Nov 062018

Recently announced third-quarter results for ABI showed that; once again, the company’s depletions are down -1.5%.   ABI’s market share also continued to decline this quarter -.5%. This all equates to a year-to-date market share loss of -.45%.  Even with all the cutting and consolidations that ABI has done in recent years, their debt exceeds $100 billion!

ABI also announced that they will be cutting their dividends by 50%, thus saving four billion dollars per quarter to pay down the aforementioned debt.  The markets’ response to ABI’s announcement was a 40% drop in the beer giant’s stock value.

Is the clock ticking on Carlos Brito?  Regardless of the fact that under Brito’s leadership, AB has lost millions of barrels in volume and market share, it is the financial results that have afforded Brito the ability to be the darling of Wall Street and his shareholders.  The industry knows all too well that Brito’s cost-cutting measures and aggressively price increases have produced great financial results and returns for the company.  The question is, now what?

Brito has accomplished this position by buying large beer companies and applying ABI’s cost-cutting measures and pricing tactics.  In recent years, AB, Modelo, and SAB Miller have all gone down Brito’s path.  Perhaps Brito has run out of beer companies to buy and costs to cut.

Diageo is not going to sell Guinness. And for generations, Carlsberg and Heineken have been tied into a family and will not sell.  While nothing is certain, it is safe to say that these companies have no interest in selling to ABI.  What else is there?  There are still some nice breweries out there, including the six million Hectoliter Krombacher, but that, too, is family owned.  Unless ABI jumps deeply into China’s breweries, there is nothing with significant volume remaining to be purchased.

What about Pabst?  Since Pabst is a virtual brewery, adding that volume to the declining volume of AB would certainly help with the latter’s excess brewing capacity.  Pabst’s portfolio, however, does not fit ABI’s strategy.  ABI, not known for effective brand marketing, would up-selling Pabst’s products resulting in accelerating ABI’s declining volume even more.  In addition, ABI might violate their DOJ agreement regarding the purchase of more U.S. companies.

How does Brito increase shareholder equity, make his board happy, and reduce ABI’s debt for future expansion?  What if Brito sells all or part of AB in the U.S.?  Why not?  When ABI acquired Modelo, brand rights were sold to Constellation Brands in the U.S., similar to the situation in which Miller was sold to MolsonCoors when they bought SAB.  By selling the U.S. market, ABI could retire the debt, AB stock would soar, and ABI would be in a much stronger position to buy Coke or Pepsi!

In the end, Brito is not going to continue doing what he is doing now. His make-up will not let him.  He will, however, do something to move the needle for his board and selling AB in the U.S. might just be the icing on the cake!  Sound crazy, well nobody thought AB would ever sell either!

Egotism is the anesthetic that dulls the pain of stupidity.


 Posted by at 5:00 am

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