Anheuser-Busch InBev: Strong Results And A Great Buy

| About: Anheuser-Busch InBev (BUD)
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For Anheuser-Busch InBev (NYSE:BUD), sales in Q4 were up 4.2% year-over-year to $9.87 bn (est. $9.86 bn). Organic EBITDA rose 12.2% (est. +7.7%) to $4.24 bn (est. $ 4.14 bn), driven by Latin America and Western Europe. Net profit was $1.96 bn (est. USD 1.67 bn), and EPS surged 60% to $1.23 (est. $1.04).

Organic sales growth was 5.7%, falling short of the expected 6.1%, as volume declined 0.6%, while analysts called for an increase of 1.5%. However, pricing was stronger than anticipated, coming in at 5.7% (est. + 4.6%). Most regions posted lower-than-expected volumes except Asia Pacific, where organic volume grew 6.1% (est. +5.7%).

EBITDA margin improved 160 basis points to 42.9% (est. 42.0%), driven by Latin America (incl. Brazil), where margin climbed 620 bps to 57.1%.

In 2011, sales were $39 bn, with organic growth of 4.6% (volume -0.2%); organic EBITDA +7.7% and margin +110 bps to 39.3%; net profit +28% to $6.45 bn and EPS +27% to $4.04. Proposed dividend per share rose 50% to EUR 1.20 (or $1.58), beating consensus expectations of $1.10.

An upbeat outlook for 2012

The company forecasts rising volumes in its two biggest markets, the US and Brazil, on the back of favorable weather, rising consumer confidence and product launches in the US, as well as strong consumer confidence and rising minimum wages in Brazil. Financing expenses will be clearly lower as interest coupon on its debt is seen at 5.0%-5.5% compared to the previously guided 6.0-6.5%. Tax rate will also be lower at 21%-23% vs. long-term guidance of 25%-27% and input costs are expected to rise mid-single digits this year, up from 2011's low-single digits.

Despite softer-than-expected volume in Latin America North (incl. Brazil), organic EBITDA in this region surged 23% thanks to lower input costs and strong pricing. US disappointed in Q4 as volume declined 5.0% (est. -1.8%) owing to the timing of price hikes. However, after having digested the price increases, consumers have come back again with encouraging momentum in the first two months (according to management). In Western Europe, the company gained shares in all the markets except the UK.

Net debt/EBITDA was down to 2.3x at the end of 2011 from 2.9x a year ago, and AB InBev expects the ratio to fell to 2.0x during the course of 2012. Dividend payout ratio improved slightly to 38% from last year's 35%. The company aims at a dividend yield of 3%-4% (vs. current yield of 2.3%), indicating higher dividend payouts ahead. In addition to rising dividends, AB InBev offers the prospect of share buybacks in 2013.

Final note

Growing global sales of Budweiser and Stella Artois, combined with price increases in the U.S. and Brazil, helped to nearly double profits at Anheuser-Busch InBev.

The gains came amid sagging sales overall - worldwide, Anheuser-Busch InBev sold 0.2% less beer in 2011 than in 2010 - but were driven by growth of InBev's three "global" brands. Budweiser, Stella and Beck's combined saw sales grow 3.3% for the year.

Building these brands has been a priority for the company, especially since it bought Anheuser-Busch in 2008. InBev has used its worldwide distribution network and marketing muscle to sell these relatively high-end beers around the world. It's a sign of the increasing globalization of the beer business, and especially Budweiser's flagship: Budweiser.

In the past two years, the King of Beers has launched in Russia and Brazil, claimed the title of the best-selling beer in Canada, and grown fast in China. In 2011, four of every nine Budweisers were sold outside the U.S., up from 28% in 2008. The brewer sees more opportunity to grow Budweiser, particularly in Brazil and China - where the company is reportedly mulling a bid for Kingway Brewery, in Guangdong Province. As Chinese consumers become more affluent, said chief executive Carlos Brito, Budweiser is well-positioned.

"There is a trend in China toward upsizing. That's helping us a lot," he said. "Consumers are coming our way."

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.