Anheuser-Busch InBev (NYSE:BUD) delivered strong quarterly results Wednesday, with EPS up 33% over the prior-year period and well ahead of the consensus estimate. The company saw bright spots in international markets, particularly Brazil and China. But the quarter had some bad with the good, and some struggles persist, particularly with light beer.
Let's take a look at some of the key takeaways.
A trade-up is under way in the states
The U.S., A-B InBev's biggest market, wasn't a bright spot in the report. Sales to retailers were down 1.4% in the fourth quarter and 2.9% for the full year 2013. The company estimated that it lost 50 basis points of total U.S. market share in 2013. It now owns an estimated 47% of the U.S. beer market.
The silver lining in that cloud is that A-B InBev gained share in the "above-premium" segment. Revenue per hectoliter grew by 3.1% in the full year, and A-B says a large part of that growth was due to drinkers switching from cheaper beer to more expensive beer. We heard similar news from Molson Coors earlier in February, when the brewer reported double-digit sales growth in its "above-premium" beers. Like A-B InBev, Molson Coors saw its best performers at the high end, and it plans to continue investing there to take greater share.
A-B InBev says it's planning to launch more above-premium beers early this year, as it tries to get a better foothold in the market.
Can it continue to compete with craft?
A-B InBev says its most expensive brands are gaining share in the U.S. against craft beer. Investments it's made in purchasing craft brewers and developing its own crafty styles may be paying off.
A-B InBev is taking "a very focused approach to the high end, with our efforts concentrated on Shock Top, Stella Artois and Goose Island," CEO Carlos Brito said.
Chicago microbrewery Goose Island, which A-B InBev acquired in 2011, rolled its beers out nationally in 2013, and volumes were up more than 70% last year, A-B said. The company likely has similar plans with Long Island's Blue Point Brewing, which it recently announced a deal to acquire. Blue Point's beers are well-regarded, but its growth may have been limited by its preference to brew traditional styles at a time when experimentation has been most smaller brewers' modus operandi.
There's still a large market for traditional styles, however, proved by the success of Craft Brew Alliance's Redhook and Kona labels. Those two labels focus on traditional styles and were the two best-performing brands for CBA in 2013. In fact, while they were growing at rates better than 20% in the third quarter, CBA's more experimental Widmer Brothers brand was struggling to stay flat over the prior-year period.
With A-B InBev's distributing clout, Blue Point's beer can reach a much wider audience, just as Goose Island's is doing now.
Sorry, light beer is not coming back anytime soon
Light beer continues to be a trouble spot for A-B InBev, especially since Bud Light has long been its best-selling beer. It's been holding its place in the segment, but the segment as a whole continues to shrink. On the conference call, Brito said A-B is "working hard to make Bud Light even more relevant to today's consumers." But at this stage, is the company throwing good money after bad?
It seems like Brito has been beating that drum quarter after quarter. But conditions aren't improving for Bud Light or any other light beer.
The one place A-B InBev has been having success with the Bud Light label has been its extensions into the high-alcohol "beer margarita" drinks, Bud Light Lime-a-Rita and its various incarnations. The Rita drinks have been gaining share in their segment after A-B released Straw-Ber-Rita and Cran-Ber-Rita, Brito said. It plans to continue expanding the line, with Mang-O-Rita and Raz-Ber-Rita hitting store shelves this year.
A-B InBev is not resurrecting light beer anytime soon, but it may be able to work around the edges to make up for the losses.
The Foolish bottom line
A-B InBev delivered a good quarter, but worries remain. Growth internationally is important, but its biggest market is in the U.S., where its sales continue to lag, particularly as drinkers shift away from A-B's big breadwinners, Budweiser and Bud Light. Growth in the nontraditional malt-beverage space with its Rita drinks, and success at the high end of beer, where it competes with smaller craft brewers, is essential to success in the states.