Anheuser-Busch InBev SA (BUD, Financial) is a prominent global brewing enterprise renowned for its stature as one of the largest companies in the industry. Within its portfolio, Anheuser-Busch possesses a collection of well-known brands, including Stella Artois, Beck's and Budweiser.
Recently, there has been significant activity surrounding its shares following a marketing campaign that was launched in March. While Anheuser-Busch frequently partners with various celebrities and social media personalities to promote its beer, the partnership with this particular influencer triggered both backlash and praise from different groups.
Regardless, the recent decline in Anheuser-Busch's stock price presents an attractive entry points for new investors. Market experts suggest the sell-off has subsided and they believe the controversy will have a limited impact beyond the United States.
A controversial marketing campaign, investor concerns and reputational damage
It is uncommon for a marketing campaign to impact stock prices so significantly, but the recent drop is attributed to the social media influencer controversy. Investors are concerned about the negative coverage and how the company has handled the situation, as it could potentially damage its reputation. Moreover, with several boycotts of Anheuser-Busch brands, there is a possibility of adverse effects on revenue.
Assessing the precise influence of news coverage on the company's financial performance remains premature at this stage. However, Anheuser-Busch has performed well over the past year. In its latest report, the company achieved record full-year volumes, resulting in an 11.2% increase in revenue compared to 2021.
Considering the company's substantial revenue of $57 billion last year, it is difficult to foresee how boycotts alone can significantly impact its finances. Anheuser-Busch operates globally, selling its beer brands in various markets, which helps diversify its business and mitigate the fallout from the marketing campaign. The negative repercussions appear primarily concentrated in developed markets like the U.S.
Financials and outlook remain solid
Anheuser-Busch has exceeded market expectations with its impressive performance in the first quarter. The company reported non-GAAP earnings per share of 65 cents and revenue of $14.21 billion during this period. In addition to these impressive figures, Anheuser-Busch achieved a notable 13.6% increase in normalized Ebitda and a 33.5% expansion in its normalized Ebitda margin. The company's robust operational efficiency and adept cost management strategies are reflected in these financial indicators.
Despite a decline in Bud Light sales during the quarter, Anheuser-Busch remains confident the impact on its second-quarter results will not be severe. This optimism stems from the company's diversified portfolio of over 500 brands, which ensures a robust revenue stream. Among these brands, Bud Light is a major contributor, generating an impressive $5 billion in annual revenue. Such diversification helps mitigate the impact of any individual brand's performance fluctuations.
Anheuser-Busch's financial strength and market dominance are evident in its substantial market share. As a wide moat company, it holds over 28% of the global market share, showcasing its strong competitive position. Furthermore, its sound balance sheet fortifies the company's financial stability, underscoring its solid position.
One notable achievement for Anheuser-Busch is its successful debt reduction following the acquisition of SABMiller in 2016. The company has reduced its debt burden by an impressive $40 billion through efficient financial management and strategic decision-making. This reduction improves the company's financial health and increases its ability to invest in future growth opportunities.
Anheuser-Busch's consistent generation of approximately $8 billion in free cash flow each year further highlights its financial resilience and ability to fund ongoing operations, research and development and pursue strategic initiatives. This stable cash flow allows the company to seize opportunities for innovation, expand its product offerings and drive sustained growth in the highly competitive global beer market.
The dividend is safe
Anheuser-Busch may not be trading at its lowest point, but it still presents an attractive opportunity for value investors. With a forward price-earnings multiple of just above 18 times, it aligns with the average of the S&P 500 of 19.29 times. Further, its trailing price-earnings ratio of 15.61 is relatively modest compared to its pre-bear market levels.
The company's robust and diversified business, featuring popular brands like Budweiser and Stella Artois, deserves a higher premium. Investing in the beer industry offers stability, and Anheuser-Busch InBev has demonstrated above-average revenue growth in recent quarters.
While its dividend yield of 1.44% may seem modest, when combined with its reasonable valuation, Anheuser-Busch becomes an excellent income-generating investment for long-term shareholders. The company's free cash flow in the previous year amounted to $8.1 billion, which exceeded its dividend payments of $2.4 billion by more than three times. Investors can derive confidence from the safety of the company's dividend payments thanks to a low payout ratio of just 18.3%.
Takeaway
In conclusion, there is potential for Anheuser-Busch to return to its previous success. Despite facing short-term challenges, the company can bounce back in the future. Meanwhile, investors can take advantage of the recent decline in its share price.
With a strong business, a diverse range of popular brands and promising financial indicators such as a reasonable valuation and secure dividend payments, Anheuser-Busch presents an enticing opportunity for value-oriented investors seeking long-term growth potential.
