Slumping sales in Brazil, U.S. drag down results, raising scrutiny of beer megamerger

By Maarten van Tartwijk and Mike Esterl

Anheuser-Busch InBev NV cut its revenue forecast for the year after the world's largest brewer reported weak third-quarter results, dragged down by surging financing costs and slumping sales in Brazil and the U.S.

The worse-than-expected performance ratchets up investor scrutiny of AB InBev as it races to digest its $100-billion-plus takeover earlier this month of chief rival SABMiller PLC -- a massive bet that it can tap new growthin Africa and other emerging markets.

The Belgium-based maker of Budweiser, Corona and Stella Artois said Friday it now expects growth in revenue per hectoliter to be in line with inflation, after it previously forecast growth ahead of inflation.

Sales volumes declined 0.9% and revenue fell 2.3% to $11.11 billion in the three months ended Sept. 30, compared with a year earlier. Profit plunged to $557 million from $1.38 billion, pulled down by expenses from the SABMiller acquisition and foreign-exchange losses.

The results didn't include SABMiller's operations. The acquisition closed Oct. 8.

AB InBev's shares traded down 3.8% to $116.84 on the New York Stock Exchange.

Third-quarter volumes fell 5.1% in recession-wracked Brazil, despite Latin America's largest country hosting the Olympic Games in August. Operating profit sank 33%, with about half of the decline tied to hedging losses after the local currency weakened.

"We continue to be very bullish about the country, but this year has been one of the toughest we've seen in a long time," Chief Executive Carlos Brito told analysts on a conference call.

AB InBev isn't alone, despite spending heavily on marketing as an Olympic sponsor. Soft-drink giant Coca-Cola Co., another Olympic sponsor, reported its Brazilian sales volumes dropped by a mid-single-digit percentage in the third quarter.

AB InBev also struggled to retain drinkers in the U.S., its biggest market. Revenue declined 0.3% as volume dropped 2.5%. Much of that was fueled by a mid-single-digit volume decrease in Bud Light, the country's top-selling beer, as Americans drop mainstream lagers for smaller "craft" brands.

Mr. Brito said AB InBev is shifting in Brazil toward returnable glass bottles, which cost less for consumers. In the U.S., the company expects Bud Light sales to improve through its National Football League sponsorship, including the rollout of team-themed cans this fall.

The SABMiller acquisition will reduce AB InBev's exposure to Brazil and the U.S. while expanding its footprint in fast-growing Africa and other markets including Colombia, Peru and Australia.

AB InBev has signaled it could take years before SABMiller is fully integrated -- a process that could lead to thousands of job losses -- and that one of its priorities will be to reduce the large amount of debt incurred to finance the deal.

The company said Friday its net interest expense rose to $881 million in the third quarter from $338 million a year earlier, mainly tied to bond placements to finance the SABMiller acquisition. It also reported a negative mark-to-market adjustment of $594 million related to currency hedging of U.K.-based SABMiller's purchase price after the British pound weakened against the dollar.

Excepting the heavy financing costs, SABMiller's operations would have provided a lift in the third quarter. AB InBev said the parts of SABMiller it isn't shedding had revenue of $3.15 billion in the period, up 5% without foreign-currency effects, nearly double AB InBev's 2.8% organic revenue growth, nearly double AB InBev's 2.8% organic revenue growth. SABMiller's organic revenue in Africa rose 10% to $1.46 billion.

Write to Maarten van Tartwijk at maarten.vantartwijk@wsj.com and Mike Esterl at mike.esterl@wsj.com

(END) Dow Jones Newswires

October 29, 2016 02:48 ET (06:48 GMT)

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