What’s Going On Here?
Shares of AB InBev – the brewer behind Budweiser, Corona and more – got hammered late last week, after it announced weaker-than-expected earnings and lowered its forecast for the rest of the year.
What Does This Mean?
Investors had hoped to toast 3% profit growth in the third quarter, but were left feeling flat when ABI announced it’d only made as much as the same time last year. Much of that was ABI’s own doing: it raised prices in big beer-drinking countries like Brazil and South Korea – but neither economy’s doing particularly well, so charging champagne prices when consumers were on a beer budget led to fewer sales. And in China, ABI cut customers off from the promotional pricing it’d offered in the second quarter, leading to lowered demand this time around.
For the rest of the year, then, ABI doesn’t appear to be expecting demand to bubble back up: it lowered expectations for how much profit it’ll earn.
Why Should I Care?
For markets: AB InBev's stock tasted bitter.
One of the key reasons investors buy shares of consumer staples companies like ABI is because they’re sticky: people tend to keep buying their favorite beers even if the economy around them has had one too many. But since it seems customers aren’t able to stomach ABI’s price hikes, investors sold off their holdings and the stock fell by 10% (tweet this). Investors in ABI’s bonds might be worried too: the recent sale of its Asian unit may have given it some cash to pay off its $100 billion of debt, but the risk their investments won’t get repaid will climb anyway if the company earns less than expected.
The bigger picture: Not all Chinese spending…
Chinese consumers haven’t been spending on beer, but they have been spending: Gucci parent Kering reported that it’d offset sales lost amid the Hong Kong protests with sales from mainland China and the rest of Asia, helping overall revenue exceed expectations – and pushing its stock up 10% on Friday.
