Anheuser-Busch InBev Reports Q3 Earnings, Outlines New Commercial Strategy in US

Despite ongoing shipment and depletion declines in the United States, Anheuser-Busch InBev’s global revenues were up 4.6 percent through the first nine months of 2018.

A-B, the world’s largest beer manufacturer, posted global revenue growth of 4.5 percent, to more than $13.2 billion, during the third quarter, as revenue per hectoliter increased 4.2 percent. The company’s gross profit increased 3.5 percent, to nearly $8.3 billion.

A-B’s global brands — Budweiser, Stella Artois and Corona (outside of the U.S.) — continued to lead the way as worldwide revenues grew 7.7 percent.

In the U.S., A-B’s revenues increased 1.5 percent during the third quarter. However, year-to-date domestic revenues were down 1.4 percent despite revenue per hectoliter increasing 2 percent on the year.

Three-quarters of the way through 2018, A-B’s U.S. depletions (sales-to-retailers) were down 2.6 percent, while shipments (sales-to-wholesalers) have declined 3.4 percent. Those trends improved in Q3 as STWs dipped just 0.5 percent and STRs slid 1.5 percent, which A-B said was its best comparative performance in the last eight quarters.

During a call with investors and analysts, CEO Carlos Brito laid out what he called a “refreshed” commercial strategy in the U.S., which he said is gaining momentum. Brito added that although A-B has delivered “strong” EBITDA and cash flow performances in the last decade, the company’s “top line has been below our expectations.”

According to Brito, A-B’s commercial strategy moving forward is focused around five pillars:

  • Building relevant brands that create authentic connections and inspire consumer loyalty.
  • Leading trade up to higher-end offerings.
  • Stabilizing the performance of its mainstream lager brands, which are an “entry point” to the beer category.
  • Gaining share of the beyond beer segment, which Brito said offers a significant growth opportunity but requires sustained innovation pipeline to satisfy consumers’ evolving tastes.
  • Leading category growth through innovation.

“The success of our strategy relies on knowing our consumers and taking a more local approach to our commercial execution,” Brito added. “We’re leveraging data and analytics to derive many meaningful consumer insights to stay ahead of the curve.”

Brito added that the company is seeing early success with the strategy, noting that flagship offerings Budweiser and Bud Light have experienced “growing penetration” in 2018. However, the negative volume trends for those brands continued as they lost 35 basis points (bps) and 90 bps of share, respectively, during the third quarter.

Nevertheless, Brito said those brands are performing better in their respective segments, and he attributed the losses to consumers trading up to higher priced offerings.

Meanwhile, Michelob Ultra, which is now the fifth-largest beer brand in the U.S., continued its growth, as its brand family drove an estimated 90 bps of share gain for A-B’s above premium portfolio in Q3. And there’s more room for growth as Michelob Ultra “under-indexes” in major markets such as California and New York.

Brito told analysts that part of its new commercial strategy has enabled the company to test market an increasing number of innovations, regionally, before scaling those new offerings for nationwide distribution. He cited Michelob Ultra Pure Gold, the Budweiser Reserve Series, which includes its Copper Lager collaboration with Jim Beam, and the Bud Light Orange line extension as proof of the strategy working. All three offerings ranked among market research firm IRI’s top 15 share gainers in the U.S. this year.

The growth of those brands hasn’t entirely offset A-B’s continued market share declines, as the company estimated a loss of 50 bps of domestic market share in Q3 and 45 bps of share year-to-date. Brito told analysts that those figures “represent an improvement” in the company’s market share trends versus last year.

Brito attributed the declines in the U.S. to beer losing “share of throat” to wine and spirits as well as consumers causing a “mix shift within beer” as they purchase more premium products.

“While our above premium brands are accelerating growth and gaining share at rapid pace, our portfolio in the U.S. is heavily weighted to segments in the industry that are under pressure,” he said. “As a result, despite delivering a positive share of segment preference, we have not been able to fully offset the negative impact of the segment mix shift resulting in an overall loss of market share.”

In early trading, A-B’s stock price has dropped nearly 10 percent, which Bloomberg attributed to the company slicing its dividend in half in order to help pay down its $109 billion acquisition of SABMiller.

As Brewbound reported yesterday, a federal judge officially cleared the 2015 merger on Monday after signing a “Modified Final Judgment” that included four new provisions as a result of the deal.

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