Stocks to sell

Why Investors Should Steer Clear of This Beleagured Beer Stock BUD Stock

Anheuser-Busch InBev (NYSE:BUD) closed its $113 billion acquisition [pg. 45] of SABMiller on Oct. 10, 2016, a little over seven years ago. In that time, BUD stock has lost approximately 58% of its value. 

In 2015, Anheuser-Busch finished the year with $43.6 billion in revenue, while its normalized profit was $8.5 billion for a respectable 19.5% net margin. It ended 2017 — after fully integrating SABMiller — with $56.4 billion in revenue. Fast forward to 2022. The world’s largest beer maker had $57.8 billion in revenue and $6.5 billion in normalized profits.

So, BUD spent $113 billion to buy SAB. For this magnificent outlay, shareholders got 4.1% annual revenue growth (compounded) and a $2 billion reduction in normalized profits. 

No wonder its shares are in the toilet. 

This is just one reason you should steer clear of BUD stock.

The Bud Light Backlash

This whole so-called backlash began on April 1 of this year. People weren’t happy that a transgender woman was promoting a Bud Light contest. All kinds of conservatives were calling for the boycott of its beer, including musician Kid Rock. 

There have been all kinds of estimates about the losses Anheuser-Busch has faced due to the boycott. Between April and July, according to Nielsen data compiled by Bump Williams Consulting, Bud Light’s U.S. retail sales fell by 25-30% in those four months.

Anheuser-Busch has completely whitewashed away any LBGTQ+ references in its marketing, opting to play it safe. 

“One, they want to enjoy their beer without a debate. Two, they want Bud Light to focus on beer. Third, they want Bud Light to concentrate on the platforms that all consumers love, such as the NFL and music,” he said. “We are taking the feedback and working hard to earn our consumers’ business,” The Associated Press reported Anheuser-Busch CEO Michael Doukeris’ comments in the company’s August analyst earnings call.

He’s admitting that even though most Americans are fine with the brand, the company is going to cater to a minority of beer drinkers who happen to have a particular opinion about the LBGTQ+ community. 

That’s just bad business. 

CNN Business mentions the figure of $395 million. That’s the decline in revenue in North America during the second quarter. Because revenues rose in Canada, CNN argues that the losses in the U.S. could have been higher. I’ll buy that.  

A misleading headline from Investor’s Business Daily in May suggested that the boycott cost the company $15.7 billion. It didn’t cost the company $15.7 billion; it cost shareholders, who’ve seen the value of their shares fall by that amount since April 1, when the boycott began. 

But let’s assume that the Bud Light boycott cost the company $1 billion in revenue. That’s 1.7% of its 2022 revenue. It can get that back with another multi-billion-dollar acquisition. 

What no one wants to admit at Anheuser-Busch is that brands like Modelo Especial have outperformed it. For the CEO to back peddle on such an important social issue makes you wonder what else he wouldn’t have a problem compromising about.

Perhaps watering down its beers more than they already are.

Too Many Crappy Beers

The headline said it all. Procter & Gamble to Streamline Offerings, Dropping Up to 100 Brands. The date was Aug. 1, 2014

P&G was trimming many brands that were taking up shelf space and not driving revenue growth. They would focus on the 80 brands that generated 90% of sales and 95% of profits. 

“This new streamlined P.&G. should continue to grow faster and more sustainably and reliably create more value,” The New York Times reported CEO A.G. Lafley’s comments at the time. “Importantly, this will be a much simpler, much less complex company of leading brands that’s easier to manage and operate.”

Are you following where I’m going with this? The company got bigger by spending $113 billion on SABMiller, but it didn’t necessarily get better. Not by a long shot. 

According to its website, it has more than 500 brands. However, if you look at its 2022 annual report, it focuses on its key brands in each geographic location. I counted 38 brands over six regions worldwide. 

What’s the point of the other 462+?

Do you know how beer tends to bloat you? Anheuser-Busch is bloated. It has 175 major breweries across 50 countries. That’s an impressive array. But is it necessary?

Craft beer became a thing because companies like Budweiser cared less about quality and more about quantity.   

In case you’re wondering, PG stock is up 83% since it announced its new strategy in August 2014. BUD stock during the same period is down 50%. 

Run as fast as you can away from Anheuser-Busch InBev.    

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

Articles You May Like

Hedge funds performed better under Democratic presidents than Republican ones, history shows
Greenlight’s David Einhorn says the markets are broken and getting worse
AI’s Dark Horse Could Become Its Crown Jewel Under Trump
Cathie Wood says her ‘volatile’ ARK Innovation fund shouldn’t be a ‘huge slice of any portfolio’
Caligan picks up a stake in Verona Pharma, seeing an opportunity to generate more value