2023-05-23 16:43:29 ET
Summary
- The controversy over a recent Anheuser-Busch InBev SA/NV marketing campaign has been well-publicized.
- The main debate now turns to whether there will be an ongoing material impact to sales as the customer base perhaps abandons Bud Light.
- While there are many other products under the belt, this has been a PR nightmare for Anheuser-Busch InBev.
- Anheuser-Busch InBev SA/NV stock is now at critical support, and we question if recent guidance can be attained.
It has been a wise investment decision to short Anheuser-Busch InBev SA/NV ( BUD ) stock recently. The stock has now retraced to what appears to be a very key level of support. For those that may have missed what the controversy is all about, a cursory review of the recent articles on Seeking Alpha's BUD quote page is in order.
In our opinion, if BUD stock breaks the current support level, there is at least another 10% downside here, and more if sales data continues to be weak. Recent data has suggested sales are indeed plummeting, and a bearish take continues to be correct. Bulls need to circle the wagons at current levels in our opinion, as this is a pivotal spot for the stock. As you can see below, the BUD stock price is now sitting at a pivotal line.
The stock is sitting at a level that has enjoyed support since December up until the end of March in the $56-$59 range. A break below this suggests in our opinion that shares could fall to $50. While the chart above is for simple visual purposes only, more complex charts with annotation are provided through our service when discussing ideas like this. However, we think the data suggests that a BUD break lower is likely.
What data is that exactly? The Nielsen data announced today really suggests a genuine sales impact is occurring. The numbers are pretty damning. According to Nielsen data, sales of Bud Light are down dramatically, as volumes declined 24.6% in the week ended May 13th as compared to the same period in 2022. This comes after we learned there was a 23.6% decline in the first comparable week in May.
What is more surprising is that what appears to be a large-scale consumer pushback has also spread to other brands. While Bud Light has been the showcase for the controversy, we see that Michelob Ultra sales fell 6.8% while classic Budweiser fell 14.9%. There has also been an 8.5% drop in Natural Light sales. Busch Light volume was also down 13% from last year. For Bud Light sequentially, sale volumes were down 28.8% from the prior week. That is some pain, according to the data in the article.
Now, it is, of course, impossible to tease out the exact impact of consumer backlash. Some of this is certainly due to the consumers being upset with the marketing choices. Some of it could be due to some seasonal weakness, or stronger competition. Economic data remains strong, so it's not really a sign of recession, unless we see it happening elsewhere. And frankly, alcohol sales are usually quite fine in a recession.
So can BUD stock drop further on this? If sales data continues to come in weak and support is not held, we see the stock falling much further. The data right now seems to conflict with recent commentary from the CEO. CEO Michel Doukeris discussed the impact after earnings just a few weeks ago:
"With respect to the current situation and the impact of Bud Light sales, it is too early to have a full view. The Bud Light volume decline in the U.S. over the first 3 weeks of April, as publicly reported, would represent around 1% of our overall global volumes for that period. With this perspective and in the context of our global business, we believe we have the experience, the resources and the partners to manage this. And our full year EBITDA growth outlook is unchanged."
While it may have indeed been too early at that time to quantify the impact, these new sales numbers are pretty jarring. To the CEO's latter point, we now question whether guidance can now be attained in light of the new data. When Q1 earnings were reported , guidance was strong.
Anheuser-Busch InBev SA/NV guided for EBITDA to grow in line with its medium-term outlook of between 4-8% and its revenue to grow ahead of EBITDA from a healthy combination of volume and price. However, these sales numbers suggest that the revenue outlook may need to be revised lower on the next earnings report. That came as Q1 EBITDA increased by 13.6% to $4.76 billion in Q1, with EBITDA margin expansion of 13 bps to 33.5%. We think revenues are setting up to miss Q2 expectations, and that puts full year guidance in jeopardy.
Take-home
Shares of Anheuser-Busch InBev SA/NV are down about 11% since the initial controversial marketing partnership occurred. Q1 earnings were strong, and the CEO had stated it was too soon to tell what impact, if any, would happen with sales. Guidance may be in jeopardy given the recent sales data.
If the current zone that we see as support over the last year does not hold, Anheuser-Busch InBev SA/NV shares have at least another 10% downside. Our best advice is to avoid shares at this point, but we are leaning toward continuing our short bias. Bulls need to hold these levels.
For further details see:
Anheuser-Busch InBev: Sales Plummeting, Stock At Critical Support