BUD Anheuser Busch Inbev SA NV

AB InBev profit rises, but U.S. market still proves a challenge for world's largest brewer

By Saabira Chaudhuri 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 27, 2018).

Anheuser-Busch InBev NV still has a way to go in its quest to woo increasingly fickle American drinkers.

The brewer behind Budweiser and Bud Light on Thursday said U.S. revenue fell 3.1% in the second quarter on the back of lower volumes, as both brands continued to lose market share. The weak performance was a factor in the company missing overall sales growth forecasts, prompting shares to drop more than 5%.

Sales of the two brands have fallen as once-loyal American consumers shift away from domestic lagers toward craft beers, Mexican imports, wine and spirits.

In response, the company is trying to persuade consumers to buy more expensive beers, rolling out Michelob Ultra Pure Gold, made with organic grains, and Bud Light Orange, brewed with citrus peels. It also plans to launch pricier variants of Budweiser, including a beer aged on bourbon barrel staves, due to begin selling next month.

On Thursday, Chief Financial Officer Felipe Dutra said there was "no silver bullet, no short term answer to some of the problems we face," in the U.S., although he added the company's efforts to innovate and go upmarket were bearing fruit.

AB InBev pointed to some signs of improvement, noting quarterly share losses in the U.S. had slowed, with a 0.35 percentage point drop in the last quarter its best quarterly performance in almost four years. It said Michelob Ultra -- marketed as a beer for people with an active lifestyle -- continued to perform well.

Overall, AB InBev reported a jump in net profit to $1.94 billion for the three months to June 30, from $1.5 billion a year earlier, as lower costs helped offset a 1.2% fall in revenue to $14.01 billion.

Stripping out currency changes and acquisitions, sales grew 4.7%, missing analyst estimates for growth of 5.4%. Shares dropped 4.2% in Brussels following the results.

While some multinationals have said tariffs on steel and aluminum imports are pushing up costs, Mr. Dutra said AB InBev's costs haven't risen yet as the company is still protected by hedges. It will begin to feel the impact from these next year.

Outside of the U.S., results were buoyed by Brazil, Mexico, China and Western Europe, helped by the soccer World Cup in Russia, and AB InBev's efforts to sell pricier drinks.

The World Cup didn't help sales in the U.S., where viewership was lower than for past tournaments as a result of the American team's failure to qualify. AB InBev said its sponsorship of the soccer tournament was an opportunity to boost sales of Budweiser in international markets as revenue for the beer outside of the U.S. was up by more than 10%.

Volume growth in Brazil was slightly hampered by a truck strike, offsetting gains from the World Cup.

The company also announced some organizational changes to spur growth.

It will combine ZX Ventures, a unit founded in 2015 to develop new products for emerging consumer needs, with its marketing arm. The innovation unit in April bought a U.K.-based spirits, e-commerce and import business.

"In order to continue to grow, we have anticipate the future," said Chief Executive Carlos Brito on a call with investors. Bringing the two units together "will help us achieve our objective of anticipating market and consumers trends," he added.

AB InBev is also creating a new position: a head of nonalcoholic beverages. Millennials and so-called "Generation Z" are drinking less than older generations, spurring booze makers to launch more low-alcohol and nonalcoholic products.

Nonalcoholic drinks -- which mostly include energy drinks and nonalcoholic beers -- make up more than 10% of AB InBev's volumes.

The company is also restructuring its management, collapsing nine geographical divisions into six in a move it said would help it become more agile following its integration of SABMiller, the London-based brewing giant it acquired in 2016.

--Patrick Thomas contributed to this article.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

(END) Dow Jones Newswires

July 27, 2018 02:47 ET (06:47 GMT)

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