Anheuser-Busch InBev SA/NV (NYSE:BUD) Q2 2023 Earnings Call Transcript

Anheuser-Busch InBev SA/NV (NYSE:BUD) Q2 2023 Earnings Call Transcript August 3, 2023

Anheuser-Busch InBev SA/NV beats earnings expectations. Reported EPS is $0.72, expectations were $0.66.

Operator: Welcome to Anheuser-Busch InBev Second Quarter 2023 Earnings Conference Call and Webcast Hosting the call today from AB InBev are Mr. Michel Doukeris, Chief Executive Officer; and Mr. Fernando Tennenbaum, Chief Financial Officer. To access the slides accompanying today’s call, please visit AB InBev’s website at www.ab-inbev.com and click on the Investors tab and the Reports and Results Center page. Today’s webcast will be available for on-demand playback later today. At this time all participants have been placed in a listen-only mode and the floor will be opened for your questions following the presentation. [Operator Instructions] Some of the information provided during the conference call may contain statements of future expectations and other forward-looking statements.

These expectations are based on management’s current views and assumptions and involve known and unknown risks and uncertainties. It is possible that AB InBev’s actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. For a discussion of some of the risks and important factors that could affect AB InBev’s future results, see Risk Factors in the company’s latest annual report on Form 20-F filed with the Securities and Exchange Commission on the 17th of March 2023. AB InBev assumes no obligation to update or revise any forward-looking information provided during the conference call and shall not be liable for any action taken in reliance upon such information.

It is now my pleasure to turn the floor over to Mr. Michel Doukeris. Sir, you may begin.

Michel Doukeris: Thank you, Jesse, and welcome, everyone, to our second quarter 2023 earnings call. It is a great pleasure to be speaking with you all today. Today, Fernando and I will take you through our second quarter operating highlights and provide you with an update on the progress we have made in executing our strategic priorities. After that, we’ll be happy to answer your questions. Let’s start with our operating performance. Our global momentum continued this quarter, although was partially offset by the performance of our U.S. business. We delivered revenue growth of 7.2%. Our net revenue per hectoliter increased 9% as a result of pricing actions, ongoing premiumization and other revenue management initiatives. Total volumes declined by 1.4% as growth in the majority of our markets was offset by volume decline in the U.S. EBITDA increased by 5% and reached US$4.9 billion.

Underlying EPS was US$0.72. While this quarter was not without challenge, the strength of our brand portfolio, global footprint and our focus on disciplined resource allocation continues to enable us to invest for the long-term while delivering profitable growth. We delivered broad-based growth this quarter with double digit top line increases in four of our five operating regions. Revenue increased more than 85% of our markets with volume growth in over 50%. Our diverse geographic print positions us well to deliver superior long-term value creation. Now I will take a few minutes to walk you through the operational highlights for the quarter from our key regions, starting with North America. In the U.S., the beer industry remained resilient delivering revenue growth of 2.3% this quarter and with beer gaining share of value of total alcohol in the first half of 2023.

Our revenues declined by 10.5% and STR volumes by 14% with performance impacted by the decline of the Bud Light brand. With respect to Bud Light brand performance. We have actively engaged with over 17,000 consumers since April, and there are a few clear insights. First, most consumer surveyed are favorable towards the Bud Light brand and approximately 80% are favorable or neutral. The consumer will always be at the center of everything we do. All of us at ABI deeply care about and respect all our consumers. Second, regardless of favorability, our consumers across all sentiment groups have 3 points of feedback in common. One, they want to enjoy their beer without a debate. Two, they want Bud Light to focus on beer. Three, they want Bud Light to concentrate on the platforms that all consumers love, such as NFL, Folds of Honor and Music.

We are taking the feedback and working hard toward our consumers’ business every day across the world. While our total beer industry share declined by 520 bps this quarter to 36.9%, it has been stable since the last week of April through the end of June. U.S. EBITDA declined by 28.2% this quarter with approximately two thirds driven by market share performance and one third driven by productivity loss and the long-term strategic choices we made to increase sales and market investments in our brands and provide support to our wholesaler partners. As we move forward in the U.S., we are focused on what we do best, brewing great quality beer, actively engaging with our consumers, supporting our partners and positively impacting the communities that we serve.

Now moving to our largest region, Middle Americas, which delivered margin expansion and another quarter of growth. In Mexico, we continue to outperform the industry, delivering double-digit top and bottom line growth. Our above core portfolio grew revenue by mid-teens led by the strong performance of Modelo Especial. We continue to progress our digital DTC initiatives. With our DTC platform, TaDa, now operating in over 60 major cities and fulfilling on average over 300,000 orders per month. In short, Mexico continues to execute effectively across all three pillars of our strategy to drive consistent performance. In Colombia, our business delivered high single-digit top and double-digit bottom line growth with our beer portfolio continue to gain share of total alcohol.

Our mainstream portfolio drove our performance, delivering double-digit revenue growth led by a particularly strong performance from Poker, which grew volumes by mid-teens. In South America, our business in Brazil delivered double-digit top and bottom line growth with approximately 400 basis points of margin expansion. Our beer volumes declined by 2.6% as we cycled a strong performance in 2Q 2022, which was supported by post-COVID recovery. Our premium and super-premium brands led our performance, delivering a volume increase in the mid-terms. BEES marketplace continued to expand, reaching over 700,000 customers, a 29% increase versus 2Q 2022 and GMV growing by 64%. Brazil is another example of effective execution across all three pillars of our strategy.

Now let’s talk about EMEA. In Europe, we grew top and bottom line by high single digits. Volumes declined by mid-single digits, outperforming a soft industry in the majority of our key markets. We continue to drive premiumization across Europe. Our premium and super-premium brands delivered double-digit revenue growth this quarter, led by Corona and Budweiser. In South Africa, we delivered double-digit top line growth with our portfolio continue to gain both share of beer and total alcohol. EBITDA was flattish as top line growth was offset primarily by anticipated commodity cost headwinds. Our performance was led by Carling Black Label, the number one beer brand in the country, which grew volumes by high teens. Our global brands grew volumes by more than 50%, driven by Corona.

And finally, APAC. In China, our business delivered double-digit top and bottom line growth, driven by continued premiumization and on-premise recovery across our key regions and channels. We outperformed the industry delivering volume growth across all segments of our portfolio this quarter led by mid-20s volume growth in both our premium and super premium portfolios. Now I would like to share with you a few sustainability highlights. We continue to innovate and progress towards our 2025 sustainability goals. Here are few examples of local initiatives with the potential to scale globally that are driving progress on our sustainability priorities. In Climate Action, we invested in a biomass processor in our Jupille brewery in Belgium to produce thermal energy from malt husks, which we expect to reduce our gas consumption by 15% and reduce our carbon emissions.

In smart agriculture, we provide the technical and financial training to over 900 smallholder barley farmers in Uganda to strengthen local supply chains. In Water Stewardship, we are installing new vacuum pump technology breweries across several markets to reduce water usage in bottle fillers by approximately 50%. For Circular Packaging, our business in Brazil launched a nationwide returnable bottle campaign to help increase the use of returnable packaging by promoting affordability and sustainability. Now let’s move on to our strategic pillars. Let’s start with pillar one of our strategy lead and grow the category. We continue to execute on our five levers to drive category expansion and delivered a strong quarter of profitable top line growth.

We are leading and growing the category by offering superior core propositions, developing new consumption occasions, and expanding our premium and Beyond Beer portfolios. Our global brands continue to scale and drive premiumization across our markets. The combined revenues of Corona, Stella Artois, and Budweiser grew by 18.4% outside of brands’ home markets led by Corona, which was recently recognized by Kantar BrandZ as the number one fastest growing global brand by value with 23.7% growth. Budweiser delivered a revenue increase of 16.9% with broad-based growth in 25 markets, and Stella Artois grew by 14.5%. Now let’s turn to our second strategic pillar, digitize and monetize our ecosystem. This continue to accelerate usage and reach, capturing US$9.2 billion in gross merchandising value this quarter, a 30% increase year-over-year and reaching 3.3 million monthly active users.

Customer satisfaction continue to improve with our weighted average Net Promoter Score improving to plus 60, up 10 points since last year. In 15 of the 20 markets where BEES is live, our customers are also able to purchase third-party products through BEES marketplace. Customer adoption is increasing with 63% of BEES customers now also BEES marketplace users. In the second quarter, BEES marketplace generated approximately US$340 million in GMV representing approximately US$1.3 billion on annualized basis. Now let’s talk about how we are strengthening our direct relationship with our consumers. Our digital DTC products Zé Delivery, TaDa and PerfectDraft are now available in 20 markets and generated over 16.5 million orders and US$115 million in revenue this quarter.

We continue to leverage our digital DTC products to further develop new consumption occasions. For example, in Brazil, Zé Delivery enabled the launch of Corona Sunset Hours, an everyday activation, encouraging consumers to disconnect from work and reconnect with friends in the early evening. With that, I would like to hand it over to Fernando to discuss the third pillar of our strategy, optimize our business. Fernando, over to you.

Fernando Tennenbaum: Thank you, Michel. Good morning, good afternoon, everyone. We aim to maximize value by focusing on three areas, optimize the resource allocation, robust risk management, and efficient capital structure. With respect to capital allocation, we are focused on maximizing long-term value creation by dynamically balancing our priorities. We continue to invest in organic growth to support our strategy to lead and grow the category and digitize and monetize our ecosystem. In the first half of 2023, disciplined overhead management and efficient allocation of resources enabled us to invest approximately US$5.6 billion combined in sales and marketing and CapEx. The excess cash generated by our business is then dynamically allocated to our three capital allocation priorities: Deleveraging; selective M&A and return of capital to shareholders.

As you can see in the next slide, two point times net debt-to-EBITDA remains the point at which we maximized value, though approximately 90% of the benefits from deleveraging can be captured as we approach three times. As of June 30, our net debt-to-EBITDA ratio reached at 3.7 times down from 3.86 times year-over-year with net debt reached US$73.8 billion. As a reminder, we typically generate the vast majority of our cash flow in the second half of the year. Net debt was also impacted by the increase dividend paid in the first half of 2023, as well as the translational effects hedged. Our debt maturity profile remains well distributed with no bond maturities in 2023 and no relevant medium-term refinancing needs. If you look at our debt maturity profile, we have US$3 billion worth of bonds maturing through 2025.

As of June 30, we had total liquidity of US$16.9 billion, which consisted of US$10.1 billion available under committed long-term credit facilities and US$6.8 billion of cash equivalents. Our bond portfolio has an average pre-tax coupon of around 4% and a weighted average maturity of 14 years. In addition, our debt portfolio does not have any financial covenants, and it is comprised of a variety of currencies, diversifying our FX risk. 96% of our bonds have a fixed rate insulated from interest rate volatility and inflation. And now let me take you through the drivers of our underlying EPS this quarter. We deliver EPS of $0.72 per share versus US$0.73 per share last year as we cycle a $0.04 per share net benefit from tax credits in Brazil year-over-year.

Organic EBITDA growth accounting for $0.12 per share was offset primarily by translational effects. Lower income tax increased EPS by $0.04. With that, I would like to hand it back to Michel for some final comments before we start our Q&A session. Michel?

Michel Doukeris: Thanks, Fernando. Before opening for Q&A, I would like to take a moment to recap my key takeaways for the quarter. While this quarter was not without challenge, we continue to make progress in executing across each of our three strategic pillars. Our business momentum continued this quarter with double-digit top line growth in four of our five operating regions. Driven by the strength of our leading brand portfolio, we grew volumes in the majority of our markets and revenues in over 85%. We made important strategic choices in pricing and other revenue management initiatives, which drove continued strong net revenue per hectoliter growth of 9%. We progressed our digital transformation, generating US$9.2 billion in GMV through this with 63% of these customers now also BEES marketplace buyers, delivering a GMV increase of 41% versus last year.

EBITDA grew organically by 5% as disciplined overhead management mostly offset that elevated cost environment. We are actively engaging with our consumers globally and investing to drive long-term value creation, and our results this quarter are another proof point of the strength of our global footprint. With that, I would like to hand it back to Jess for the Q&A. Thank you, Jess.

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Q&A Session

Operator: Thank you. The floor is now open for question. In the interest of time, we will limit participants to one question and one follow-up. [Operator Instructions] Thank you. Our first question is coming from Trevor Stirling with Bernstein. Please proceed with your question.

Trevor Stirling: Hi, Michel and Fernando. I have two questions from my side, please. The first one, Michel, showing your – you’re looking at your chart showing the market share trends over time in the U.S. It does look, maybe I’m being too optimistic here, that last week start to see a little bit of an improvement in market share trends. Is that something you’d agree with? So is that being driven by Bud Light itself or the other brands, so basically Bud Light is still weak, but the other brands and the collateral damage if you like, is starting to reduce. And the second question, probably one more for Fernando. Very good margin performance in Middle Americas, I think you mentioned in the release Mexico 175 bps of margin expansion in the quarter. Maybe if you could give a little bit of color on that. And is that sustainable for the rest of the year?

Michel Doukeris: Hi, Trevor. Good morning. Thanks for the question. I’ll take the first one here and then Fernando can take the second. The main objective for us to share this data, which is public data is to, one, bring a little bit the idea that we see, which is a more stable shared over the last couple of weeks. You see that from May to June to the early July readings that is actually like an improvement on the delta share as you come month to month, week to week, but it’s more a stable scenario. And now, of course, brands and the team in the U.S. working hard to build it back and to earn back consumers as our commercial activities are in place. And we continue to invest for the long term brewing great quality beer, supporting our wholesalers and the team there. But the reading is really stabilization with signals of improvement when you cut across different states and channels.

Fernando Tennenbaum: And Trevor, hello. Fernando here. On your question on margins, when we started this year, we said that we will have cost pressures to a lesser extent than last year, and it was not evenly distributed across the globe. As deal goes by what we’ve been seeing is that, of course, you have some hedges in places and a lot of your cost of goods sold is hedged. But there are always a portion of your cost of goods sold that cannot be hedged and the latest evolution of commodities definitely help you on that. So you definitely are seeing the benefit in Latin Americas. You mentioned Mexico, it’s right. You can also refer to Brazil. Brazil is also performing well from a margin standpoint. And then if you start to fast forward and looking the costs we are seeing now, the effects we are seeing now and how that’s going to unfold, definitely, you should – then again, we are not fully hedged, and then there are a lot of numbers that can change over time, but you should expect to start having some tailwinds, especially when you go into next year.

It’s too, too early to say, still too early to be 100% sure, but definitely start having some regions that we’ll have some tailwinds going forward.

Trevor Stirling: Perfect. Thank you very much Fernando and thank you Michel.

Michel Doukeris: Thank you.

Operator: Thank you. The next question is coming from Mitch Collett with Deutsche Bank. Please proceed with your question.

Mitch Collett: Hi, Michel. Hi, Fernando. Given you did organic EBITDA growth of 9% in the first half, but 5% in the second half, which is pretty impressive given the challenges you faced. Can you maybe run us through the puts and takes for the second half and specifically what you’re assuming for the U.S. and how we should think about the shape of Q3 and Q4. Thank you.

Michel Doukeris: Hi, Mitch. I’ll just try to clarify the question. I think that you said 9% first half and the 5% that you referred to is quarter two, right?

Mitch Collett: Yes.