Analysts Weigh In On Anheuser Busch Earnings, Dividend Cut

Shares of Anheuser Busch Inbev BUD fell Thursday following the company’s third-quarter earnings release and decision to cut its dividend in half to compensate for rising debt.

The Analysts

• Bank of America analyst Paul Steegers reiterated an Underperform rating and a price objective of 1,190 ZAR or $81.80.
• Macquarie Research analyst Caroline Levy reiterated an Outperform rating and a price target of $82.22.
• Morgan Stanley analyst Olivier Nicolai reiterated an Overweight rating and a price target of 100 Euro or $113.80 USD.

Shares of Anheuser Busch traded around $74.61 at time of publication, down 9.2 percent.

Earnings Data

The company reported third-quarter earnings of 82 cents per share, 20 cents below consensus. Organic revenue of 4.5 percent fell below the Street’s estimate of 6.2 percent.

North American organic sales of 1.4 percent were above analysts' expectations of 1 percent, but fell to the 1.9 percent consensus.

“As we expected, the AB InBev Board has approved a 50% dividend cut to help with its deleveraging goals,” Levy said.

Global Performance

While shipments in North America improved and caught up on depletions, Brazil volumes fell 3.3 percent. The results from both South Africa and Mexico demonstrated Heineken’s strong volume performance that incited a drive of market share, according to Steegers.

Bank of America think the stock will continue its downtrend, despite the dividend cut.

Dividend Cut

The official cut resulted in the new dividend yield of 2.5, which falls in line with global peers, according to Nicolai.

“This will save $4.2bn and will allow ABInbev debt to come down by $7bn per year versus $2.5bn previously. We expect net debt to EBITDA to reach 4.4x in FY18e and 3.9x in FY19e, which should secure its A- credit rating.”

Both share buybacks and dividend growth will return to the docket once the company makes progress towards debt payoff, Nicolai said.

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