I’ve selected these two new buys for this week for one specific reason—merger mania. What we’re seeing is a consolidation of the global beverage companies. The big guys are eating up the smaller guys and everyone is winning. The biggest gainers will be companies that have strong footholds in emerging markets. This is where the growth is and thus this is where we’ll see solid bids for small companies and increased sales for acquiring companies. With that in mind, here are the details of today’s two new trades.
This week we’re buying Belgium’s Anheuser-Bush InBev (NYSE:BUD). The company produces, markets and distributes beer in Latin America, North America, Europe and in the Asia Pacific region. There are actually 200 beer brands under the BUD umbrella including Budweiser, Stella Artois, and Beck’s.
On Friday, BUD announced that it purchased the remaining stake in Mexico’s Grupo Modelo (PINK:GPMCF) for $20.1 billion in cash. Grupo Modelo is the producer of Modelo, Pacifico and Corona, the last of which is the top-selling import beer in the U.S. and will fit well into InBev’s product lineup.The combined companies will save $600 million per year by combining their respective operations.
In the first quarter, InBev’s sales rose 3.7% to $9.33 billion compared with $9 billion in the same quarter a year ago.During the same period, the company’s earnings surged 73.8% to $1.69 billion or $1.06 per share compared with $964 million or $0.61 per share—which represented a 15.4% earnings surprise.Looking forward to the second quarter, the analyst community is expecting earnings per share of $1.11 per share, which represents a 13.3% projected earnings gain. The company is making solid acquisitions and has the brand recognition to make it a solid gainer in the coming weeks.
Our second buy is Britain’s Diageo PLC ADS (NYSE:DEO), and this company is into the harder stuff. DEO brands include Johnnie Walker scotch whiskies, Smirnoff vodka and Smirnoff ready to drink products, Baileys Original Irish Cream liqueur, Crown Royal Canadian whisky, Captain Morgan rum, Jose Cuervo tequila and the list goes on to include beer and wine selections.
In the first quarter, the company’s sales rose 6% compared to the same quarter a year ago.Sales in Latin American led the way with an 18% rise, followed by Africa with a 10% sales gain and a 10% in the Asia-Pacific region.Its North American sales were up 5%, but there was a 1% sale decline in Europe.For its current quarter, the analyst community is expecting Diageo to have a 7.2% sales gain.
The company is benefitting from its rapid growth in emerging markets and the acquisition fever in the wakes of InBev’s buyout of Mexico’s Grupo Modelo.There is no doubt that Latin America and other emerging markets remain the hot spot for growth in alcoholic beverages, so those companies with strong market share in emerging markets, like Diageo, represent potential acquisition targets.