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Can AB InBev (BUD) Return to Earnings Beat Trend Amid Woes?

Anheuser-Busch InBev SA/NV BUD, also known as AB InBev, is slated to release first-quarter 2019 results on May 7. In the last reported quarter, it delivered negative earnings surprise of 30.4%.

Moreover, the company reported earnings miss in 10 out of the last 12 quarters.  It recorded average negative surprise of 9.5% in the trailing four quarters. The Zacks Consensus Estimate for the first quarter is pegged at $1.50, reflecting year-over-year growth of 105.5%. Moreover, estimates remained unchanged in the last seven days.

The Zacks Consensus Estimate for total revenues of $12,550 million reflects a decline of 4% year over year. While the company has been witnessing improving trends in key markets and continued premiumization in most of its markets, higher marketing expenses and soft beer sales in the United States remain deterrents to top and bottom-line growth.

How Things Are Shaping Up for This Announcement

AB InBev, like most of its peers, is suffering from the industry-wide decline in beer sales as it holds the top spot in the beer industry, controlling about one-third of the global beer market. The primary reason for soft beer sales in the United States has been the shift of consumers to healthier drinking options, which resulted in consumers gravitating to wine and drinks like sparkling water. This shift has caused lower volumes at its flagship Budweiser and Bud Light brands, which continue to lose market share. In 2018, Budweiser and Bud Light lost 35 basis points (bps) and 80 bps of the total market share, respectively. We expect the persistence of softness in beer sales to impact top and bottom-line performance in the first quarter of 2019.

Furthermore, higher cost of sales due to increased commodity prices also remain a threat to the bottom line in the upcoming quarterly release. The company projects cost of sales per hl to increase in a mid-single digit in 2019, with currency and commodity headwinds to be offset by cost management initiatives.

It is also witnessing increases in cost base, mainly owing to aluminum globally, and freight costs in the United States, which should affect results.

Nonetheless, the company’s three global brands like Budweiser, Corona and Stella Artois are poised to display growth again in the first quarter, backed by improving trends in key markets and continued premiumization in the majority of its markets.

While AB InBev sees volatility in certain key markets, it anticipates delivering strong top-line and EBITDA growth for 2019, with the help of solid brand performance and robust commercial plans. Driven by increased focus on category development, it expects to deliver balanced top-line growth between volume and revenue per hl.  Net revenue per hl growth is likely to exceed inflation while costs (sum of cost of sales and SG&A) are expected to come below inflation. Premiumization and revenue management initiatives are likely to aid revenue per hl growth.

Though the stock has surged 4.7% in the past month, it underperformed the industry’s growth of 5.8%. This reflects a negative sentiment on the stock ahead of earnings.


What the Zacks Model Unveils

Our proven model does not conclusively predict earnings beat for AB InBev this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

AB InBev’s Earnings ESP of 0.00% and Zacks Rank #3 (Hold) make surprise prediction difficult.

Stocks Poised to Beat Earnings Estimates

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to deliver an earnings beat:

The Estee Lauder Companies Inc. EL has an Earnings ESP of +0.77% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Keurig Dr Pepper, Inc KDP has an Earnings ESP of +1.08% and a Zacks Rank of 3.

Campbell Soup Company CPB has an Earnings ESP of +1.80% and a Zacks Rank #3.

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