Wrapup 1: AB InBev bucks series of gloomy earnings in troubled booze sector
01/08/2024 12:38
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AB InBev investors cheer Q2 results after rivals miss
forecasts
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All alcohol companies cautious on outlook
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Tough economies, bad weather among factors weighing on
sector
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Long-term, shift to healthier drinking threatens some
companies
By Emma Rumney
LONDON, Aug 1 (Reuters) - Anheuser-Busch InBev ABI.BR
on Thursday outshone rival alcohol companies which had struck a
downbeat tone in their quarterly results, but even the top
brewer was cautious amid low consumer confidence, bad weather
and emerging market turmoil.
Forecast-beating profits at the world's largest brewer by
volumes cheered investors after a series of missed forecasts and
warnings of trouble ahead from other beer and spirits companies.
Shares in Diageo DGE.L , the world's top spirits maker,
fell more than 9% to a four-year low on Tuesday after the
company warned serious challenges endured in its most recent
financial year could persist into the next.
Heineken HEIN.AS shares also dropped by nearly as much on
Monday, when the No.2 brewer said poor weather in Europe had
hurt its performance and meant it would achieve lower annual
operating profit growth than analysts expected.
AB InBev's volumes and revenues also missed estimates and
the Belgian company maintained its full-year forecast for
between 4% and 8% core profit growth despite exceeding
expectations in the second quarter.
Its caution may be a sign of the challenges facing all
alcohol companies. Tough economic conditions in many markets
have left some under-pressure consumers cutting back on drinking
or swapping expensive labels for cheaper ones.
SPIRITS SUFFER
Spirits makers especially have faced a serious downturn
after a post-pandemic boom in sales, where cash-flush consumers
splashed out on expensive booze. Pricier labels are now instead
gathering dust on shelves around the world.
Some investors said the shift had shown the companies' core
strategy - shifting drinkers towards more expensive products -
was more vulnerable to economic conditions than previously
thought.
Consumers were resistant to further price increases,
thinking twice before buying bottles of liquor and switching to
cheaper products, Moritz Kronenburger, a portfolio manager at
Germany's Union Investment said.
He added that while likely temporary it was unclear how long
this would last.
In emerging markets like Mexico, Diageo has been losing
market share as some drinkers swap international spirits for
local brands with Mexican heritage.
Heineken meanwhile has been struggling in Vietnam amid tough
economic conditions and stricter drink-driving laws. AB InBev
was also hit by bad weather in China, as well as spiralling
sales in inflation-hit Argentina, dragging volumes down.
GEN Z DRINKS LESS?
Longer-term, some investors wonder whether a shift to
healthier lifestyles could dent sales as people cut back on
alcohol. Gen Z in particular is thought to drink less.
Diageo Chief Executive Debra Crew said that while Gen Z
consumers in the United States have a preference for moderation,
data shows they are spending more on spirits than millennials at
the same age.
That could mean they are more likely to buy a few cocktails
rather than drink beers. That for now appears to work more in
favour of spirits companies, said Fred Mahon, fund manager at
spirits investor Church House.
Church House has, however, sold out of beer stocks,
concerned that such trends are driving a long-term decline in
beer volumes in key markets like the United States, where a
large number of blue collar workers used to fuel consumption,
Mahon said.
"People don't have those careers as much, their children
might work in an office in a city - it is just a different
environment."
(Reporting by Emma Rumney; Editing by Emelia Sithole-Matarise)
((Emma.Rumney@thomsonreuters.com; +447391409253;))