Shares of American brewing company Anheuser-Busch were plummeting after the company reported third quarter results and declared that it would cut its dividend by 50%. Shares sank to a six-year low on the report.
The world’s biggest brewer reported $0.82 earnings per share for the quarter, missing the consensus estimate of $0.86. Revenue of $13.28 billion for the quarter was also lower than the expectations of $13.74 billion. Anheuser-Busch’s beer sales had fallen 1.5% to retailers and 0.5% to wholesalers during the quarter.
“In the last six months, we’ve seen a lot of [currency] volatility,” said Chief Financial Officer Felipe Dutra to reporters according to Reuters. “This scenario triggers some sort of uncertainty and at a certain point … we thought it was the right time to adjust the dividend.”
Regarding the cut dividend, “AB InBev’s debt sticks out like a sore thumb,” said Jonathan Fyfe, an analyst at Mirabaud Securities earlier this month. Fyfe has a buy recommendation on the stock. He added, “The board is motivated to keep the dividend but there is a genuine question mark over whether that is really in the best interests of the company.”
Bank of America analyst Paul Steegers reiterated an Underperform rating and a price objective of $81.80 while Macquarie Research analyst Caroline Levy reiterated an Outperform rating and a price target of $82.22. “As we expected, the AB InBev Board has approved a 50% dividend cut to help with its deleveraging goals,” Levy remarked.
Morgan Stanley analyst Olivier Nicolai reiterated an Overweight rating and a price target of $113.80 USD.
CEO Carlos Brito said on the earnings call, “In the US, we’re facing a shrinking beer industry, as beer loses share of throat through wine and spirits. Major consumer trends, such as premiumization, health and wellness, along with demographic changes in the population are causing a segment mix shift within beer. While our Above Premium brands are accelerating growth and gaining share at a rapid pace, our portfolio in the US is still heavily weighted to segments in the industry that are under pressure. As a result, despite delivering a positive share of segment performance, we have not yet been able to fully offset the negative impact of the segment mix shift resulting in an overall loss of market share.”
He added, “As the first step in our path to revert these trends, we mapped our brands using the category expansion framework. This allowed us to understand, where we are well positioned with our uniquely strong brand portfolio, while also identifying key white spaces and opportunities for growth.”
“2018 has been a year for innovation in the US with three very successful launches: Bud Light Orange, brewed with real orange peels; Michelob Ultra Pure Gold brewed with organic grains; and the limited-edition Budweiser Reserve series. These innovations are driving incremental growth to our portfolio, with all three making it to the top 15 share gainers in the US year-to-date and incremental growth for the category, as we respond to evolve — evolving consumer needs,” Brito continued.
“Overall, while we’re seeing encouraging signs, we acknowledge there is still work to be done. But we believe we had the right strategy, the right portfolio and, more importantly, the right people in place to achieve our goal of sustainable top line growth in the US.”