Anheuser-Busch InBev has had more than $13 billion wiped off its market value after a profit warning and weaker-than-expected third-quarter earnings growth sparked by reduced demand for its beer in Brazil and South Korea.
The cautious outlook from the world's largest brewer came after main rival Heineken trimmed its 2019 guidance after an unexpected dip in sales in the Americas.
The downbeat updates highlight challenges facing global brewers in large developing markets in Asia, Latin America and Africa, whose promise of higher growth is supposed to make up for reduced beer drinking in Europe and the United States.
The maker of Budweiser, Corona and Stella Artois previously predicted strong growth of revenue and core profit, or EBITDA, this year. It has now forecast only "moderate" growth in EBITDA, citing a "challenging" July-September period.
The Belgium-based company's third-quarter core profit was unchanged year-on-year at $5.29 billion, missing market expectations for a 3% rise.
AB InBev had warned of some weakness after a strong second quarter when beer sales rose at their fastest pace in more than five years.
The company said that it had anticipated some of the challenges.
Firstly, shipping beer to China had been disproportionately higher in the second quarter because of promotions, and so was lower in the third. Costs rose because of higher aluminium and malt barley costs, and due to the weaker currencies of some of its markets, notably the Brazilian real.
Sales and marketing costs were also higher than in the third quarter of 2018. Last year, such costs were skewed towards the first half of the year because of the soccer World Cup.
"Whilst the third quarter has a number of timing issues on the cost side, it is uncharacteristic of ABI to miss on margins," said Jefferies analyst Edward Mundy.
The results suggest full-year organic EBITDA growth of about 4%-5%, compared with current consensus of 7%, he said.
Brazil And South Korea
Beyond these anticipated items, the company also suffered lower sales in Brazil and Korea as it increased prices in weak markets.
In Brazil, AB InBev's second-largest market behind the United States, it saw volume drop by 3% as some competitors sold their beer at a discount to consumers, who have been feeling pressure on their disposable income.
Brazil's economic performance has been erratic, reporting a contraction in the first quarter. The central bank has raised its growth forecast for 2019 to 0.9% but cited a high degree of uncertainty.
In South Korea, where AB InBev is market leader, it hiked prices in April, but rolled them back this month because of an economic slowdown and after rivals failed to follow suit.
South Korea's trade-reliant economy has been among those worst hit by cooling demand as a prolonged US-China tariff war disrupts global supply chains. Its economic growth slowed more than expected in the third quarter.
AB InBev said that it still expects strong overall revenue growth in 2019 but challenges in Brazil and South Korea will continue into the fourth quarter, so the company only expected "moderate" growth in core profit.
Economic challenges in other markets, including Argentina and South Africa, also led the company to push more affordable lagers, meaning revenue per litre growth would be slightly behind inflation. It previously forecast above-inflation growth.
AB InBev has generally sought to push drinkers towards more expensive beers. In developing markets, its focus has been to win over customers to beer, and encourage them to buy slightly more expensive brands in larger bottles that keep down prices.
CEO Carlos Brito told Reuters that affordable beers did not mean lower margins because the use of local crops and tax advantages would cut costs.
The company also said that recent disposals will reduce its net debt-to-EBITDA ratio to below four times at the end of 2019, a year ahead of target, from 4.6 at the end of June.
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