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Anheuser-Busch (NYSE:BUD) Reports Sales Below Analyst Estimates In Q4 Earnings


Full Report / February 29, 2024

Beer powerhouse Anheuser-Busch InBev (NYSE:BUD) fell short of analysts' expectations in Q4 FY2023, with revenue down 1.3% year on year to $14.47 billion. It made a GAAP profit of $0.82 per share, down from its profit of $1.41 per share in the same quarter last year.

Anheuser-Busch (BUD) Q4 FY2023 Highlights:

  • Revenue: $14.47 billion vs analyst estimates of $15.63 billion (7.4% miss)
  • EPS: $0.82 vs analyst expectations of $0.89 (7.8% miss)
  • Gross Margin (GAAP): 53.9%, down from 54.6% in the same quarter last year
  • Organic Revenue was up 6.2% year on year
  • Sales Volumes were down 2.6% year on year
  • Market Capitalization: $114.4 billion

Born out of a complicated web of mergers and acquisitions, Anheuser-Busch InBev (NYSE:BUD) boasts a powerhouse beer portfolio of Budweiser, Stella Artois, Corona, and local favorites around the world.

Anheuser-Busch InBev, or ABI as it’s often called, was formed in 2008 when InBev–a Belgian company–acquired Anheuser-Busch for $52 billion. The new company, which at the time was the largest brewer in the world, then bought Grupo Modelo in 2013 and SABMiller in 2016 to strengthen its Latin American and African presences, respectively.

Today, ABI is globally known because of its three largest brands mentioned before, but they also own regional favorites like Brahma in Brazil, Spaten in Germany, and Castle Lager in South Africa. To respond to evolving consumer tastes, the company has also gotten into the craft and specialty market with brands like Goose Island and Four Peaks Brewing Co.

The company's core customer is broad and is generally anyone who enjoys beer. Whether it's a football game or just winding down after work, ABI has a beer to fit the moment. Its products are widely available in grocery stores, liquor shops, pubs, bars, and restaurants around the world. An extensive distribution network ensures that whether you're on a beach in Brazil or a pub in the UK, you're likely to find at least one of their brands on tap or on the shelf.

Beverages and Alcohol

These companies' performance is influenced by brand strength, marketing strategies, and shifts in consumer preferences. Changing consumption patterns are particularly relevant and can be seen in the explosion of alcoholic craft beer drinks or the steady decline of non-alcoholic sugary sodas. Companies that spend on innovation to meet consumers where they are with regards to trends can reap huge demand benefits while those who ignore trends can see stagnant volumes. Finally, with the advent of the social media, the cost of starting a brand from scratch is much lower, meaning that new entrants can chip away at the market shares of established players.

Competitors in the beer industry include Heineken (ENXTAM:HEIA), Constellation Brands (NYSE:STZ), Carlsberg (CPSE:CARL B), and numerous regional brewers globally.

Sales Growth

Anheuser-Busch is one of the most widely recognized consumer staples companies in the world. Its influence over consumers gives it extremely high negotiating leverage with distributors, enabling it to pick and choose where it sells its products (a luxury many don't have).

As you can see below, the company's annualized revenue growth rate of 8.2% over the last three years was decent despite selling a similar number of units each year. We'll explore what this means in the "Volume Growth" section.

Anheuser-Busch Total Revenue

This quarter, Anheuser-Busch missed Wall Street's estimates and reported a rather uninspiring 1.3% year-on-year revenue decline, generating $14.47 billion in revenue. Looking ahead, Wall Street expects sales to grow 6.8% over the next 12 months, an acceleration from this quarter.

Volume Growth

Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.

To analyze whether Anheuser-Busch generated its growth from changes in price or volume, we can compare its volume growth to its organic revenue growth, which excludes non-fundamental impacts on company financials like mergers and currency fluctuations.

Over the last two years, Anheuser-Busch's quarterly sales volumes have, on average, stayed about the same. This stability is normal as the quantity demanded for consumer staples products typically doesn't see much volatility. The company's flat volumes also indicate its average organic revenue growth of 9.3% was generated from price increases. Anheuser-Busch Year-On-Year Volume Growth

In Anheuser-Busch's Q4 2023, sales volumes dropped 2.6% year on year. This result was a further deceleration from the 0.6% year-on-year decline it posted 12 months ago, showing the business is struggling to push its products.

Gross Margin & Pricing Power

Anheuser-Busch's gross profit margin came in at 53.9% this quarter, in line with the same quarter last year. That means for every $1 in revenue, $0.46 went towards paying for raw materials, production of goods, and distribution expenses. Anheuser-Busch Gross Margin (GAAP)

Anheuser-Busch has best-in-class unit economics for a consumer staples company, enabling it to invest in areas such as marketing and talent to stay one step ahead of the competition. As you can see above, it's averaged an exceptional 54.2% gross margin over the last two years. Its margin, however, has been trending down over the last year, averaging 1.1% year-on-year decreases each quarter. If this trend continues, it could suggest a more competitive environment.

Operating Margin

Operating margin is a key profitability metric for companies because it accounts for all expenses enabling a business to operate smoothly, including marketing and advertising, IT systems, wages, and other administrative costs.

This quarter, Anheuser-Busch generated an operating profit margin of 24.1%, up 1.6 percentage points year on year. This increase was solid, and since the company's gross margin actually decreased, we can assume the rise was driven by stronger cost controls in discretionary areas like corporate overhead and marketing.

Anheuser-Busch Operating Margin (GAAP)

Zooming out, Anheuser-Busch has been a well-oiled machine over the last two years. It's demonstrated elite profitability for a consumer staples business, boasting an average operating margin of 24.7%. On top of that, its margin has remained more or less the same, highlighting the consistency of its business.

EPS

These days, some companies issue new shares like there's no tomorrow. That's why we like to track earnings per share (EPS) because it accounts for shareholder dilution and share buybacks.

In Q4, Anheuser-Busch reported EPS at $0.82, down from $1.41 in the same quarter a year ago. This print unfortunately missed Wall Street's estimates, but we care more about long-term EPS growth rather than short-term movements.

Anheuser-Busch EPS (GAAP)

Between FY2020 and FY2023, Anheuser-Busch's EPS grew 264%, translating into an astounding 53.9% compounded annual growth rate. This growth is materially higher than its revenue growth over the same period, showing that Anheuser-Busch has excelled in managing its expenses.

Wall Street expects the company to continue growing earnings over the next 12 months, with analysts projecting an average 28.1% year-on-year increase in EPS.

Key Takeaways from Anheuser-Busch's Q4 Results

We struggled to find many strong positives in these results. Its revenue unfortunately missed analysts' expectations and its operating margin missed Wall Street's estimates. Overall, the results could have been better. The company is down 1.8% on the results and currently trades at $61.3 per share.

Is Now The Time?

Anheuser-Busch may have had a tough quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

There are several reasons why we think Anheuser-Busch is a great business. For starters, its revenue growth has been decent over the last three years. On top of that, its EPS growth over the last three years has been fantastic, and its scale gives it immense negotiating leverage with retailers.

Anheuser-Busch's price-to-earnings ratio based on the next 12 months is 17.0x. Looking at the consumer staples landscape today, Anheuser-Busch's qualities stand out and we like the stock at this price.

Wall Street analysts covering the company had a one-year price target of $70.95 per share right before these results (compared to the current share price of $61.30), implying they saw upside in buying Anheuser-Busch in the short term.

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