AB Inbev's Bud Light Lacks Fizz -- WSJ

By Nick Kostov Features Dow Jones Newswires

Brewer attempts to reverse drop in market share of the U.S.'s favorite beer by sales

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The King of Beers hasn't found a fix yet for Bud Light.

Anheuser-Busch InBev NV reported surging profit thanks to last year's integration of rival beer giant SABMiller, but its best-selling Bud Light continues to hemorrhage market share in the U.S., underscoring the challenge the company faces turning the brand around.

The company is in the middle of a high-stakes revamp of Bud Light, including a U.S. marketing campaign, "Famous Among Friends," which it launched earlier this year. The move is aimed at putting some fizz back in the brand. It continues to outsell every other beer by a wide margin in the U.S., but has suffered years of falling market share at the hands of Mexican lagers and the craft beer craze.

Elsewhere, the world's largest brewer reported Thursday a rebound in its second biggest market, Brazil, cheering investors. Shares in Belgium-based AB InBev were up almost 4% in early afternoon trading in Europe.

Apart from the integration of SAB, the company's biggest focus remains improving the fortunes of Bud Light. AB InBev said Thursday that the brand's U.S. market share for the quarter ended March 31 fell almost two-thirds of a percentage point.

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It remains America's favorite beer by sales, but the drop continues years of declines. In 2010, Bud Light commanded a 19% share, according to Beer Marketer's Insights, an industry trade publication. That fell to 16% at the end of last year.

In the U.S., Bud Light "remains challenged in a few key markets," Chief Executive Carlos Brito said in a conference call with analysts Thursday. He said he believed the "Famous Among Friends" campaign would help improve the brand's volume and share trends in 2017. "We think this campaign has legs," he said. He also noted that Budweiser's Super Bowl commercial, centering on the immigration story of co-founder Adolphus Busch, was this year's most-watched spot.

The Budweiser brand, meanwhile, lost over a third of a percentage point of market share in the quarter. Beer Marketer's Insights estimates Budweiser had 6.3% of the U.S. market at the end of last year, making it the number three seller behind Coors Light.

Overall sales volume in North America fell 4.4% in the quarter from a year ago, sharply lower than analysts' consensus forecast of a 2.2% fall. Margins in the U.S. increased, however, as the company's portfolio of more-expensive beers, including Michelob Ultra and Stella Artois, performed well. AB InBev has also rolled out a handful of beers it markets as "craft," to compete with the hundreds of smaller brewers that have popped up across the country in recent years. It said this portfolio performed well in the U.S. and Canada.

"There is no end in sight to the weakness" of Budweiser and Bud Light, said Trevor Stirling, European beverage analyst at Sanford C. Bernstein. "The success of Michelob Ultra and the craft portfolio is not enough to compensate."

AB InBev said Thursday that net profit surged to $1.41 billion in the quarter from $132 million a year earlier. The figure was boosted by the integration of rival SAB, following AB InBev's $100 billion-plus acquisition. The deal's funding costs hit AB InBev's year-earlier profit.

Revenue in the quarter rose 35% to $12.92 billion, but organic growth -- stripping out acquisitions, including the effect of the SAB purchase -- rose just 3.7%.

AB InBev said the integration of SAB was "progressing well," with savings of $252 million from the combination in the period. That was higher than expected by analysts, with some suggesting the company could wring out more than the overall $2.8 billion in cost savings AB InBev has targeted in the deal.

But that isn't a long-term fix for flagging sales at its biggest brands in the U.S. and Western Europe. AB InBev's acquisition of SAB was a big bet that it could tap new growth in Africa and other emerging markets such as Colombia and Peru.

In the short term, that has been a mixed bag. In Colombia, revenue fell 5.1% because of a tax hike there. Peru sales rose 3%. Sales in South Africa were up mid-single digits, AB InBev said, thanks to price hikes pushed through at SAB just before AB InBev took control.

A surprising bright spot was Brazil. Despite what the company described as a challenging political and macroeconomic environment there, beer volume rose in the quarter but revenue per hectoliter dropped because large state tax increases last year haven't yet been fully passed on to customers. The company said it remains optimistic about Brazil in the long run and expects the rise in the cost of sales to slow in the second half of the year.

U.K. sales rose by a double-digit percentage, meanwhile, lifted by the launch of Bud Light. The company also posted a strong start to the year in China. AB InBev said its full-year expectations remained unchanged, including an acceleration of revenue growth.

-- Jennifer Maloney contributed to this article.

Write to Nick Kostov at Nick.Kostov@wsj.com

(END) Dow Jones Newswires

May 05, 2017 02:48 ET (06:48 GMT)