Anheuser-Busch InBev (NYSE:BUD) has proved it still has growth potential and is a hit just about everywhere in the world -- except the U.S. A good portion of its woes domestically is a result of its acquisition of SABMiller. The deal not only saddled the brewer with a massive amount of debt, but also required AB InBev to give up control over U.S. distribution of the Corona brand of Mexican beer.
Corona is experiencing huge growth, as A-B InBev's results attest, and is wildly popular here in the U.S. But Constellation Brands (NYSE:STZ) is enjoying the benefits because it bought the U.S. distribution rights to Corona in 2013 to help Anheuser-Busch get its Miller acquisition past regulators.
Because Corona is AB's most premium global brand, and premium labels are driving growth in beer sales worldwide, AB is missing out on a good chunk of the potential the brand offers.
Global brands growing globally
Anheuser-Busch's second-quarter sales volume was the best it's seen in five years. Revenue grew 6.2% for the period, and EBITDA was up by more than 9% as margins expanded 123 basis points to 42% due to the strength of Budweiser, Stella Artois, and Corona. Combined global revenue of the three brands grew 8%, and was up 11.3% outside of their respective home markets.
Corona revenue, however, grew 24% outside of Mexico, while Budweiser was up by only high single digits across Europe, helped by a successful launch in France. According to CEO Carlos Brito, A-B InBev's global brands have increased their so-called premium segment market share from less than 25% in October 2016 to more than 75% today, and "Corona and Budweiser have led this growth, and they're now the No. 1 and No. 2 international premium brands, respectively."
That's not unlike the results Constellation is seeing in the U.S. with Corona, as it has largely shouldered the burden of carrying the domestic craft beer market higher.
What could have been
Imported beer accounted for 20% of craft production in 2018, and Mexican beer represented over 72% of all imports. Constellation told investors in the first quarter that its beer portfolio was the primary growth contributor to the U.S. beer market last year, and all of its imported brands achieved record sales volumes. Data from the market researchers at IRI gives Constellation's combined Corona and Modelo brands a 61% share of import dollar sales and 60% of case sales.
The two Mexican beers aren't letting up, either. IRI's latest data shows Modelo Especial sales are up nearly 20% year to date; Corona Premier is up 48.8%; Corona Familiar, 12.5%; and Corona Extra, which has been struggling, is up 1.1%. At the same time, A-B's Budweiser has fallen out of the top five most-popular beers, and U.S. sales are down 4.5% year to date.
Anheuser-Busch is falling out of favor
That's the kind of growth Anheuser-Busch is missing in the U.S. While all of its other markets were showing volume growth, some phenomenally, North America was the one region that continued to report declines, with volumes falling 1.8% for the period and sales-to-retailers (STR) down 2.2%. The brewer estimates U.S. volumes and STRs were down 1.7% and 3%, respectively.
Anheuser-Busch did have a few hits here, with its Michelob Ultra accelerating market-share gains in the U.S., making it the top market-share gainer overall. IRI data shows sales are up 16% year to date to $1.1 billion. Yet like most other brewers, AB relied upon non-beer beverages for growth, capitalizing on the hard seltzer market with its Bon & Viv brand to gain share.
Yet Bon & Viv Spiked Seltzer will have a tough time gaining meaningful share, even as sales are up 88% in 2019, because White Claw and Boston Beer's (NYSE:SAM) Truly brand own 80% of the market between them. Their sales are up 57% and 15%, respectively, this year, and as more hard seltzers pour into the market, it will leave everyone fighting over the scraps.
Making the best of a bad situation
Still, outside of the U.S., Anheuser-Busch InBev's performance was impressive, and the market rewarded the brewer by sending its stock soaring. Shares are now up almost 53% in 2019 at $100, though that's still below where they were this time last year.
However, with two solid quarters under its belt that surprised analysts, it looks like the brewer has a good chance to continue to ride the premium trend and march its stock higher -- even if it looks wistfully at what could have been in the U.S. market.