Consumer prices rose 8.5 percent in Brazil in September year-on-year, and economists forecast 5 percent inflation in that market in 2017, according to a central bank survey published Monday. AB InBev previously cut its forecast for Brazilian revenue in July, predicting unchanged sales.

The brewer also announced a 2 percent drop in SABMiller Plc’s beer volume because of weakness in Africa and a transport strike in Colombia. In the previous quarter, beer shipments were little changed.

In the U.S., AB InBev’s sales to retailers fell 3.8 percent in the quarter, more than the wider industry, with Bud Light showing a mid-single digit decline. The market was weighed down partly by a slowdown in the craft beer category, the company said, a sign that a decade-long boom may have peaked.

The brewer anticipates modest dividend growth in the near-term and has no plans to cut the payout to below 1.60 euros a share, Dutra said.

The SABMiller results weren’t consolidated in AB InBev’s figures, and they excluded joint ventures and assets that were sold or are up for sale.

— With assistance by Fabiola Moura

    Before it's here, it's on the Bloomberg Terminal.