Anheuser-Busch InBev SA/NV (NYSE:BUD) Q1 2024 Earnings Call Transcript

Anheuser-Busch InBev SA/NV (NYSE:BUD) Q1 2024 Earnings Call Transcript May 8, 2024

Anheuser-Busch InBev SA/NV isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Welcome to Anheuser-Busch InBev’s First Quarter 2024 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 open 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 11th of March 2024. 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, and welcome, everyone, to our first quarter 2024 earnings call. It is a great pleasure to be speaking with you all today. Today, Fernando and I will take you through our first quarter operating highlights and provide you with an update on the progress we’ve made in executing our strategic priorities. After that, we’ll be happy to answer your questions. Let’s start with our operating performance and the key highlights for the quarter. We are encouraged by our continued momentum and results to start the year. We delivered broad-based top line and bottom-line growth with market share gains and volume increases in the majority of our markets. Our megabrands led our growth with 6.7% net revenue increase.

EBITDA increased by 5.4%, in line with our medium-term growth ambition and 2024 outlook, with operational efficiencies driving margin expansion of 90 basis points this quarter. As we continue to optimize our business, underlying U.S. dollar EPS grew by 16%, driven by nominal EBITDA growth and improved net finance costs. The digital transformation of our business provides opportunities to generate additional profitability and revenue streams. This quarter, this marketplace continued to expand, delivering $465 million in gross merchandising value of non-API products, a 47% increase versus last year. While it is only the first quarter of the year, we are pleased with our start and are uniquely positioned to activate the category in 2024 through our megabrands and mega platforms.

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Q&A Session

Turning to Slide 6. You can see that total revenue grew by 2.6% with revenue per hectoliter increasing by 3.3% as a result of revenue management initiatives and ongoing premiumization. Total volumes declined by 0.6% as growth in the majority of our markets was offset by our volume performance in the U.S., Argentina and China. Underlying EPS was $0.75, a 16% increase versus last year. As we noted at our full year 2023 results for 2024, the definition of organic growth in Argentina has been amended to cap the price growth to a maximum of 26.8% year-over-year. Our global momentum continued this quarter. with revenue growth in more than 75% of our markets and with bottom line increases and margin expansion in four of our five operating regions.

Our scale and diverse geographic footprint has us well placed to deliver superior long-term value creation. Now I’ll 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 remains resilient with beer volumes improving sequentially through the quarter and dollar sales continue to grow versus last year. Our revenues declined by high-single digits with STW volumes down by 10.1%. While our mainstream beer volumes declined, our above core beer mega brands and spirit-based ready-to-drink portfolio continue to grow. Our market share trend has continued to improve gradually from May 2023 with total market share now flat versus last year. Our portfolio is regaining momentum with growth in key brands, such as Michelob ULTRA, Busch Light, Kona, Nütrl and Cutwater.

Together with our wholesaler partners, we remain laser-focused on executing our long-term strategy. Now moving to mid-Americas. In Mexico, we delivered mid-single-digit top and bottom line growth with margin expansion. Volumes grew by mid-single digits, driven by the continued strong performance of our core portfolio. In Colombia, our business delivered double-digit top line and high single-digit bottom line growth. Volumes grew by mid-single digits to reach a new record high for the first quarter with our portfolio continued to gain share of total alcohol. Our premium and super-premium brands grew volumes by more than 20%, led by Corona. In South America, our business in Brazil delivered mid-single-digit top line and double-digit bottom line growth with margin expansion of 311 basis points.

Volumes increased by 4.4% to reach a new record high for the first quarter. Our performance was led by our premium and super premium brands, which delivered volume growth in the low teens. Now let’s talk about EMEA. In Europe, we grew top line by high single digits and bottom line by strong double-digits with margin recovery. Volumes grew by mid-single digits, outperforming the industry according to our estimates. Our portfolio continues to premiumize, led by our megabrands, which delivered double-digit revenue growth. In South Africa, we again delivered record high first quarter volumes with double-digit top and bottom line growth and margin expansion. Volumes increased by mid-single digits, continuing to outperform the industry in both beer and total alcohol.

Our performance was driven by our super-premium portfolio, which grew volumes by double digits, led by Corona and Stella Cero. And finally, Asia Pacific. In China, our portfolio continued to premiumize and grow bottom line despite a soft industry. While our total volumes declined by mid-single digits in line with the industry, according to our estimates, our premium portfolio remains resilient with continued volume growth led by Budweiser. Now let’s discuss our strategic pillars. Let’s start with pillar one of our strategy, lead and grow the category. We aim to lead and grow the category with an efficient and focused portfolio of megabrands. Our megabrands are the top brands in each market that make up the majority of our volume today and are expected to drive the majority of our growth going forward.

We are disproportionately allocating sales and marketing investments behind these brands to accelerate brand power, build deep consumer connections and drive efficient profitable growth and we are seeing the results. Our megabrands are driving our growth, increasing net revenue by 6.7% in the quarter led by Corona, which grew revenue by 15.5% outside of Mexico. To the consistent execution of our replicable growth drivers, and our five category expansion levers, we are leading and growing the category by offering, superior core propositions, developing new consumption occasions and expanding our premium and beyond beer portfolios. Now let’s turn to our second strategic pillar, digitize and monetize our ecosystem. This continue to expand usage and reach, capturing approximately US$11 billion in gross merchandising value, a 23% increase year-over-year and reaching 3.6 million monthly active users.

Customer satisfaction improved with our Net Promoter Score improving to plus 61. This marketplace continued to accelerate, generating 7.3 million orders of non-ABI products and delivering US$465 million in GMV this quarter, an increase of 47% versus last year. Now let’s talk about how we are strengthening our direct relationship with our consumers. Through our digital direct-to-consumer platforms, we generated approximately 18 million unique orders this quarter. That’s 18 million data points to generate deep consumer insights, develop new consumption occasions, and drive incremental revenue for our business. 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. First, let me share how we have progressed on some of our 2025 sustainability goals in the first quarter. In Climate Action, we reduced Scopes 1 and 2 emissions per hectoliter of production by 6% year-over-year. We are also recognized by CDP as the 2023 supplier engagement leader for our work to drive decarbonization across our supply chain. In Water Stewardship, we continue to progress towards our 2025 goal to reach a water use efficiency ratio of 2.5 hectoliters per hectoliter achieving 2.55 this quarter. Our EBITDA margin improved by 90 basis points this quarter with margin expansion in four of our five regions. Our fundamental strengths, disciplined pricing, continued premiumization, and efficient operating model creates an opportunity for further margin expansion over time.

As you can see on the next page, in the first quarter, we continued to actively manage our bond portfolio. In March, we issued longer term bonds and used part of the proceeds to reduce near and medium-term maturity towers towards tender offer. These transactions improved our debt maturity profile, while maintaining our weighted average gross debt coupon at approximately 4%. Our debt maturities remain well distributed with no relevant medium-term refinancing needs. We have approximately $4 billion worth of bonds maturing through 2026 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. 99% of our bonds have a fixed rates, insulated from interest rate volatility and inflation.

And now let me take you through the drivers of our underlying EPS this quarter. We delivered EPS of $0.75 per share, a $0.10 per share increase versus last year. Nominal EBITDA growth accounted for a $0.12 per share increase. Gross debt reduction combined with proactive cash flow management resulted in lower net interest expenses, which contributed a $0.05 per share increase. 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. The excess cash generated by our business is then dynamically allocated across deleveraging, selective M&A and return of capital to shareholders. While the leverage remains a priority with additional flexibility in our capital allocation choices.

This quarter, we completed our US$1 billion share buyback program that was announced in October last year and executed an additional US$200 million direct share buyback from Altria. We remain disciplined in our capital allocation decisions to maximize value creation. 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 on the quarter and look ahead and the unique opportunities that our mega brands have to activate the category in 2024. We continue to make progress in executing across each of our three strategic pillars. Driven by the continued momentum of our mega brands, we delivered top line growth in 75% of our markets. To progress our digital transformation generating approximately US$11 billion of GMV through BEES, with $465 million in GMV of third-party products through BEES marketplace. EBITDA grew by 5.4%, in line with our medium-term growth ambition and outlook for 2024, with 90 basis points of margin expansion. As we continue to optimize our business, underlying EPS increased by 16% versus last year.

Looking ahead to the summer and the rest of the year, we are uniquely positioned to activate the category. The combination of our mega brands with key platforms that consumers love and that bring people together is a powerful opportunity to lead and grow the category from the NBA, to Copa America, to Olympics, NFL, the UFC and music platforms like Tomorrowland and Lollapalooza. We will be focused on doing what we do best. Our brands will show up in a big way, connecting with consumers and bringing to life for purpose of creating a future with more cheers. We remain focused on the opportunities ahead of us. The beer category is large and growing, and our unique global leadership advantage, implementation of our replicable growth toolkits and our superior profitability position us well to generate value for our stakeholders.

With that, I will hand it back to the operator for the Q&A.

Operator: The floor is now open for questions. [Operator Instructions] Our first questions come from the line of Rob Ottenstein with Evercore ISI. Please proceed with your question.

Rob Ottenstein: Great. Thank you very much and great start to the year. So I want to focus on the U.S. and kind of two-part question. First is the data that we’re getting shows very significant share gains on-premise for Michelob ULTRA and that when you kind of look at the way the year goes by March, and you combine Michelob ULTRA, your other brands, you’ve recovered most of the share loss, maybe it’s about a 200 basis point gap as opposed to – and the data that you showed us overall are off-premise, 460 basis points through March. So the first question is, is the data that we have roughly accurate and consistent with what you’re seeing in terms of the on-premise? And then second and tied to that, what we’re also seeing and particularly really accelerating in April, is incredibly strong results for Michelob ULTRA and for Busch Light continued strong results for Nütrl and Cutwater, which when step back and think about it, obviously, a lot of pain from Bud Light, a horrible situation.

But going forward, it would appear to us that in a way, you have a stronger and more balanced portfolio with prospects for going forward, better growth and share gains, would you agree with that? Thank you.

Michel Doukeris: Hey, good morning, Robert. Michel here. Thank you for the question. Let’s start with the two parts of the question, number one in terms of the brand and the current data that’s available data from either Cercana or some other sources in their own trade. So overall, we see a strong momentum on Michelob ULTRA, as you were describing. And we all know how relevant the brand is and how much the brand has been growing over the years. But moreover, we are all aware of the headroom for growth that the brand has in terms of geographies and channels and how aligned the brand is with current trends in terms of liquid profile, calories and carbs. Through the year, on our own data, we see a lot of expansion in number of POCs, TAPs and also rate of sales for Michelob ULTRA trade.

And so our own members, hey talk to the sources that are eternal data that you are mentioning. And when you combine this with the off-trade data, which is also available, you can see that Ultra in the last few weeks reached an all-time high share for the brand and has momentum that you see on Zircon building over the last few weeks. So a lot to come in the year because actually, to be quite honest, this summer, is going to be the strongest activation of Michelob ULTRA as we get through Olympics and then all the holidays that we’re going to have during the summer with the team in U.S. and the partnership with the Olympic Committee in the U.S. So excited about what we have ahead of first with Ultra. And then Busch Light, as you mentioned, similarly, when you look at the last few weeks, all-time high share for the brand as well, very good momentum, plenty of opportunities to continue to expand nationally because the volume today is very concentrated in few regions, and the brand is also very well positioned with a lot of momentum with consumers and consumer needs as of now.