AB InBev's Volumes Decline In Key Markets

| About: Anheuser-Busch InBev (BUD)
This article is now exclusive for PRO subscribers.

Summary

Higher earnings per share were reported for Q3, which was up from $1.36 in the Q3 of the previous year to $1.42 for the recent quarter.

Volumes declined in Europe, Asia Pacific, North America and North of Latin America.

AB InBev was in talks about financing an acquisition of nearly $122 billion of its rival company, SABMiller. An acquisition of 10 Barrel Brewing Co. has also been announced.

Share prices have fluctuated between a yearly low of $69.14 and a yearly high of $89.82. They currently trade at 19.70 times its earnings, with a dividend yield of 2.27%.

Anheuser-Busch InBev's (NYSE:BUD) third quarter results showcased a weak performance by the company, and came in lower than expected by many. Despite many factors such as the Football World Cup that were known to have driven up the demand for beer, the company was unable to register growth in its volumes.

Third quarter financial overview

The third quarter brought a rise of 2.3% in revenues for AB InBev which were reported at $12.24 billion. Gross profits rose by 1.9% relative to the third quarter of the prior year and were reported at $7.27 billion. Earnings before interest, taxation, depreciation and amortization only grew by a mere 1.3%, which was a huge miss from analyst expectations of a 7% growth. The normalized profit that was attributable to shareholders for the quarter increased by nearly 5% relative to last year's net income and was reported at $2.315 billion. This resulted in a higher earnings per share being reported for the third quarter, which was up from $1.36 in the third quarter of the previous year to $1.42 in per share in the recently concluded quarter. An interim dividend was also approved by the board, which amounted to 1 EUR per share for FY2014.

An analysis of AB InBev's volumes indicated that the company suffered as its total volumes declined by 2.6% for the quarter. The largest decline stemmed from Europe where volumes declined by 9.5%. Followed by that, Asia Pacific volumes dropped by 4.7%, North American volumes declined by 3.5%, and the Northern region of Latin America reported a 0.1% decline in its volumes. Mexico, South of Latin America and Global Export and Holding Companies reported increases of 2.9%, 2.3% and 3% respectively.

Declines in volumes

While acknowledging the weak results for the third quarter, the company stated that the weakness in the Ukraine, Russia and US market were the main reasons why sales volumes for the company were dragged down during the third quarter.

The company also cited the poor weather conditions in China that led to a decline in the Asia Pacific volumes of the company. The poor weather, coupled with the slowdown of the Chinese economy has led to a significant impact on the company, especially because China happens to be one of the largest consumers of beer in the world.

The Brazilian market also fell short of lifting volumes for the company as the economy fell into a recession. This recession comes at a time when AB InBev had only recently introduced price increases to benefit from sales in the country.

However, the company added that this was a one-off performance and is not likely to continue forward for the remainder of the year, as it is banking on improvement in the volumes of the US industry in the future.

SABMiller Acquisition

Prior to reporting its third quarter results, AB InBev reported that it was in talks with some banks about financing an acquisition of nearly $122 billion of its rival company, SABMiller. This deal is one which could merge two of the largest beer producing companies in the world, should it fall through. SABMiller held a market share of nearly 9.6% by the end of last year. This deal could be seen as a possibility for AB InBev to expand its 20% market share of the global beer industry that it held at the end of last year. The deal is likely to allow AB InBev to take the lead in terms of market share in Peru, Colombia and several countries in Africa as well.

In recent news, speculation of a potential deal between AB InBev and Pepsi Co.(NYSE:PEP) has also sparked investor interest as a Bloomberg article quoted several analysts enthusiasm of the deal falling through. It was said that AB InBev could potentially gain more from a merger with a snack company, something that would allow it to refocus its activities in a fresh new direction.

Oregon Craft Brewer Acquisition

In one of its latest acquisition announcements, AB InBev reported that it is in the process of completing the acquisition of 10 Barrel Brewing Co. This move is one that will allow the company to tap into the craft beer industry in the US, which is already expanding at a rapid rate. With beer consumption in the nation expected to reach almost 200 million barrels per annum, 40,000 barrels are expected to be sold by 10 Barrel, according to AB InBev estimates. Given that AB InBev already brews nearly half of the beer that is consumed in the country this latest move is one that can add to the company's future prospects of capturing more sales. No financial details leading to the deal have been disclosed by AB InBev as yet.

Conclusion

An analysis of share price trends over the past three months has indicated that AB InBev shares have increased in value by nearly 9%, as the share has remained bullish in the market. Share prices have fluctuated between a yearly low of $69.14 and a yearly high of $94.25.

Shares currently trade at 20.62 times its earnings, with a dividend yield of 2.17%, making it an investment option to consider for those who are seeking dividend income from their investments. The five year dividend growth has been calculated at 54.31%, which reinforces the analysis that the stock is a good option for investors seeking a stable stream of income from their investments.

However, with no major long term growth prospects brought to light by the company, it could be said that the company is relying on limited factors to help increase its volumes in the future. With people becoming more conscious about alcohol consumption and its effects on health, there could be a possible decline in volumes in the years to come. However, should a better product and marketing mix be introduced by AB InBev, it could be possible for the company to lift its volumes, as it already has noted an improvement in its performance in the US. Subject to the success of the latest round of acquisitions that are planned for the company in the near future, AB InBev could be looking at a larger number of beer drinkers to cater to.

Given that there are not many fundamentals that investors could rely on to make an investment decision about this stock, the stock could be rated as a 'hold' for those who have already made an investment in the stock, while those who are seeking to place their money in the stock could benefit from waiting it out till volumes recover in the future.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.