Budweiser's Glass Is Unexpectedly Half-Full -- Heard on the Street
July 30 2020 - 10:46AM
Dow Jones News
By Carol Ryan
Budweiser's owner has some reassuring news about the state of
the global beer market.
The world's biggest brewer, Anheuser Busch InBev, said Thursday
that revenues in the three months through June fell 18% compared
with the same period last year. Analysts were braced for a steeper
decline of 23%. A 34% dip in the company's earnings before
interest, taxes, depreciation and amortization was also better than
expected, thanks to cost cuts as well as resilient sales.
AB InBev's stock was up 6% at midday in Europe. Investors may
have been relieved that the Bud brewer fared better than rival
Heineken on profits -- which said in a prerelease two weeks ago
that its first-half operating income more than halved.
Given that bars and restaurants were shut around the world for
much of the second quarter -- not to mention total bans on selling
alcohol in South Africa, Mexico and Peru -- AB InBev's sales could
have been a lot worse. The company reacted quickly to pick up
business in other sales channels. In China, for instance, the
brewer increased its share of the e-commerce market to more than
twice that of local competitor Tsingtao.
North America was AB InBev's best-performing region, with the
amount of beer sold down just 6% overall. Mainstream brands such as
Budweiser, which had been losing market share for years, got a
boost as U.S. consumers loaded up on big packs of beer in the
supermarket. Data from Nielsen shows that Americans spent 13% more
on beer to drink at home in the 17-week period to mid-July than the
same period of last year.
It could be an early sign of beer's relative resilience -- even
in a recession driven by social distancing. In previous economic
downturns, brewers have proven more defensive than liquor
companies. Beer's lack of exposure to airport duty-free sales is a
bonus now that so few people feel safe to fly. Global distillers
like Pernod Ricard and Diageo rely on travel retail for 5% to 10%
of their revenue, based on Citi estimates.
A second wave of lockdowns is a big risk. AB InBev took a $2.5
billion impairment on its Africa business, in part because a second
alcohol ban in South Africa will drag on sales there in the third
quarter. And while major beer markets are holding up surprisingly
well, consumer spending could weaken once government subsidies roll
off and staff layoffs become more permanent.
AB InBev's shares are still down more than 30% this year,
reflecting worries about how the company will reduce its $87
billion debt pile on weaker earnings. Yet these concerns may prove
overdone. Some of the brewer's strongest markets in the second
quarter, like the U.S. and Brazil, were among those hit hardest by
the pandemic. A health crisis, oddly enough, doesn't stop the beer
flowing as much as feared.
Write to Carol Ryan at carol.ryan@wsj.com
(END) Dow Jones Newswires
July 30, 2020 10:31 ET (14:31 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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