BUD Anheuser Busch Inbev SA NV

By Saabira Chaudhuri 

Anheuser-Busch InBev SA reported lower quarterly profit that missed analysts' estimates and sent its shares down sharply, blaming higher costs and lost market share in the U.S. to hard seltzer makers.

AB InBev -- the world's largest brewer, with brands such as Budweiser, Bud Light and Michelob Ultra -- said its profit margins were hit by the highest annual increase in commodity and currency transaction costs in the past decade. It said consumers were trading down and spending less.

Shares in the brewer fell 9.5% in morning trading.

AB InBev's fourth-quarter net income dropped 75% to $114 million, from $456 million a year earlier. Revenue edged down 1.3% to $13.33 billion.

"Our performance in 2019 was below our expectations, and we are not satisfied with the results," said the company's management in a statement.

Volumes on an organic basis, which strip out acquisitions and divestitures, rose 1.6%. Input costs, though, rose 4.1%. Revenue per hectoliter increased 0.9%, compared with growth of 3.1% in the prior quarter. Earnings before interest, taxes, depreciation and amortization dropped 5.5% to $5.34 billion, a much sharper decline than the 1.9% analysts had expected.

In the U.S., its largest market, Budweiser and Bud Light continued to lose market share. The company indicated its rivals have done a better job of capitalizing on a shift to hard seltzers. The fizzy alcoholic drinks are booming in the U.S.

Hard seltzer and other seltzer-like products have a market share of 2.6% of all alcohol in the U.S., up from 0.85% a year earlier, according to industry tracker IWSR. The U.S. market is dominated by White Claw hard seltzer, owned by Mike's Hard Lemonade Co., and Truly Spiked & Sparkling, manufactured by Boston Beer Co.

AB InBev has rolled out its own hard seltzers but so far continues to lag behind the industry. Recently it began selling Bud Light seltzer, which it advertised at the Super Bowl. In August, it rolled out a low-cost Natural Light Seltzer, which has a higher alcohol content than many rival brands. Early last year, it relaunched an existing seltzer brand, naming it Bon & Viv.

In an interview with The Wall Street Journal, AB InBev Chief Executive Carlos Brito said the company would look to leapfrog rivals and dominate the hard seltzer category the way it came from behind to dominate craft beer.

But he said AB InBev won't launch dozens of seltzer brands and instead would look to gain 20% of the market with the three it already has. Unlike craft beer, hard seltzer as a category is driven by national brands, he said, which should make it easier for AB InBev to leverage its distribution network and scale to gain share.

Hard seltzers are growing in popularity with women and those who like wine and spirits, said Mr. Brito. The category, which brewers fold into their beer sales figures, has propelled beer industry sales back to growth in the fourth quarter after a long decline, he added.

"It's a way to broaden the category for sure, to start appealing to consumers who don't have beer as their preferred beverage," he said. "It solves many problems -- bloating, flavor, carbs, calories -- lots of things."

Michelob Ultra, a bright spot for many years now, continued to sell strongly. AB InBev said the brand has surpassed Coors Light, owned by rival Molson Coors Brewing Co., to become the country's No. 2 beer by retail sales behind Bud Light, citing data from industry tracker IRI.

For the current year, AB InBev said it expects earnings before interest, taxes, depreciation and amortization growth of 2% to 5%, with most of that delivered in the second half. Consensus analyst estimates for this were 5.7%. The coronavirus has resulted in lost revenue of $285 million for the first two months of the year, it estimated, adding that Ebitda will decline 10% in the first quarter, partly due to the virus.

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

(END) Dow Jones Newswires

February 27, 2020 06:49 ET (11:49 GMT)

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