Anheuser-Busch InBev Caps a Solid Q2, Looks Forward to SABMiller Combo

Image source: Anheuser-Busch InBev.

Anheuser-Busch InBev (BUD 1.43%) released second-quarter 2016 results on July 29. After initially climbing around 3% as the market digested a seemingly solid report -- and despite confirming a formal timetable in the days since regarding its proposed merger with SABMiller -- shares of the brewing titan have largely given back gains as the broader market pulled back. Let's take a closer look at how AB InBev capped the first half of the year:

Anheuser-Busch InBev results: The raw numbers

Data source: Anheuser-Bush InBev. 

What happened with Anheuser-Busch InBev this quarter?

• AB InBev's top line included a $716 million negative impact from currency translation.
• Organic revenue growth contributed $443 million, or 4.1%.
• Revenue per hectoliter grew 5.9% (6.1% on a constant geographic basis), driven by growth in premium brands.
• Total volumes fell 1.7% year over year in Q2, consistent with last quarter's declines and caused primarily by a 0.8% drop in AB InBev's own beer volumes. This drop was caused by continued weakness in Brazil and Argentina and partially offset by relative strength in Mexico and the United States.
• Revenue from global brands, including Corona, Stella Artois, and Budweiser, grew by 8.4% year over year.
• That result was led by 13% growth from Corona, which enjoyed continued strength in Mexico, China, and the U.K.
• Budweiser revenue increased 6%, with growth primarily coming from China, Brazil, and the U.K.
• Stella Artois revenue increased more than 9%, boosted by strength in the U.S. and Canada.
• Earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 4.3% year over year, to $4.011 billion.
• EBITDA margin increased "marginally," to 37.1%.
• Net finance costs (excluding non-recurring net finance results) were $726 million, compared to $554 million in last year's second quarter, with the increase driven mostly by additional net interest expenses resulting from bond issuances in the first quarter related to pre-funding the SABMiller deal.
• As of July 29, 2016, announced all pre-conditions to the combination were satisfied following the clearances for the deal in the European Union, South Africa, and the U.S., and welcomed the recommendation from SABMiller's board in favor of its revised and final terms of the proposed combination.
• Earlier this week, announced that AB InBev and SABMiller have agreed to an expected timetable for the implementation of the combination by October 10, 2016.

What management had to say

In the meantime, Anheuser-Busch InBev CEO Carlos Alves de Brito commented on his company's latest quarterly achievements, saying:

The second quarter saw another encouraging performance in the U.S., where consistent investment behind our brands is improving our market share trends, leading to the best share performance in almost three years. Mexico also delivered strong growth, driven by a healthy economy and our own commercial initiatives. The situation in Brazil remains very challenging. We saw an improved second quarter in terms of both volumes and market share, although those improvement was not at the speed we had anticipated. In China, while the industry remains under pressure, we saw good contribution from Budweiser after a difficult first quarter, coupled with further total market share gains.

Brito added that Budweiser is enjoying its best performance in a decade, while AB InBev's global brands continued to drive solid revenue growth through the "premiumization" of its portfolio.

Looking forward

As it stands, AB InBev continues to expect revenue per hectoliter will grow organically ahead of inflation on a constant geographic basis this year, helped by the company's relentless revenue management initiatives and improvements in its product mix.

More specifically in the U.S., AB InBev expects industry volumes to continue to improve in 2016, supported by a favorable brand mix. And the company continues to anticipate another year of "solid growth" in industry volumes in Mexico, driven by commercial initiatives and the country's favorable macroeconomic environment. However, AB InBev also reduced its guidance for Brazil to call for net revenue to be flat this year from 2015 (down from guidance for mid- to high-single-digit percentage growth previously), hurt by the weak consumer environment and increased mix of returnable glass bottles, which are accretive to EBITDA but reduce revenue per hectoliter. Finally, in China, AB InBev continues to expect industry volumes to remain under pressure, but anticipates its own volumes to outperform the broader industry in the Middle Kingdom with the help of premium and super-premium brands.

All told, there were no significant surprises in AB InBev's latest quarter. That's a great thing considering what's at stake with its impending blockbuster merger, which itself will result in a combined company with more than 30% market share of the worldwide beer market. Assuming all goes well and the combination is finalized as planned on October 10, 2016, AB InBev investors can look forward to the fruits and relative stability of owning an overwhelmingly dominant industry juggernaut.