Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- EBITDA increased by 10.2% with margin expansion in all five operating regions.
- Underlying dollar EPS grew by 25%, indicating strong profitability.
- Revenue grew by 2.7% this quarter, with revenue per hectoliter increasing by 3.6%.
- Net leverage improved year-over-year to 3.42 times, showing better financial health.
- Strong performance in key markets like North America, Middle Americas, South America, Europe, and Africa, with record high volumes in some regions.
Negative Points
- Overall volume declined by 0.8%, primarily due to performance in Argentina and China.
- Revenue in China declined by 15.2% this quarter, impacted by a soft industry and adverse weather.
- Negative revenue per hectoliter in Europe due to geographic mix and phasing of promotional activities.
- Concerns about the weakening of the Brazilian real and the Mexican peso, which could impact future financial performance.
- Continued economic pressure and challenging consumer sentiment in China, affecting overall performance.
Q & A Highlights
Q: It's encouraging to see the sequential margin improvement this quarter. Does this give you confidence that margin recovery is sustainable over the coming years? Are the drivers more at the gross margin level or the SG&A level?
A: Fernando Tennenbaum, CFO: The margin improvement of 236 basis points in Q2, with expansion in all five operating regions, is promising. Historically, SG&A has been flattish, and margin contraction was mainly at the gross profit level due to variable cost escalations. We expect future improvements to be more at the gross profit level.
Q: How has BEES improved execution and consistency of delivery in Mexico? What would you miss if you didn't have BEES?
A: Michel Doukeris, CEO: BEES enhances direct communication with points of sale, personalizes sales proposals using data, and optimizes promotional activities. Without BEES, we would lack these efficiencies and the ability to gather real-time feedback from 3.8 million connected customers.
Q: Can you provide more detail on the US business, including market development, portfolio rebalancing, and cost adjustments?
A: Michel Doukeris, CEO: The US beer market remains resilient, with beer outperforming wine and spirits. Our above-core portfolio now represents 45% of revenue. Brands like Michelob ULTRA and Busch Light are performing well. We continue to invest in productivity and optimize our business.
Q: What is your outlook for China, especially going into Q3? Are you confident about volume growth in the back half of the year?
A: Michel Doukeris, CEO: The first half of the year was challenging due to economic pressures. While H2 has easier comps, we need more data to predict volume growth. We remain committed to long-term investments in China, focusing on premium and super-premium brands.
Q: Should we expect marketing spend as a percentage of sales to grow as you push premium more? How concerned are you about the weakening of the Brazilian real and Mexican peso?
A: Michel Doukeris, CEO: We are satisfied with our current marketing investment levels, focusing on effectiveness and leveraging digital platforms. Fernando Tennenbaum, CFO: While FX and commodity costs have been volatile, we are still building our hedges for 2025. It's too early to predict the exact impact.
Q: What are the main areas of uncertainty or risks that could affect your performance in the second half of the year?
A: Fernando Tennenbaum, CFO: We aim for consistent 4% to 8% EBITDA growth long-term. While some quarters may be easier or more challenging, we remain confident in our strategy and do not adjust our outlook quarterly.
Q: Can you provide perspective on the competitive environment in Brazil and your strategy there?
A: Michel Doukeris, CEO: Brazil remains competitive, but our portfolio is strong, with brands like Brahma, Spaten, and Budweiser. We are less exposed to the value segment and focus on premium and super-premium brands, supported by digital platforms like BEES and Ze Delivery.
Q: How much have you invested in commercial execution in South Africa, particularly at the premium end?
A: Michel Doukeris, CEO: We have a strong portfolio in South Africa, investing across all segments. Our brands like Carling, Stella Artois, and Corona are performing well, driven by strong consumer demand and effective execution.
Q: Do you think RTDs are taking share from beer or spirits? What drove the US gross margin expansion in Q2?
A: Michel Doukeris, CEO: Data shows 80% of RTD volume comes from spirits and wine, with only 20% from beer. Our brands Nutrl and Cutwater are growing significantly. On gross margin, productivity improvements in logistics, production, and back-office operations contributed to the expansion.
Q: What factors could influence whether you hit the lower or higher end of your EBITDA growth guidance in the second half?
A: Fernando Tennenbaum, CFO: Continued momentum in Africa and Latin America, potential FX headwinds, and the impact of the Summer of Sports on marketing spend are key factors. We remain confident in our long-term strategy and market dynamics.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
