A-B InBev Q3 2012 earnings: Bud Light family up, Bud down, Shock Top and Stella surging

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A-B InBev reported its third quarter earnings on Wednesday with trends consistent with what we saw in the previous quarter.

Management comments:

In the United States:
• Volumes: Following three challenging years, the industry has shown encouraging
improvement in 2012, driven by good weather in 1Q12 and innovations throughout the year. We estimate that industry selling-day adjusted STRs declined by 0.4% in 3Q12, but grew by 0.3% in 9M12. The trend of our own selling-day adjusted STRs has also improved this year. Our STRs declined by 0.9% in 3Q12 but are down by only 0.2% in 9M12

Our market share trends also continue to show solid improvement, with estimated share, based on STRs, down by only 23 bp in 3Q12 and by 26 bp in 9M12. Share gains in the quarter were led by Bud Light Platinum and Bud Light Lime Lime-A-Rita which resulted in the Bud Light family gaining approximately three-quarters of a share point in 3Q12, reaching an estimated 21.5%. Michelob Ultra and our high-end brands also grew share, led by Stella Artois and Shock Top, the latter achieving growth in STRs of almost 70% in 9M12.

These gains were offset by share losses due to a decline in the value segment across the industry, as well as a decline in premium regular, including Budweiser
Shipments to wholesalers (STWs) were up 1.5% in the quarter and ahead by 0.1% in 9M12.

• Focus Brands: The Focus Brands strategy is working well in the US. STRs for the Bud Light family grew by 3.2% in 3Q12 and by 3.6% in 9M12, driven by Bud Light Platinum and Bud Light Lime Lime-A-Rita. Michelob Ultra STRs grew by 7% in both 3Q12 and 9M12, while Stella Artois STRs grew by 17% in 3Q12 and by 19% in 9M12. Budweiser STRs declined by 7% in 3Q12 and by 6% in 9M12, partly due to a shift in retail execution focus to our innovations

• Renovations and innovations: During the quarter we rolled out new 22oz bottle and 12oz bottle/18 pack presentations for Bud Light Platinum, to supplement the existing 6 and 12 packs. We estimate that the brand has achieved a market share, based on STRs, of over 0.9% since launch at the end of January.

Bud Light Lime Lime-A-Rita was rolled-out in April and has quickly become one of the fastest growing brands in the industry, second only to Bud Light Platinum. The brand has achieved over 80% distribution in the off-trade, achieving an estimated market share of over 0.4%, based on STRs, in 3Q12. Initial research shows that over 40% of the brand’s volume is being sourced from hard liquor and other beverages outside the beer category

• Revenue management: Revenue per hl remains strong, growing by 5.7% in 3Q12. This includes approximately 200 bp of favorable brand mix driven by the growth in Michelob Ultra, Bud Light Platinum, Bud Light Lime Lime-A-Rita, Shock Top, Stella Artois and our other high end brands, as well as consumer trade-up from our value brands. There was also some benefit from own distribution, which is partly offset by an increase in transport costs

We continue to see good momentum in our US business, supported by a solid
commercial plan, a healthy innovation pipeline and good revenue per hectoliter
performance. In the US we expect growth in STWs in 4Q12, with absolute STWs and STRs for FY12 closely aligned.

Budweiser:

• Budweiser global volumes remain healthy, growing by 6.2% in both 3Q12 and 9M12

  • In the United States, the Budweiser performance in 3Q12 was below our expectations although we continue to see encouraging brand consideration results in the important 21-27 year-old age group. We will continue to work hard to stabilize market share. In 3Q12 the brand was supported by both the “Budweiser Made in America” Music Platform and our enhanced Major League Baseball (MLB) programs. During the quarter we also renewed our sponsorship of MLB until the end of the 2018 season.
Stella Artois:

• Stella Artois grew by 5.0% globally in 3Q12, mainly driven by results in the US. In 9M12, Stella Artois is ahead by 0.7%

  • In the US, the brand continues to show strong growth with STRs up by 17% in 3Q12 and 19% in 9M12

Social media continues to increase its role in our brand development and consumer connection strategies, providing opportunities to forge deeper connections with our consumers. At the end of 3Q12 our brands had attracted 60 million fans to our social media pages and consumer databases, an increase of nearly 50% since the second quarter. Also during the third quarter, Budweiser became the largest social beer brand in the world. Many of our local champions have also emerged as the number one beer brand in their respective
markets, including Quilmes in Argentina, Skol in Brazil and Bud Light in the US. On October 9th, Bud Light crossed the 5 million Facebook fan mark and celebrated with a billboard in Times Square to thank the brand’s loyal fans.

Breweries:

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