AB InBev's Plans on Track: Can It Retain Momentum?

Anheuser-Busch InBev SA/NV BUD, alias AB InBev, has seen its shares rise in the past three months ahead of its industry peers and the broader sector. The momentum in the share price results from the company's undaunted focus on lifting its brands through continued efforts to offer beer variants, a strategy that is in sync with consumers' premiumization trend in the alcohol industry.

Premiumization refers to the growing consumer demand for premium alcohol products. This led alcohol makers to adopt the premiumization strategy to bolster their premium portfolio. AB InBev is no exception to this trend. The premiumization of the beer industry has been a key growth opportunity for AB InBev.

BUD has been investing in developing a diverse portfolio of global, international crafts and specialty premium brands in its markets. Notably, the company's global brands lead the way in premiumization.
BUD's above-core portfolio has been performing well for a while now.

Revenues for its above-core beer portfolio grew in the low-single digits in the first quarter of 2024, driven by strength in global brands and double-digit growth in other local megabrands like Leffe in Europe and Spaten in Brazil. The company's three global brands — Budweiser, Corona and Stella Artois — increased first-quarter revenues 5.2% year over year outside of their home markets, led by Corona, which improved 15.5%.

Share Performance

AB InBev's focus on premiumization has been well-reflected in its share price, with the stock outperforming the industry and the sector. Shares of this Zacks Rank #3 (Hold) company have gained 4.4% in the past three months against the industry's decline of 3.7%. The stock also fared better than the sector's rise of 3.5% in the same period.

Price Performance: BUD

Image Source: Zacks Investment Research

At the current price of $61.25, the stock trades at a 9.2% discount to its 52-week high of $67.49 reached on May 17, 2024. This indicates that the stock has further upside potential from here.

Additionally, AB InBev is trading above the 200-day moving average, indicating robust upward momentum and price stability. This technical strength reflects positive market perception and confidence in BUD's financial health and prospects.

Is AB InBev Well-Placed for the Long Term?

In addition to the premiumization efforts, AB InBev continues to witness positive business momentum on accelerated digital transformation, expansion of the Beyond Beer portfolio and other revenue-management initiatives. These efforts collectively position the company for growth in the long term.

AB InBev is committed to investments in new capabilities to better connect with customers and consumers. Its digital platform has been rapidly growing, leveraging technology, such as B2B sales and other e-commerce platforms, including BEES and Zé Delivery. The company is witnessing an acceleration in the B2B platforms, e-commerce and digital marketing trends, aiding top-line growth.

BUD's digital transformation initiatives have been on track, with B2B digital platforms contributing about 70% to its revenues in the first quarter. The company noted that the monthly active user base of BEES reached 3.6 million users as of the end of first-quarter 2024, reflecting year-over-year growth of 16%. It captured $11.3 billion in gross merchandise value (GMV), up 23% year over year. Its omni-channel, direct-to-consumer ecosystem of digital and physical products generated $350 million in revenues in the first quarter.

AB InBev is steadfastly growing its Beyond Beer portfolio, including products like ready-to-drink beverages like Canned Wine and Canned Cocktails, Hard Seltzers, Cider and Flavored Malt Beverages. The Beyond Beer trend is gaining popularity due to the rise in demand for low-alcoholic or non-alcoholic drinks.

The Beyond Beer portfolio contributed $320 million to the total revenues in first-quarter 2024, with low-single-digit year-over-year volume growth. The rise was primarily driven by its spirit-based ready-to-drink and flavored malt beverage portfolios in the United States, and the expansion of Brutal Fruit in Africa.

Headwinds

AB InBev continues to face elevated costs from commodity cost inflation, investments to support long-term growth and increased operating costs. SG&A expenses rose 1.4% on an organic basis in the first quarter.

Conclusion

Despite the cost-related headwinds, AB InBev shows resilience and growth potential for the long term. Its unique commercial strategy, strong brand portfolio, premiumization efforts and investments in operational excellence bode well.

Stocks to Consider

We have highlighted three better-ranked stocks from the Consumer Staple sector, namely Vital Farms VITL, Vita Coco Company and Coca-Cola FEMSA KOF.

Vital Farms currently flaunts a Zacks Rank #1 (Strong Buy). VITL shares have rallied 77.2% in the past three months.

The Zacks Consensus Estimate for Vital Farms' current financial-year sales and earnings suggests growth of 22.6% and 62.7%, respectively, from the year-ago period's reported figures. VITL has a trailing four-quarter earnings surprise of 102.1%, on average.

Vita Coco presently carries a Zacks Rank #2 (Buy). COCO shares have rallied 26.7% in the past three months. The company has a trailing four-quarter earnings surprise of 25.3%, on average.

The Zacks Consensus Estimate for Vita Coco's current financial-year sales and earnings suggests growth of 3.5% and 40.5%, respectively, from the year-ago period's reported figures.

Coca-Cola FEMSA currently has a Zacks Rank #2. KOF shares have declined 9% in the past three months.

The Zacks Consensus Estimate for Coca-Cola FEMSA's current financial-year sales and EPS suggests growth of 11.9% and 26.7%, respectively, from the year-ago period's reported figures. KOF has a trailing four-quarter negative earnings surprise of 1.3%, on average.

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