Glass half empty
The hangover in the drinks business is not as bad as first feared. Anheuser-Busch InBev’s second-quarter results on Thursday were hammered by bar closures but the decline in sales was less steep than analysts had forecast. Celebrations are, however, premature.
The world’s biggest brewer’s sales fell nearly 18% in the second quarter from a year earlier but there was an improvement over the three months. Volumes declined by 32% in April and fell by 21% in May. But in June, they rose 0.7%. That rebound was partly due to replenishing of inventories.
The reopening of bars and restaurants will lift demand in the third quarter but the experience of South Africa, where a second ban on alcohol sales was implemented in July, shows the scale of the coronavirus challenges still facing Chief Executive Carlos Brito. He took a $2.5 billion non-cash impairment charge on the Budweiser maker’s Africa business which was only partially offset by a $1.9 billion gain from selling operations in Australia.
Rules on travel and regional lockdowns are in a constant state of flux in Europe. Jurisdictions such as Britain, are insisting on social distancing in bars, pubs, and clubs. Nor are people returning in droves given concern about a second wave of infections. This will limit the number of pints sold.
Brito deserves credit for investing in e-commerce channels and producing more low alcohol products, which are more popular for drinking at home. But the risk of lower long-term growth is worrying for a company that is still heavily indebted after its 2016 acquisition of SABMiller. Brito reckons net debt of $87 billion amounts to close to 5 times normalised EBITDA, making a long-term target of 2 times EBITDA look unrealistic without further divestments. Any such sales would be marred by depressed asset prices. Real cheer is a long way off.