Brewers maintain their outlook as consumers drink less
And Brewers Been Prices Have Surging Expenses To Production Ingredient Raising Offset
Three of the world’s biggest brewers are confident they can hit profit targets this year even as drinkers in many parts of the world pull back on buying beer following a prolonged period of inflation.
Budweiser-maker Anheuser-Busch InBev and Carlsberg A/S stuck to their forecasts yesterday and separately announced share buybacks in a sign of confidence that any dip in consumer sentiment will not last long. Last week, Heineken also held the line on profit and said demand will gradually recover, noting that in half of its markets volume trends are already starting to improve.
Brewers have been raising prices to offset surging ingredient and production expenses but it can be a delicate balancing act as some consumers have been cutting back on discretionary purchases as they face higher mortgage payments and energy costs.
AB InBev, the maker of Budweiser and Stella Artois, reported a 5% jump in revenue in the third quarter, almost entirely driven by higher beer prices. Revenue per hectolitre, a measure of pricing power, rose 9% during the period, the company said. Volumes fell more than expected, however, hit by the fallout of a US marketing controversy and a wet summer in Europe.
The Leuven, Belgium-based company still expects earnings to rise 4% to 8% this year and announced a share buyback, sending a message that the “company views its share price as attractive and points to balance sheet repair,” according to Edward Mundy, an analyst at Jefferies.
It’s a similar story at Carlsberg, the maker of Tuborg, which maintained a full-year target of 4% to 7% operating profit growth and announced a new 1 billion kroner (€134.74m) share buyback, despite volumes falling twice as much as analysts expected. Overall revenue per hectolitre rose 9% as Carlsberg increased prices.
Beer volumes at Heineken fell by 4.2% in the third quarter as shipments to key markets including Vietnam, Nigeria and much of Europe declined, while premium beer volumes fell even further.
Heineken Chief Executive Officer Dolf van den Brink pointed to turbulent conditions and said it’s remaining vigilant on costs as “inflation-led pricing is tapering.”
In a sign that brewers may have hit peak pricing power, while all three companies have maintained their outlook, none have tightened fairly broad target ranges even though there are only two months left to the fiscal year. AB InBev’s “lack of narrowing of the guidance range points to the volatile external environment,” said Mundy.
Carlsberg held its profit outlook steady as there’s still a question mark about the strength of the consumer, Ulrica Fearn, Carlsberg’s chief financial officer said on a call with analysts.
“Generally the consumer environment is the biggest uncertainty out there, which is why we kept the range,” she said.
Carlsberg is increasing its commercial investment spending, including marketing for the rest of the year to help accelerate growth, said CEO Jacob Aarup-Andersen, who took charge in September. He said the company’s costs are still rising heading into 2024 and “as a consequence we do not expect to see price declines".