BUD Anheuser Busch Inbev SA NV

By Saabira Chaudhuri 

Anheuser-Busch InBev SA cut its full-year guidance after a disappointing quarterly performance in the U.S. and China, sending its shares 10% lower and underscoring the challenges the Budweiser brewer faces despite moves to trim its enormous debt pile.

The world's biggest brewer has for years grappled with declining volumes in the U.S. -- its largest market -- as Americans abandon mainstream lagers such as Bud and Bud Light in favor of craft beers, spirits and nonalcoholic drinks. In response, AB InBev has tried to sell pricier beers in developed markets and increasingly is pushing deeper into emerging markets by launching new affordable brews.

But those efforts failed to stem the decline in the third quarter. Sales growth continued to slow in the U.S., while sales in China fell, hit by the government's moves to close nightclubs and karaoke bars. Demand was also lower in Brazil and South Korea as the company raised prices to offset higher costs.

Overall, organic revenue grew for the quarter came in at 2.7%, missing analysts' estimates of 4.7%. AB InBev -- which makes one out of every four beers globally and owns brands such as Stella Artois and Beck's -- also missed forecasts on volume growth.

Underlying profit, which strips out gains tied to hedging and the impact of hyperinflation, dropped to $1.87 billion from $2.19 billion. Net profit was $3 billion, up from $959 million. Revenue rose to $13.17 billion from $12.92 billion.

In addition to the disappointing sales, the company blamed its weaker quarterly earnings on higher commodity costs and marketing expenses as well as foreign-exchange headwinds, and said the issues would also hurt its full-year figures.

It now expects "moderate" rather than "strong" growth in earnings before interest, taxes, depreciation and amortization for the full year.

AB InBev has been working to reduce its debt, amassed after a string of acquisitions including SABMiller. It recently agreed to sell its Australia business and listed its Asia arm. On Friday, it said it was on track to hit a net-debt-to-Ebitda ratio of below four times by the end of 2019, a year earlier than it previously expected.

The SABMiller deal was a key part of the company's strategy to expand in emerging markets as volumes slow in the West.

AB InBev is shifting its focus from pushing pricier brands to launching affordable brands and packaging in emerging markets.

The company described the affordability strategy as "a vital component to reaching new consumers and introducing beer to new occasions." In Colombia, the company has been selling more one-liter beer bottles, in Brazil it is selling brands made with ingredients grown by local farmers, and in Ecuador it launched a new one-liter returnable glass bottle to keep prices down.

However, these efforts mean the company is generating less revenue from each beer sold. AB InBev said revenue per hectoliter grew 3% in the quarter, compared with 4.2% a year earlier. For the full year, it said growth by that measure would be slightly below inflation, having previously expected growth above inflation.

Volumes again dropped in the U.S., where AB InBev lost 0.85 percentage point of market share in the quarter. The rising popularity of hard seltzer hurt the company, which is still developing its portfolio of low or no-sugar hard seltzer brands. The company plans to soon launch a new hard seltzer brand, Bud Light seltzer.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

(END) Dow Jones Newswires

October 25, 2019 08:58 ET (12:58 GMT)

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