How Currencies Affect Beer sale profits

An interesting piece with Anheueser Busch and how their profits have been drained by volatile currencies and the derivatives markets even though volumes in sales are higher.
GNS+Research


AB InBev Profit Hit by Currencies

3 days 19 hours 17 minutes ago - DJNF

Anheuser-Busch InBev NV on Friday reported lower profit and revenue for the third quarter, dragged down by currency fluctuations, even as its beer-sale volumes edged higher. 

The Belgium-based brewer's struggles in the U.S., its largest and most profitable market, continued with sales to retailers dropping 2.1%. Its top-selling beers, Bud Light and Budweiser, have lost favor with consumers opting for more flavorful craft beers like India pale ales. 

Overall, revenue fell 7.1% from last year's third quarter to $11.38 billion, largely as a result of the weakness of the Brazilian real, Mexican peso and the euro. A 45% drop in profit to $1.38 billion also reflected a $585 million loss on derivatives used to hedge the price of shares it distributes as compensation to employees. 

Stripping out currency impacts, revenue climbed 7.9%, and AB InBev turned in a particularly strong performance in Mexico. Those results, along with a dividend increase, helped shares close up 1.2% in Brussels on Friday. 

The company is working to complete a proposed $104.2 billion takeover of SABMiller PLC, the world's No. 2 brewer. AB InBev wants to tap into SABMiller's strength in Latin America and Africa to further its strategy of turning Budweiser, Stella Artois and Corona into global beer brands that rival soft drinks like Coca-Cola and Pepsi in their ubiquity. 

Beer has historically been a local business with the bulk of volume coming from local brands, but AB InBev has been steadily increasing sales of Budweiser in markets including China and Brazil. 

The brewer's total volumes in the third quarter rose 1.5%, driven largely by Stella Artois, Budweiser and Corona, which increased volume 12% during the period. 

Asked on a call with analysts about the opportunity for those brands in Africa and Latin America, AB InBev Chief Executive Carlos Brito said: "We believe this is a great portfolio to go and conquer the world.…We believe beer has been a very local-type business different than any other consumer goods out there, so we think there's an amazing opportunity for us to drive three global brands." 

Buying SABMiller would help AB InBev contend with slumping beer demand in some developed markets, especially in the U.S. and Brazil, two regions that have made up roughly half of the company's sales. That trend isn't likely to let up, with U.K. beer-research firm Plato Logic estimating that the global beer market will shrink this year for the first time in 30 years. 

Mr. Brito called the company's third-quarter performance in the U.S. "disappointing" and said officials are working on new marketing and packaging for Bud Light. The company hired Wieden + Kennedy as the brand's new advertising agency in July and will release new ads next year. Mr. Brito added that the brand "could be better managed." 

In Brazil, the company's second-largest market, AB InBev reported a 3.5% increase in beer volumes, albeit from a weak performance in the year-earlier quarter. High-price imports like Budweiser and Stella Artois and more expensive beers like Skol Beats Senses increased to 9% of total volume in Brazil from 6% a year ago, helping the brewer boost revenue in a market experiencing its deepest economic downturn since 2008. 

In Mexico, AB InBev's volumes rose 12% behind strong sales of Corona, Victoria and Bud Light. Mr. Brito said the company is trying to boost sales of Bud Light in the market, where the brand costs about 50% more than domestic beers. Stronger sales of Bud Light in Mexico could also boost demand for the brand among U.S. Hispanics.