AB InBev Cuts Costs but Can't Stem U.S. Slide -- WSJ

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (October 27, 2017).

Sales of Bud Light and Budweiser continue to go flat just as fast as Anheuser-Busch InBev NV can slash costs at the world's biggest brewer.

The Belgium-based company said for the third quarter its share of the U.S. market, its largest, was down 0.8% from a year earlier.

"The underlying business remains incredibly weak," said Trevor Stirling, an analyst at Sanford C. Bernstein. "U.S. revenues were down 5.3% -- we can't remember a quarter as bad."

Bud Light, still by far the top-selling beer in the country, lost almost a full percentage point of market share in the three months to Sept. 30, while Budweiser was down more than a third of a point.

"We're working to stabilize the market share for these two brands, but we know it is journey," said Chief Financial Officer Felipe Dutra.

The setbacks, exacerbated by hurricanes in Florida and Texas, were only partially offset by strong results for the company's more expensive beers, including low-calorie Michelob Ultra and Stella Artois.

Profit margins edged higher due to aggressive cost-cutting after the acquisition of SABMiller a year ago. The company said cost savings from the deal are likely reach at least $3.2 billion, compared with its earlier $2.8 billion estimate.

AB InBev's woes are symptomatic of broader trends in the consumer-goods market: Younger customers are more health-conscious and focused on customization. The brewer has responded by buying or promoting faster-growing brands, including "craft" beers and imports. On Thursday, the company said Michelob Ultra, which it has marketed as a low-calorie drink for people with an active lifestyle, now accounts for almost 10% of U.S. volumes.

AB InBev has shaken up its marketing strategy for Budweiser and Bud Light in the U.S., though with little effect so far.

In August, the brewer launched a marketing campaign that touted the simplicity of Bud Light while poking fun at more complex beers. Earlier this year, another new marketing campaign, "Famous Among Friends," was pitched as a down-to-earth tribute to friendship.

The Budweiser brand has adjusted its packaging by including a special "America" logo. The rebranding -- unveiled ahead of last year's presidential campaign -- drew controversy at the time, but the company said it helped the brand in the latest quarter. This week, the company announced the launch of a limited-edition beer to commemorate the repeal of Prohibition.

Mr. Dutra said the early response to the campaigns "gives us confidence that we are moving in the right direction."

Revenue across the company rose 3.6% in third quarter, an indication that its strategy of expanding brands such as Budweiser, Stella Artois and Corona overseas and positioning them as premium beers is helping offset the trouble in the U.S. In Brazil, the company's second-largest market, profit rose for the first time in nearly two years.

Overall, AB InBev reported a 14% rise in earnings before interest, taxes, depreciation and amortization to $5.73 billion, just short of analysts' expectations. Net profit rose to $2.06 billion, from $557 million a year earlier when it incurred financing costs related to the SABMiller deal.

The brewer affirmed its guidance for revenue growth to accelerate this year and announced it would pay an interim dividend of EUR1.60 ($1.86) a share for 2017, in line with last year.

After slumping early, AB InBev shares finished the day off only 0.7% at EUR102.35.

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

(END) Dow Jones Newswires

October 27, 2017 02:47 ET (06:47 GMT)