Anheuser-Busch Inbev Earnings Call Nuggets: Distribution Cost, Q1 in the U.S.

On Monday, Anheuser-Busch Inbev SA ADR (NYSE:BUD) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared with investors and analysts.

Distribution Cost

Melissa Earlam – UBS: I had a question on your comment regarding the U.S., and the fact that distribution cost in part stepped up because of your increase in wholly-owned distribution. Last time you commented on this in early March, you said that 8% of your U.S. volumes went through wholly-owned distribution. Can you give us an update on that percentage and what extent has that benefited revenue per hectoliter in any way in North America?

Carlos Brito – CEO: Melissa, Brito here. What we can say is that with the Oregon, in Oklahoma, the acquisitions are WD or company-owned distributors, participations growing. I don’t have a number here to give it to you, but it’s ahead of 8% for sure. That increases likewise when we acquire in Brazil, so at the same time increases our cost of distribution, but also increases the net revenue per hectoliter. Our distribution costs in the U.S. were also affected by other things, mainly by Platinum. Platinum was much more successful than our initial plans and because it’s only produced in a few breweries, 3 out of 12, that of course has a huge implications in terms of getting products across the country and of course higher fuel costs which you all know was high at the pump. So, when you take all those three things that pretty much explain the increase in distribution cost for North America.

Melissa Earlam – UBS: Just as a follow-up can you quantify to what the impact of increasing WOD had on the 4.3% revenue per hectoliter?

Carlos Brito – CEO: No, we are not at this point giving that split, sorry, Melissa.

Q1 in the U.S.

Ian Shackleton – Nomura: I was asking for a bit more color around Q1 in the U.S. because from what we can see you obviously had some very strong shipments in January and February and yet by the end of March we got STWs and STRs moving into line. Was the pressure from wholesalers for them to stock down a bit and (equally) I’m asking because I am slightly surprised you are still guiding to weaker shipments in Q2 given the fact that STWs and STRs are in line in Q1 now?

Carlos Brito – CEO: Brito here. Shipping patterns in the U.S. were in line as I said in Q1. We are guiding since last quarter for softer once in Q2 and that’s because in the past we used to put a lot of emphasis in Q2 and that put a lot of pressure in our transportation cost. So, since last year we’ve been facing every year a bit differently the way we do in a quarterly basis and use the inventory in the system to counter that so we can avoid having peaks of demand in terms of trucking capacity when other companies are having similar demands for summer ramp ups. So, that’s why we have this different shipment patterns since last year we’ve been trying to manage that as opposed to just go with the peak in the second quarter.

Ian Shackleton – Nomura: But if you think about Q2, are you now suggesting that there would be further destocking throughout the industry with STWs weaker than STRs? It seems that the message I am taking away today.

Carlos Brito – CEO: No. What happens if you look at our – of course you’ve been looking at it – but if you look internally at our inventory throughout the system, at the end of March, it’s pretty much what we had last year. It’s slightly above, but you’re right, in January and February, it was in a relevant way above, but then March we started balancing that, and by the end of March, we can say, that’s pretty much in line with the inventory we had at the end of the first quarter last year. So this year, last year, pretty much in line.

Ian Shackleton – Nomura: If I’ll have just a follow-up quickly, Bud Light Platinum, how much of the Group share has been cannibalization of the existing Bud franchise do you think?

Carlos Brito – CEO: Too early to quality but early signs shows that of course there is some cannibalization within our brands because we have an important presence in this market. So, to be expected, though at a higher margin, so that’s important, there is also volume being sourced from other beer brands I think, more importantly from outside of beer categories. So all three are true.