2023-08-11 14:00:00 ET
Summary
- The Bud Light controversy has impacted Anheuser-Busch InBev SA/NV's domestic EBITDA by -28.2% YoY and its North American EBITDA to $1.18B (-12.5% QoQ/ -25.7% YoY).
- With the North American region previously comprising 31.2% of its overall EBITDA, a full-year impact of -$1.64B may pull down the company's excellent international performance.
- Then again, the worst seems to be over, with the company's total beer industry share remaining stable at ~36.9% between the end of April and early July 2023.
- However, with Molson Coors recently reporting outsized FQ2 2023 earnings, easily absorbing the departing volume, it remains to be seen if Bud Light may regain its market-leading share.
- Consequently, Bud Light's prospects remain mixed, depending on the impact of the decelerating inflationary pressure and Anheuser-Busch InBev's intensified marketing efforts.
The Bud Light Investment Thesis Remains Mixed, Thanks To The Boycott
We covered Anheuser-Busch InBev SA/NV ( BUD ) in June 2023, discussing the impact of the recent boycott attributed to the marketing campaign with Dylan Mulvaney.
Based on previous anecdotal reports, there were already fears of Bud Light market share losses, with many distributors fearing the impacted sales to be permanent.
For now, BUD has reported decent global AB InBev own beer volume of 128.75M hls ( +6.3% QoQ / -1.7% YoY) in FQ2 2023, with most of the decline attributed to the North America region at 23.54M hls (-1.2% QoQ/ -13.9% YoY) and the South America region at 35.73M hls (-11.2% QoQ/ -1.8% YoY).
While demand from the Asia Pacific region has been more than robust at 27.47M hls (+24.2% QoQ/ +9.4% YoY) by the latest quarter, partly countering the North and South American headwinds, there is no escaping the boycott indeed.
This is why.
On the one hand, BUD reported excellent revenues of $15.12B (+6.4% QoQ/ +2.2% YoY), due to the higher "pricing actions and ongoing global premiumization," despite the impacted volume.
On the other hand, if we are to look closer, its overall gross margins notably fell to 53.6% (-0.5 points QoQ/ YoY) and adj EBITDA to 32.5% (-1 points QoQ/ -2 YoY), indicating "intensified marketing costs and support measures for the wholesaler partners," compared to FY2021 levels of 57.5%/ 35.4% and FY2019 levels of 61.1%/ 40.3% .
Therefore, while BUD may have been a global company with a wide range of offerings, the Bud Light boycott has been momentarily painful indeed, since the beer is no longer the top-selling beer in the U.S., while triggering a 300 headcount reduction .
Depending on how the boycott develops, and the company overcomes the declining market share over the next few quarters, we may see its U.S. sales further underperform from those reported in FQ2'23.
For now, BUD has recorded lower Sales-to-wholesalers by -15% YoY and Sales-to-retailers by -14% YoY in the U.S., naturally impacting the country's EBITDA by -28.2% YoY and contributing to the decline of its North American EBITDA of $1.18B (-12.5% QoQ/ -25.7% YoY) by the latest quarter.
With the North American region previously comprising 31.2% of its overall EBITDA, a full year impact may potentially trigger a decline of -$1.64B in EBITDA, pulling down the company's excellent international performance thus far.
Then again, the worst seems to be over, with BUD's total beer industry share remaining stable at ~36.9% between end April 2023 and early July 2023, with things likely to lift moving forward if the company's intensified marketing efforts bear fruit.
In addition, with part of the gross margin headwind attributed to the rising inflationary pressure, we may see a structural improvement in the company's profitability, with the July 2023 CPI already moderating to 3% YoY, compared to a year ago at 9.1%.
Since all of its twelve breweries are based in the U.S., we may see things improve once the macroeconomic headwinds lift over the next few quarters, depending on when the Fed pivots.
Therefore, based on its FQ2'23 global performance and the optimistic recovery in discretionary spending as similarly reported by Amazon ( AMZN ) and Shopify ( SHOP ) in their recent earnings calls, market sentiments surrounding BUD may have bottomed here.
Nonetheless, with many of the U.S. consumers choosing other beers during the recent backlash and BUD's direct competitor, Molson Coors Beverage Company ( TAP ), recently reporting outsized FQ2'23 earnings, easily absorbing the departing volume, it remains to be seen if the former may regain its market leading share in the intermediate term.
For example, TAP highlighted that "Bud Light was bigger than Coors Light and Miller Lite combined" in FQ2'22, with things drastically accelerating by FQ2'23 as " Coors Light/ Miller Lite combined being 50% bigger than Bud Light by total industry dollars and 30% bigger than Modelo Especial."
Therefore, BUD investors may also want to temper their expectations, with Bud Light's prospects still in a limbo.
So, Is BUD Stock A Buy , Sell, or Hold?
BUD 5Y EV/Revenue, EV/ EBITDA, and P/E Valuations
For now, BUD is trading at NTM EV/ Revenues of 3.14x, NTM EV/ EBITDA of 9.31x, and NTM P/E of 16.73x, moderated compared to its 1Y mean of 3.25x/ 9.61x/ 17.74x and 3Y pre-pandemic mean of 5.37x/ 13.25x/ 21.47x, respectively.
With the stock's valuations impacted compared to the Beverage industry median EV/ EBITDA of 13.75x and P/E of 19.55x, it appears that market sentiments surrounding the boycott remains pessimistic for now.
Then again, based on BUD's lower P/E valuations and the market analysts' FY2025 adj EPS projection of $4.34, we are still looking at a long-term price target of $72.65, implying a more than decent upside potential of +28.60% from current depressed levels.
Otherwise, the price target may be speculatively upgraded to $93.17 with an impressive +64.90% upside potential, if the Bud Light headwinds are moderated and its valuations are normalized to pre-pandemic levels.
BUD 5Y Stock Price
Nonetheless, those are also very bullish projections, with the BUD stock still sluggish after the supposedly decent FQ2 '23 global performance. While the beverage company's survival is never a question, the Bud Light's revival in the U.S. is potentially the biggest headwind to the stock's eventual recovery.
Therefore, while Anheuser-Busch InBev SA/NV may be rated as a Buy for investors with higher risk tolerance, we must also caution that the stock may continue trading sideways in the intermediate term.
Patience will be key to this investment thesis.
For further details see:
Anheuser-Busch InBev Q2: The Boycott Delivers Painful Lessons