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Anheuser-Busch Sees ‘Meaningfully’ Better 2021 as Beer Sales Recover. Why The Stock Is Falling.

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Anheuser-Busch InBev stock slipped more than 5% early on Thursday despite the world’s largest brewer forecasting “meaningfully” better earnings in 2021.

The company warned it would face margin pressures this year due to commodity prices and currency exchange rates – headwinds it experienced in the final quarter of 2020.

The Budweiser brewer saw signs of a recovery in the fourth quarter as revenue grew 4.5%, helped by 1.6% growth in beer volumes and prices also rising. The strongest recovery came in Mexico and Brazil.

However, earnings before interest, tax, depreciation and amortization (Ebitda) fell 2.4% to $5.07 billion, lower than the analyst consensus for a 1% drop. Ebitda margins contracted by 261 basis points to 39.7% as currency and commodity headwinds and an increase in higher-cost single-use cans by those drinking at home.

Full-year revenue declined 3.7% to $46.9 billion as total volumes fell 5.7%, driven by the impact of the pandemic, which forced bars and restaurants around the world to shut for large parts of last year. Full-year Ebitda fell 12.9% to $17.3 billion.

The first half of 2020 was very challenging for the world’s largest brewers but the lifting of restrictions in many parts of the world later in the year helped drive the beginning of a recovery.

Read:Investors Toast Carlsberg Stock With Dividend Hike and Share Buybacks on the Menu

AB Inbev said a shift in consumer habits to more drinking at home and its own response through e-commerce channels helped deliver beer volume growth of 2.2% in the second half.

The Belgian-based company, which also makes Stella Artois and Corona, sees 2021 top and bottom line results to “improve meaningfully” as people drink more and prices continue to rise as countries reopen. But the warning over margins, which fell 382 basis points to 36.9% in 2020, has seemingly concerned investors.

Year-end net debt, which has been a concern ever since the company bought SABMiller in 2016, of $83 billion was in line with the consensus. Its ratio of net debt to Ebitda was 4.8 times but the company has targeted deleveraging to around 2 times. The company declared a final dividend of €0.50 per share.

Read:Heineken Will Cut 8,000 Jobs After Earnings Miss

Looking ahead. The Belgian brewer seems certain 2021 will be better than 2020, and it’s hard to disagree. With the global vaccine rollout gathering pace, the beer sales recovery is likely to accelerate. However, the company’s outlook has produced cause for concern. Higher commodity prices, and the fact AB Inbev buys them in local currencies will particularly impact margins. While consumers wait for bars and restaurants to reopen, the higher costs associated with aluminum single-use cans will also remain a factor.

RBC Capital Markets analysts James Edwardes Jones said the company’s results were good but the main focus will be on the guidance for 2021.

“While the sales outlook is upbeat and seems to bode well for profit growth, there’s a warning that Ebitda margin will be under pressure,” he said. Edwardes Jones said he would have preferred the company pass on the dividend to focus on deleveraging but that the stock was a buy.

“We believe concerns surrounding AB Inbev’s leverage have been overdone and the shares are undervalued as a result,” he added.

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