The novel coronavirus has hit Anheuser-Busch InBev (NYSE:BUD) particularly hard. With a rally off March lows fading, Anheuser-Busch stock now is down more than half so far in 2020.
It’s a more stunning decline than an investor might think. Excluding travel, financials and retailers, BUD has been the worst large-cap stock of 2020.
And it’s not as if Anheuser-Busch stock roared into the year. Shares did post a nice rally in 2019 — but off a six-year low reached the prior December. Heading into 2020, BUD still was nearly 40% below 2016 levels.
There are both short- and long-term reasons for the selling pressure. But before last week’s earnings report, I argued that Anheuser-Busch stock was a buy if it retested March lows. We’re getting close to those lows. At this point, and after earnings, I believe Anheuser-Busch stock is a buy.
A Short-Term Hit
Unquestionably, Anheuser-Busch is taking a short-term hit from coronavirus-driven fears. As I noted earlier this month, the company is getting a boost in off-premise (takeaway) sales. Data from Nielsen showed a nearly 10% increase over four weeks.
Of course, the off-premise business is getting slammed worldwide. Bars, restaurants, stadiums and other venues are closed. Sales have fallen so far that there are legitimate concerns about how brewers will dispose of stale beer.
The impact was seen in BUD’s first-quarter report last week. Revenue declined 5.8% for the quarter. But volume actually was up 1.9% in the first two months. Given higher pricing, revenue grew even faster.
Indeed, revenue per hectoliter rose nearly 4% in the quarter. That suggests that revenue in January and February was up close to 6% — while March sales fell in the range of 25%. The news for April was worse: a 32% decline in global volume.
Unsurprisingly, adjusted earnings (what Anheuser-Busch calls “underlying profit”) fell 30% year-over-year in Q1. The second quarter will be worse. The problem with the brewing industry is that costs don’t come down all that much along with volume. The brewery still needs to operate; labor savings are minimal. Even gross margins fall when volumes come down.
And so this crisis in 2020 is a multibillion-dollar problem for Anheuser-Busch. There’s no two ways about it.
Longer-Term Worries
Again, that comes after Anheuser-Busch stock already had its struggles. The rise of craft beer worldwide created literally thousands of new competitors. The number of breweries in the U.S. alone almost doubled between 2014 and 2018.
As a result, sales for BUD and other mega-brewers have stalled out. Indeed, Molson Coors (NYSE:TAP) has seen its stock fall even further, and its shares are retesting an 11-year low.
In addition to the pressure on the industry, Anheuser-Busch’s acquisition of SABMiller put tens of billions of dollars in debt on the balance sheet. So, it’s not a surprise that BUD stock struggled even before the current crisis.
The Case for Anheuser-Busch Stock at the Lows
All that said, price matters. Value matters.
And I’d keep this in mind: Anheuser-Busch stock has lost a stunning $65 billion in market value so far in 2020.
Again, the short-term hit is significant in terms of lost sales and profits. But it’s not $65 billion significant. It’s nothing close to that.
And as far as the long-term impact goes, I’m skeptical it’s all that negative. Normalcy will return. Bars and restaurants already are starting to reopen, if cautiously so.
Many craft competitors unfortunately won’t do the same. What we’re seeing in sectors like tech is a realization that size and scale are enormous benefits in a time of turmoil. Anheuser-Busch has that size and scale.
Elsewhere in the beverage industry, investors seem to have that understanding. Coca-Cola (NYSE:KO) estimated a global volume decline of 25% for the first three weeks of April. Its stock is down just 21% this year, a performance some thirty points better than that of BUD.
Kraft Heinz (NASDAQ:KHC) is another consumer giant with heavy leverage. Its shares are down 10% YTD. Boston Beer (NYSE:SAM) stock actually has soared, and sits at an all-time high.
To be sure, I’m not arguing that BUD stock should be positive amid the crisis. I’m not even convinced that Anheuser-Busch stock should be tracking Coke.
But, again, outside of the hardest-hit sectors, BUD has been the worst large-cap stock of 2020. I simply don’t think the long-term outlook supports that kind of decline. Investors will figure that out soon enough.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
