AB InBev Defies Trend of Disappointing Earnings in Beverage Industry, Reports Reuters

By Emma Rumney

LONDON – Anheuser-Busch InBev has emerged as a strong performer compared to its rival alcohol producers, who reported disappointing quarterly results. However, even the leading brewer remains cautious in light of low consumer confidence and challenges in emerging markets.

The Belgian company’s profits exceeded forecasts, providing a boost to investors after several other beer and spirits manufacturers issued warnings about upcoming difficulties. Many consumers, facing a cost-of-living crisis, have reduced their alcohol consumption or opted for less expensive options.

Spirits manufacturers have particularly struggled following a sales boom post-pandemic, when consumers were more willing to spend on premium products. Now, those pricier items are sitting unsold on shelves globally.

For instance, shares of the largest spirits producer, Diageo, dropped more than 9% to a four-year low after it cautioned that serious challenges from its most recent financial year could extend into the future.

Similarly, Heineken’s shares fell significantly after the second-largest brewer noted that unfavorable weather conditions in parts of Europe had negatively impacted sales, resulting in lower-than-expected annual operating profit growth.

While AB InBev’s quarterly performance exceeded expectations, its overall volumes and revenue still fell short of estimates. The company maintained its full-year forecast for core profit growth between 4% and 8%, with the chief financial officer stating that this target range is intended for the medium-term and will not be adjusted quarterly.

He noted that while the positive trends observed in the first half of the year are likely to continue, challenges related to weather conditions and economic instability in certain markets could pose further difficulties.

SPIRITS SUFFER

Some investors believe the ongoing cost-of-living crisis has exposed vulnerabilities in spirits companies’ strategies, which have focused on encouraging consumers to purchase more expensive brands. Consumers are currently resistant to further price hikes, often choosing more affordable alternatives.

In emerging markets like Mexico, Diageo is reportedly losing market share as consumers increasingly favor local brands. Heineken is also facing difficulties in Vietnam due to economic challenges and stricter drink-driving regulations. AB InBev has been impacted by adverse weather in China and declining sales in inflation-stricken Argentina.

GEN Z DRINKS LESS?

Looking ahead, some investors are concerned that a generational shift towards healthier lifestyles may lead to reduced alcohol consumption, particularly among Generation Z, who are believed to drink less than previous generations.

However, according to Diageo’s Chief Executive, while this demographic in the United States tends to favor moderation, they are reportedly spending more on spirits compared to millennials at the same age. This trend suggests that Gen Z may prefer sipping cocktails rather than beer, which could be advantageous for spirits companies in the short term.

Despite this, Church House, a spirits investment firm, has exited the beer market, fearing that long-term trends indicate a decline in beer consumption in crucial markets like the United States, where traditional consumer bases are changing.

The shifting workforce landscape has led to fewer blue-collar jobs that once drove beer consumption, as many young people now engage in more office-based work, drastically altering consumption patterns.