Budweiser’s new CEO needs your beer money to pay off the mortgage.
This week, Michel Doukeris replaced longtime CEO Carlos Brito as the head of the world’s largest brewer Anheuser Busch InBev. With improving sales, stock analysts expect internal staff to stick to the company’s existing strategy rather than making sweeping changes. This still leaves it with the challenge of repaying its debt in the face of high commodity price inflation.
Improving AB InBev’s sales growth will be important if the company is to meet its goal of reducing borrowing to twice earnings before interest, taxes, depreciation and amortization. Net debt of $ 83 billion, a hangover from its 2016 buyout of brewer SABMiller, now stands at 4.8 times. In the past, the company relied on cost synergies resulting from transactions to increase profits. Now that AB InBev’s track record is at its peak, it must develop existing brands. A 17% sales increase in the first quarter, down from 9% analysts expected, was a good sign.
Among large public brewing companies, including Heineken and Constellation Brands, only shares of AB InBev are still trading below their pre-pandemic price. The title has been on a roller coaster for years amid debt concerns and weak demand for traditional beer brands like Budweiser in the important US market. SABMiller’s deal has given the company a bigger footprint in emerging markets, but has yet to bear fruit. In the decade leading up to the merger, the stock generated total annual shareholder returns of 18%, but returns have averaged minus 8% in the years since.
An immediate task for the new boss is to pass the higher costs of commodities on to consumers. In the United States, contracts for this year’s malt barley crop are 10% more expensive than last year, according to Bernstein. And the covered prices of aluminum used to make beer cans could be 30% higher in 2022, depending on the current spot price situation.
Mr. Doukeris has a good track record of selling premium beers, like Michelob Ultra in the United States, where it is easier to raise prices. But there are limits to what consumers will take before switching to cheaper options. Another potential headache is currency movements. About 55% of AB InBev’s debt is in dollars, while 60% of its income comes from volatile emerging market currencies, including the Brazilian real. The imbalance has forced the company to cut dividends in the past.
Added to this mix, restrictions on the sale of shares representing around 17% of AB InBev’s market value will be lifted in just over three months. Most of the shares are held by cigarette maker Marlboro Altria, which was a major shareholder in SABMiller when it was bought out. The tobacco giant has taken a mix of cash and shares in the combined company as payment and agreed not to sell until October 2021. The uncertainty as to what Alria will do with the stock doesn’t help the AB InBev share price.
Demand for its beers is improving and the reopening of bars and restaurants should revive the trend. But Bud’s owner still needs a lot to tackle his debt.
(This story was posted from an agency feed with no text editing)
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