Volume Bounces Back for AB InBev

Anheuser-Busch InBev BUD beat our second-quarter 2021 volume growth estimates thanks to a strong performance in Latin America. The good news will be overshadowed, however, by concerns over short-term profitability. The first-half gross margin missed our estimates by around 60 basis points, and the retention of the guidance of full-year underlying EBITDA growth of 8%-12% implies that margins will continue to come under pressure throughout the rest of the year. This is not surprising, however, as most consumer staples companies, notably Unilever and Nestle, have reported that commodity cost inflation is beginning to bite. We have slightly lowered our gross margin forecast for this year and next. Although we had already anticipated material cost inflation, the prices of packaging materials and distribution costs have continued to increase since our last update.

As AB InBev cycled the worst quarter of lockdowns last year, second-quarter volume and net revenue grew by 20.8% and 27.6%, respectively, comfortably ahead of our forecasts. However, second-quarter volume was still below 2019 levels and lockdown measures remain in place in some markets, notably South Korea and South Africa. Europe, which posted stunning second-quarter organic volume growth of 48.5%, probably benefited from some pent-up demand as the on-trade reopened. Latin America was also very strong in growth terms, notably the 59% volume growth and 80% revenue growth in the Middle Americas region.

At best, second-quarter results paint a mixed picture about profitability. Second-quarter EBITDA margin expanded by only 88 basis points, which was a whisker better than our forecast, but the gross margin expansion of just 30 basis points fell short. This is explained by the rise of commodity inflation, offset by better-than-expected operating leverage from the volume rebound. Brazil was particularly affected, with its gross margin down by 340 basis points, as it faced transaction foreign exchange headwinds as well.

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