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Quick Progress: ABI Boosts Margins, Cuts Costs, Saves Near $300 Mil, Gains Share in Q1

05-11-2009 - Vol. 40 / No. 9

ABI’s “normalized” EBITDA in North America in 1st qtr (including Labatt biz in Canada and pro forma figure for AB in Q1 08) jumped 32% to $1.4 bil. That’s thanks to 5.6% rev in-crease (on volume gain of just 0.1% in toto, 0.5% in US), cost cuts from AB’s Blue Ocean plan/zero-based budgeting and lower media/ad costs. AB didn’t report specific rev/bbl trend in US, but North American rev/bbl up 5.4% and ABI’s Ambev division separately re-ported 3.6% rev/bbl increase in Canada. So looks like US rev/bbl up close to Miller Coors’ reported 5.6% rev/bbl increase. Then too, while North American cost of goods sold/bbl up just 3.5%, Canadian COGS up 11.2%/bbl, so AB COGS up closer to 3%, vs. MC’s 5.3%. As result, ABI’s NA EBITDA margin expanded sharply, from 29.9 to 37.3. But ABI doesn’t expect to “show similar organic EBITDA margin expansion” for rest of yr because of more difficult comps, including lapping Bud Light Lime intro last yr and Blue Ocean savings realized in late 08, CEO Carlos Brito pointed out in conference call.

Asked about pricing in US going forward, Brito would give no guidance, but noted that pricing environment in US remains “very healthy,” that recent pricing actions holding. Brito acknowledged some trade down in US, from imports/crafts to mainstream and main-stream to value (subpremium), but mix changes so far have not had any negative impact on ABI’s numbers. Mktg spend was down 3% in North America in Q1, but Brito noted media rates “under pressure” and ABI has “made improvements on the non-working side” (those are mktg $$ that don’t work to drive sales, in InBev’s parlance). Changes “not affecting working dollars.” ABI “is not going to be shy” about mktg spend and will spend $$ neces-sary to “fuel market share growth” and brands like Bud Light Lime, Brito assured.

Overall, ABI reported EBITDA up 26% in 1st qtr to $2.8 bil. EBITDA margin increased from 28.6 to 34 and margins expanded in every zone. Revs rose 4.7% while cost of goods sold/bbl up just 2.5%. And operating expenses declined 6.5%. Did someone say these guys know how to cut costs? ABI got synergies of $295 mil alone in Q1, 90-95% in US. Meanwhile, ABI’s total organic volume grew 0.9% in 1st qtr. That beat SABMiller (-1%), Heineken (-6%), Carlsberg (-5%) and Molson Coors (-2.7%) same period. ABI gained share in 7 key mkts, including US, Germany, UK, tho lost share in China, Russia and Brazil. Then too, ABI “focus brands” (70% of volume, higher share of revs/profits) up 3.5%. Brito wouldn’t specify all focus brands -– they include Stella, Brahma, Skol, Bud Light and Harbin –- but described them as brands with most potential, best positioning and the ones ABI will “over-invest” behind. With Q1 report, ABI also announced sale of its Oriental brewery to KKR for $1.8 bil. Together with sale of Tsingtao stake, that’s $2.5 bil of asset sales so far. ABI still plans to sell “at least” $7 bil of assets by yr-end.