Anheuser-Busch InBev Earnings: Volume Stabilizes Despite Continued Price Increases

Although volume and revenue were slightly weaker than our forecasts, the level of price increases implemented by Anheuser-Busch InBev ABI in the first quarter of the year kept the gross margin stable and the firm remains comfortably on track to meet our full-year forecasts. While negative publicity around the marketing of Bud Light in the U.S. is affecting sentiment in the stock, we regard this as temporary noise and we think this was a solid performance in the first quarter. We retain our $90 fair value estimate and wide moat rating.

First-quarter revenue increased 13.2% organically year over year, a sequential acceleration from the end of 2022, thanks to a modest uptick in volume as China reopened and North America volume stabilized to its longer-term trend of down just 1.0%. Almost all regions were in line with our forecasts, but EMEA was slightly weak, with volume down 1.0%. While this is not far from our medium-term forecast of flat volume, we attribute this slight softness to price elasticity. Once again, revenue growth across the portfolio was almost entirely driven by price/mix, forced higher by severe inflation in raw material costs, and double-digit price/mix in EMEA was the most likely cause of the volume slip. Revenue per hectoliter growth of 12.3% on a consolidated basis is not maintainable, in our view, but it’s certainly helping AB InBev navigate the spike in inflation. While the gross margin slipped by 60 basis points from a year ago to 54.1% in the first quarter, we regard gross profit in dollar terms as being a more relevant measure of manufacturers’ ability to pass through inflation, and by this metric, ABI delivered a strong quarter, with 12.4% growth in gross profit. This supports our view that the brewers are likely to be more defensive than most peers during this period of inflation. Further, the price increases being implemented now will give ABI pricing flexibility to stimulate demand in the event of a material downturn in consumer confidence.