AB InBev: culture war triggers Bud flight from diverse stock

Summer heralds the start of peak US beer drinking season. Warm weather and barbecues are traditionally accompanied with cold beers. The four months between May and August can generate anywhere between 35 and 40 per cent of total annual beer sales.

One brewer has little to raise a glass to. US conservatives are angry with Anheuser-Busch InBev, the Belgian company behind Budweiser. They object to a Bud Light marketing campaign that featured a transgender influencer.

The furore has hit Bud Light sales hard. They declined 24.3 per cent year over year in the week ending May 20, ​​according to Bump Williams Consulting, citing NielsenIQ data.

The stock has lost a fifth of its value — or $22bn — since the first week of April, when the controversy began. AB InBev shares now trade at about 16 times forward earnings, down from 20 times two months ago.

The debacle is ironic. AB InBev wanted to broaden its appeal to millennials and the LGBT+ community because traditional customers are drinking less beer.

Beer consumption in the US has been in steady decline. Last year, it fell 2.7 per cent to 21.5bn litres, according to drinks market consultancy IWSR. At AB InBev, beer volume in North America fell 4 per cent in 2022.

AB InBev’s woes have been a boon for rivals. Shares in Molson Coors, the Canadian brewer behind Coors and Carling, are up by a fifth since early April. Constellation Brands, which owns the brand licence for Corona and Modelo in the US, has gained 11 per cent during the period.

AB InBev investors should not jump ship just yet. Molson’s business is concentrated in the mature markets of Canada, Britain and the US. AB InBev can count on a strong emerging markets presence that counters sluggish growth in western markets. The company is also more profitable than Molson. Its normalised ebitda margin, at 33.5 per cent is about twice that of Molson’s.

Investors should ponder the possibility that AB InBev shares will bounce back when a silly row over a frothy marketing campaign has been forgotten.