BUDFF - The Resurrection Of Anheuser-Busch InBev SA/NV

2023-10-31 11:10:58 ET

Summary

• Bud Light sales were hit hard by the boycott.
• Anheuser-Busch InBev SA/NV announced a partnership with the UFC, becoming the "Official Beer Partner of UFC" in the U.S.
• Despite declining volumes, revenue grew in Q3, and the company earned $0.86 per share, up from a year ago. Guidance was reaffirmed.
• The negative impacts have subsided and sales were strong in Q3, and guidance was reaffirmed for ongoing growth.
• Much to the dismay of bears, a new billion-dollar buyback was announced.

Readers, as you know we very closely followed the Anheuser-Busch InBev SA/NV (BUD) controversy this spring, following closely with order volume and what was going on with distributors. In some regard, there is permanent damage, and by that, there truly are consumers who will never buy another product from the company.

However, the widespread boycott appears to have ended. Bud Light has stepped up its advertising, and the crazy promotions and rebates have slowed to a crawl in local supermarkets and beverage centers. Folks, while it was a painful few quarters, the company, and we think the stock, are being resurrected. All told sales were definitely hit by this controversy, but the earnings impact was relatively muted. This is evidenced by the Q3 earnings that were just reported. While the controversy lasted for months, the negative impacts on the overall business have subsided.

You see, Bud Light is a very popular brand, or "was" if you are in the boycott camp. But this is a global behemoth, with so many brands. While there was damage from one business line being avoided, few went the extra mile of avoiding all of Anheuser-Busch InBev SA/NV's offerings. If you did, kudos to your dedication, but like nearly all controversies involving a company and its advertising, etc., it has all but blown over. Still, we are certain there are some, including our readers, who will avidly avoid giving your business to companies where you do not agree with their social views. The same can be said of those who disagree on the other side of the aisle with companies that take pro-conservative messages. We see it all the time. But for BUD, it is now over, as sales were strong in Q3 and 2023 guidance was reaffirmed.

During the height of the controversy, we had predicted that Anheuser-Busch InBev SA/NV would revise its EBITDA outlook downward for 2023, but this never came to pass, despite sales declines in Bud Light. During the height of this controversy, we were watching sales reports showing that Bud Light sales dropped 20-25% year-over-year week-to-week. And during all of this, Bud Light actually lost its top spot as the best-selling beer in America.

Now, we did learn that on October 24, Anheuser-Busch InBev SA/NV announced a multiyear marketing partnership with the Ultimate Fighting Championship (the UFC) of TKO Group Holdings, Inc. (TKO), a popular mixed martial arts hosting company. President Dana White is pretty conservative, if you have watched any of his social media or commentary, and includes Donald Trump as a friend. Well, per Dana, they "are back in business together." Bud Light will become the "Official Beer Partner of UFC" in the United States.

The data is clear. Despite Bud Light sales volume which peaked being down over 30% in some weeks in June, the sales declines have slowed, and EBITDA has gone up. This is not to say there is not still "some" impact, but it is muted now. In the just-reported Q3 , revenue increased by 5.0% in the quarter with revenue per hectoliter growth of 9.0%, and by 8.3% in the first nine months of 2023, with revenue per hectoliter growth of 10.1%. Much of this was pricing driven. Own beer volumes did decline, largely a result of the impact of the boycott. In Q3, total volumes declined by 3.4%, with own beer volumes down by 4.0% and non-beer volumes up by 1.4%. In the first nine months of 2023, total volumes declined by 1.4%, with own beer volumes down by 1.9% and non-beer volumes up by 1.8%. The volume pressure was highest in North America, where the boycott centered:

So, volumes were indeed down, but the revenue still grew from last year. When combined with margins and operating expenses, the company earned $0.86 per share, up from a year ago, which saw $0.84 in EPS. This was also $0.05 better than consensus, and $0.03 better than our expectations. Through the first nine months of 2023, earnings came in at $2.23, an increase from $2.16 per share in the comparable 2022 period.

Guidance was reaffirmed as well:

We expect our EBITDA to grow in line with our medium-term outlook of between 4-8% and our revenue to grow ahead of EBITDA from a healthy combination of volume and price. The outlook for FY23 reflects our current assessment of inflation and other macroeconomic conditions

Perhaps showing even more strength than those who seek to see the demise of the company, on the back of continued global momentum and strong free cash flow generation, the board of directors has approved a $1 billion share buyback program to be conducted over the next 12 months. While volumes are falling in North America, we see a rebound in 2024 since the company will be lapping comps with the heart of the boycott.

Despite the Bud Light boycott, we foresee no material impact on international sales. While the ongoing effects are certainly still being felt the business has stabilized, and the company is forecasting a resurrection to growth while building key partnerships and regaining lost customer share.

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