Anheuser-Busch InBev NV (BUD) Gets Accused of Watering Down its Beers After Reporting Robust Earnings
Shares of Anheuser-Busch InBev NV (BUD: Analysis), the largest brewer in the world, came under pressure last week despite reporting fairly robust earnings. For its fourth quarter, Anheuser-Busch - best known for its Budweiser, Bud Light, Stella Artois and Beck's brands - reported a 4.9% decline in profit from $1.85 billion to $1.76 billion.
The company blamed changes in financing, increases in derivatives and unfavorable exchange rates for a loss of $400 million, which partially offset gains from aggressive cost-cutting initiatives. Meanwhile, revenue rose 8.8% to $10.3 billion, which the company attributed to price hikes which were implemented to compensate for lagging sales volume - a strategy which contributed to a 10.7% increase in operating profit. Daily Chart
Anheuser-Busch now relies on international sales for over half of its annual revenue. The company forecasts a weak start for 2013 in Brazil, where it controls 68.5% of the market with major brands Skol, Brahma and Antarctica. The softness in Brazil was attributed to an earlier Carnival in Rio de Janiero, which took place between February 9 and 12, coinciding with rainier weather. The company has been attempting to expand further into Latin America by taking over the half of Mexican brewing giant Grupo Modelo that it does not already own for $20.1 billion. However, the attempt was thwarted by the U.S. Department of Justice, which believed that acquiring Grupo Modelo, the manufacturer of Corona, would give it an unfair advantage over its competitors. In response, Anheuser-Busch InBev announced that it would sell the U.S. distribution rights to Corona to its smaller rival Constellation Brands, in exchange for being allowed to acquire full control of the brand overseas. Sales volume in China, the company's third largest market, rose 1.9%. Its flagship brand Budweiser became the best-selling overseas "premium" beer in the country. Over half of the company's Budweiser sales are now generated from outside the United States. Meanwhile, the United States, its most profitable market, posted its first sales volume gain since 2008. The company claims that its American "market share is showing signs of stabilizing." However, the company's U.S. subsidiary, Anheuser-Busch, was recently hit by a lawsuit from U.S. consumers who claimed that the company was watering down its beers, such as Budweiser and Michelob, to lower its actual alcohol content and to cut costs. The class-action lawsuits, spread out across Pennsylvania, California, and other states, seek millions of dollars in damages from the company. The claims are not unsubstantiated - they originate from former employees at the company's 13 breweries, including several people in high-level plant positions. The plaintiffs claim that the secret cost-cutting measure reduces the stated alcohol content by 3% to 8%. Anheuser-Busch has rigorously defended itself against these charges, and taken to social media outlets such as Facebook (FB
) and Twitter to address the public. The company claims that the lawsuit is "groundless" and posted links to several lab studies proving the alcohol content of its disputed products. Whatever the outcome, the unflattering spotlight on the company is generating some negative PR for the company. Shares of Anheuser-Busch InBev NV trade at 19.4 times forward earnings with a 5-year PEG ratio of 3.22, suggesting that although shares appear undervalued, slow growth may be on the horizon. The stock pays an annual dividend of $1.56 per share - a 1.65% yield at current prices. Other News About BUD Anheuser-Busch Accused of Watering Down Budweiser
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Published on Mar 4, 2013
By Leo Sun