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Why Anheuser-Busch InBev Stock Plunged 15% in October

By John Ballard - Nov 4, 2019 at 5:49PM

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A disappointing earnings report revealed weakness in beer volumes in certain markets.

What happened

Shares of Anheuser-Busch InBev ( BUD 0.11% ) dropped 15.1% last month, according to data from S&P Global Market Intelligence.

The beer giant is coming off a successful spinoff of its Asian brewing business, which IPO'd in September. Anheuser-Busch raised about $5 billion from the offering. However, investor sentiment turned sour after issuing disappointing third-quarter earnings on Oct. 25, sending the shares tumbling for the month. 

A man and woman toast bottles of Michelob Ultra.

Premium brands like Michelob Ultra are the company's most important growth drivers. Image source: Anheuser-Busch Inbev.

So what

Weak demand in emerging markets, especially Brazil, weighed on the company's performance. Strong volume growth in Mexico, South Africa, and Colombia was outweighed by weak demand in South Korea and Brazil following price increases in those markets. 

Here are the key numbers from the quarter: 

  • Revenue increased by 2.7% year over year.
  • Total volumes declined by 0.5%.
  • Beer volume fell 0.9%.
  • Non-beer volume increased by 4%.
  • Underlying earnings per share decreased by $0.17 to $0.94.

The earnings decline can be blamed on higher cost of sales driven by unfavorable currency conversion rates and higher commodity costs. Also, contributing to the soft volume growth was lower shipments in China following higher shipments in the second quarter. Management also cited discounting by competitors and shaky consumer confidence in South Korea and Brazil for weakness in those markets. 

In other areas, Anheuser-Busch continues to experience growth with premium beverages, even in Brazil, where premium sales increased by double digits in the quarter. Corona has been a leader in the premium market, with revenue up 21.1% outside Mexico. 

Every major market saw solid growth in premium brands last quarter. In addition, management reported success with its smart affordability strategy, where the company is trying to win new consumers by offering certain brands at more affordable price points in emerging markets. 

Now what

While the quarter left much to be desired, management believes the company is well positioned for accelerating revenue growth over time. With the addition of SAB Miller, Anheuser-Busch is more diversified than ever. Emerging markets make up about 70% of the company's total volume, which holds a lot of opportunity to bring in new consumers for the largest beer maker in the world, with 26% global market share. 

Analysts currently expect the company to post $53.79 billion in revenue for 2019, down 1.5% over 2018. Adjusted (non-GAAP) earnings are anticipated to be $4.88 per share this year, and analysts expect the consumer-staples powerhouse to grow earnings 10.9% annually over the next five years. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Anheuser-Busch InBev SA/NV Stock Quote
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