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What's going on?
Anheuser-Busch InBev (also known as AB InBev), the largest brewing company in the world, reported disappointing annual earnings and sales growth on Thursday and the stock took a tumble of 3%.
What does this mean?
AB InBev is in a bit of a pickle: its revenue fell while its costs went up, which is obviously not a nice combination. The company is blaming the nasty results on Brazil, its second largest market, which is going through a tough recession and political turmoil. Without the disappointing numbers from Brazil, the company would have posted rising profits during the fourth quarter and flat annual sales.
Why should I care?
For the stock: Investors havent seen the benefits of AB InBevs latest merger so far….
While Brazil might be the big bad wolf for AB InBev, Thursdays earnings report was pretty lackluster for the company overall. It was the first time that the company reported earnings after merging with SABMiller, a move that pushed up its market share in the global beer industry to 27%. Thursdays earnings report might appear disappointing, but some say that AB InBev might be front-loading all its bad news right now in order to beat research analysts expectations in upcoming quarters
The bigger picture: Companies cant cut costs forever.
Apart from the craft beer segment, beer hasnt been a high growth area in recent years. In order to drive profit growth, AB Inbev has long focused on cutting costs. That was one of the motivations behind its recent merger with SABMiller: combine operations and cut the overlapping costs to boost profits. The merger only took place last year, so the newly combined company likely has more fat to trim. But cutting costs isnt a sustainable strategy in the long-term eventually companies have to grow their sales, or their value will shrink.
Originally posted as part of the Finimize daily email.
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