AB InBev Signals Profitability Gains Will Slow as Sales Shrink

Anheuser-Busch InBev NV, the world’s biggest brewer, signaled that profitability gains stemming from the $52 billion takeover that formed the company will be harder to come by.

Chief Financial Officer Felipe Dutra, speaking after the brewer reported earnings today, said the Leuven, Belgium-based brewer of Stella Artois won’t match its first-half margin increase in the second half of the year, and expects no “short- term improvement” for the stagnant beer market.

The shares fell as much as 5.1 percent today, the most since April. AB InBev’s first-half profit beat analysts’ estimates as the company paid less for brewing ingredients and advertising after buying Budweiser maker Anheuser-Busch Cos. last year. Optimism about the deal’s cost-cutting potential has helped the shares triple from their low in November, when AB InBev announced a stock sale to repay debt.

“The shares have come a long way from a terribly depressed level, and it is clear that the quantum of improvement from here is likely to be less,” said Rob Mann, an analyst at Liberum Capital in London. “There is still plenty left to happen, though. The story isn’t over.” He recommended that longer-term investors buy the shares on today’s weakness.

Manufacturing and advertising cost cuts helped the company eliminate $315 million of expenses in the second quarter, bringing first-half savings to $610 million. AB InBev is targeting $1 billion in savings this year and $2.25 billion within the first three years of the Anheuser acquisition.

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Profitability, as measured by ebitda margin, widened 7.5 percentage points to 37.9 percent on the merger savings and falling prices for brewing ingredients.

AB InBev shares fell 1.28 euros cents, or 4.4 percent, to 27.53 euros at 12:25 p.m. in Brussels trading. The stock reached a low of 10.32 euros on Nov. 24, when the company revived a share sale to pay short-term debt from the takeover.

Sales and marketing expenses fell in the first half of the year because of declining media rates in the U.S., the brewer said. In western Europe, the brewer cut $82 million of marketing expenses, savings that may not be repeated in the latter half of the year. link....