The world’s largest brewer halved its dividend Thursday. The U.S. Federal Reserve’s interest-rate increases are roiling the emerging-market currencies in which it makes roughly two-thirds of its sales. For the third quarter, adjusted earnings before interest, taxes, depreciation and amortization rose 7.5% year over year in local currency but fell 6.5% in dollars. The meager harvest has prompted AB InBev to redirect profit toward lightening the debt burden it shouldered in the $ 100 billion-plus acquisition of Anglo-South African brewer SABMiller in 2016.
Budweiser, and beer in general, continues to decline in the U.S., but this isn’t as big a problem for AB InBev as it was before the megadeal. In the first nine months, the U.S. and Canada contributed under 30% of the group’s total normalized Ebitda. In fact, Budweiser at a global level is a bright spot in the company’s portfolio following a huge marketing push in the soccer World Cup. Budweiser revenue grew 6.4% overall and 9.3% outside the U.S.
A bigger problem in the foreseeable future is the group’s big businesses in Brazil, Argentina and South Africa, all of which have been hit hard as capital has flowed back to the U.S. Heineken, the other big global brewer, currently is performing much better, thanks to its skew toward Europe, which enjoyed a hot, thirsty summer. Heineken sold 4.6% more beer in the third quarter, AB InBev just 0.2% more.
The dividend cut is sensible, but it makes clear the risk associated with AB InBev’s unusual combination of high leverage with emerging-market exposure. There is a reason big consumer groups with comparable franchises, such as Unilever, are cautious about their balance sheets. With no sign that the Federal Reserve plans to deviate from its chosen path of raising interest rates, whatever President Trump says, it is hard to see the situation changing soon.
AB InBev’s shares fell almost 10% Thursday. That could prove an overreaction for an astutely run company. The dividend yield will still be 2.8%, and the stock now trades at a big discount to Heineken’s, having long fetched a premium. But bargain hunters need to think in years, not months.
Write to Stephen Wilmot at email@example.com