Anheuser-Busch InBev Earnings: Disastrous U.S. Performance Masks Underlying Improvement in Latin America

The severity of the impact of the Bud Light saga was visible in Anheuser-Busch ABI InBev’s first-half earnings report, but we take two major positives from the update. First, management’s comments that Bud Light’s share has not worsened since April, when a boycott of the brand began, suggests further downside risk from the marketing mishap is probably limited. Second, this was another indication that margins have bottomed in Latin America, a key driver of ABI’s economic profit. We retain our $90 fair value estimate of the ADRs and our wide moat rating, and believe there is still material upside to the stock from its market value on Aug. 3.

ABI’s consolidated second quarter volume fell by 1.4% year over year in the second quarter, deteriorating from almost 2% growth in the first quarter. Price increases salvaged growth in the quarter, however, with the price per hectoliter of beer sold up 9.0%, a rate that is still materially above our estimate of medium-term price/mix.

Only Asia posted significantly positive volume growth (up 9.5% in the second quarter) but even that was due to the reopening of China, while volume in South Korea missed our expectations. As expected, the major culprit of the volume softness was the U.S., where volume of Bud Light has been negatively affected by a boycott by some consumers due to a marketing collaboration with transgender influencer Dylan Mulvaney. Second-quarter volume in North America declined by 14.1%, as Bud Light lost share to competitors, most notably Constellation Brands’ Modelo Especial and Molson Coors’ Coors Light and Miller Light. Diageo’s weak performance in the U.S. suggests alcohol consumption may be coming under pressure anyway, but Constellation reported beer shipment growth of 7.5% in the three months to May 31, a measure of how badly ABI underperformed this quarter. Management stated that Bud Light’s share has stabilized, but their credibility now rests on that being true and a strategy to regain some lost share.