BUDFF - Anheuser-Busch InBev SA/NV: The Damage Looks Permanent

2023-06-06 15:20:38 ET

Summary

• We have been following the palpable situation with Anheuser-Busch InBev SA/NV stock, and the massive impact on sales in recent weeks following consumer backlash.
• Sales ending May 27th showed yet another year-over-year volume decline over 20%.
• Former sales exec says something must be done.
• This is a risky investment, even if Bud Light only accounts for a fraction of sales.

Well, the decision to short Anheuser-Busch InBev SA/NV ( BUD ) stock recently remains a winner. The stock recently broke through support, and while value buyers seem to be trying to step in here, the controversy surrounding this company has not slowed down.

Perhaps memories will be short, and the conservative backlash over their marketing and branding deal with Transgender influencer Dylan Mulvaney may subside later this year. However, it seems like the damage right now is setting up to be permanent. Take a look at the comment sections on the articles covering this controversy. So many have said they are making a "permanent switch," or will "never buy again."

Now, this could be like the NFL, where National Anthem protests led to many saying they would boycott forever, only to have most viewers return. But the NFL does not have much in the way of real competition. Anheuser-Busch has many. The damage to the brand is palpable. And shares continue to be under pressure, to the delight of those of us who profited from being short.

We still see at least another 10% downside here, and more if sales data continues to be weak. Recent data has suggested sales are indeed plummeting, and we have been covering the drama. We believe a bearish take remains the best outlook here.

Folks, from a stock perspective only, Anheuser-Busch shares look to head lower. The stock broke its support $56-$57 range and that suggests, in our opinion, that shares will fall to $50 or below.

The market as a whole has been holding up, and that may be a small saving grace for the stock. But if this market as a whole turns lower, we cannot image BUD stock holding up at all.

Now, let's be real here. The data is horrific. As we have discussed, sales data over the last two weeks had shown year-over-year declines of over 20%. Well, data for the week ending May 27th is now out. And folks, it remains ugly. This suggests a permanent consumer shift may be occurring. The flip side is that this backlash will be temporary. The company cannot exactly apologize, as while that may draw some customers back, it likely would draw severe protest from others. But by doing nothing, consumers are not coming back.

Anecdotally, over the Memorial Day Weekend holiday stores were offering massive rebates to buy Bud Light cases. The case displays remained full in many areas. That is a real problem.

And now, new data is out today. Newsweek has been covering the drama and shared the most recent market data .

Folks, it is another week of 20% plus year-over-year sales declines. Bud Light saw a 23.9% drop in sales and a 27.8% drop in volume versus last year for the week ending on May 27.

Now, this is according to Bumps Williams Consulting's monthly industry report, per the news. We will say, however, that this is (and it is a stretch to say this) slightly good news, in that the decline was overall much less than the sales declines that were reported by the company in the previous week. You can see that data here:

" Anheuser-Busch InBev : The Situation Is Getting Even Worse."

In that column, we shared that for the week ending May 20th, the company saw a 25.7% drop in sales revenue and a 29.5% cratering in unit volume.

Now, it is, of course, impossible to tease out the exact impact of consumer backlash, or flesh out why sales declined a bit less. Perhaps some of the rebate activity led to cost conscious buyers starting to take out some of store's inventories. Some people do not care about the controversy, they just want a bargain. We can see that. Perhaps it is seasonal, and the timing of the Memorial Weekend holiday. Some could point to weather even. But even though sales fell less than they did the week before, folks, sales are still down by 1/4th from last year. This is a major issue.

And still, the company is pretty silent. Clearly the data conflicts with recent commentary from the CEO. CEO Michel Doukeris a month ago stated:

"With respect to the current situation and the impact of Bud Light sales, it is too early to have a full view....this would represent around 1% of our overall global volumes....we believe we have the experience, the resources and the partners to manage this. And our full year EBITDA growth outlook is unchanged."

We will say plainly, the EBITDA guidance will come down. Unless the company is slashing costs to an obscene amount, the pain will be felt. While it may have indeed been too early at that time to quantify the impact, the data is very clear that there are real problems. Other brands saw declines in the portfolio for the week ending May 27th. Budweiser classic sales dropped by 8.5%, while Michelob Ultra's sales remained flat. Sales for Busch Light, Natural Light, and Stella Artois fell 3.0%, 1.5%, and 3.0%, respectively.

Further, former sales exec and beer sales expert Anson Frericks argued that something must be done before the damage is truly permanent. In the Fortune column, he stated that a September reset could "end up with retailers allocating more shelf space for rival beers." That would in and of itself lead to better sales for the competition.

Take-home

We cannot see why guidance is not in jeopardy given the recent sales data. It is horrific. Anheuser-Busch shares have broken support, and despite value hunters out there doing some buying, the recent sales data is just overwhelmingly negative.

For further details see: