Beer Maker Fails To Fizz

AB InBev spills its first quarter

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What's going on?

AB InBev (ABI), the world’s largest beer brewer and owner of iconic brands Budweiser and Stella Artois, reported warm and weak earnings on Tuesday – and its stock sank 2%.

What does this mean?

ABI grew its first-quarter sales by 6% compared to the same time last year, thanks to higher prices for its malty goods and a greater number of units sold. However, it fell short of both sales and profit expectations – with currencies in emerging markets like Brazil and Argentina (ABI generates 40% of its revenue from Latin America) weakening against the US dollar partly to blame.

Amid the clouds, there were silver linings: AB InBev’s market share in the US shrank at the slowest pace in 25 years (as consumers picked up more craft beers) and its sales in Brazil grew by 17%, seemingly recovering from political disruptions.

Why should I care?

For markets: When in doubt, go public?

With sales and profit missing expectations, investors were focused on AB InBev’s roughly $100 billion of debt – which it acquired along with rival SABMiller in 2016. To reduce debt and avoid expensive “refinancing” down the road, ABI’s considering raising cash by selling shares in its Asian business to investors who’d then be able to trade them on the stock market. Some analysts estimate that business to be worth $50 billion (the whole company’s worth $142 billion). And the possibility has led some investors to chase ABI’s stock, which has already bubbled up this year.

The bigger picture: All eyes on China.

China remains key for beverage companies due to its sheer size, large young adult consumer base, and rising disposable income levels. If ABI’s Asian business does “go public”, a local listing may help the company find local partners – hot on the heels of rival Heineken’s strategic partnership with a Chinese beer producer. With Chinese consumers preferring to buy local brews over imported brands, partnerships may be the way to go in the world’s biggest beer market.

Originally posted as part of the Finimize daily email.

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