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AB InBev’s Net Profit Plunges In FY2020

Beer. Source: Flickr

AB InBev is one of the world’s largest beverage brewers.

Its beverage products range from alcoholic such as beers to non-alcoholic such as energy as well as soft drinks.

AB InBev’s sales totaled as much as $47 billion USD in FY2020.

Additionally, AB InBev also generates tonnes of free cash flow.

The latest figure was $17 billion in FY2020, after taking into account the company’s net cash from operations and investment.

In this article, we will look at AB InBev’s profitability.

The profitability metrics that we will explore include AB InBev’s gross profit, operating profit, profit before tax, net profit and earnings per share.

Therefore, let’s take a look.

AB InBev’s Gross Profit

AB InBev's gross profit

AB InBev’s gross profit

* Gross profit is based on the IFRS accounting measure and is obtained from AB InBev’s half-year and annual financial reports.
* TTM figures are calculated by adding the quarterly data on a trailing 12-month or 4-quarter basis.

Let’s first look at AB InBev’s gross profit on a half-year basis for the period from FY2016 to FY2020.

According to the chart, AB InBev’s TTM gross profit topped out at $35.5 billion in 2Q 2018 and began to decline after that.

As of 4Q 2020, AB InBev’s gross profit declined to only $27 billion on a TTM basis, the lowest level the company has ever seen since FY2016.

For your information, AB InBev merged with SABMiller back in 2016 and hence, the significant rise in gross profit from FY2016 to FY2017.

However, competitions from other breweries, craft beers, in particular, have slowly eaten into AB InBev’s profitability and AB InBev’s gross profit was seen steadily declining over the last few years, driven primarily by lower sales and production volumes.

AB InBev’s Operating Profit Before Non-Recurring Items

AB InBev's operating profit before non-recurring items

AB InBev’s operating profit before non-recurring items

* Operating profit before non-recurring items is a non-IFRS accounting measure and is obtained from AB InBev’s half-year and annual financial reports.
* According to AB InBev, non-recurring items are either income or expenses which do not occur regularly as part of the normal activities of the company.
* TTM figures are calculated by adding the quarterly data on a trailing 12-month or 4-quarter basis.

For operating profit before non-recurring items, it is almost similar to operating profit except that certain items, including impairment charges, COVID-19 related costs, restructuring, etc. are excluded during the measurement.

According to AB InBev, the operating profit before non-recurring items is meant to provide investors a proper understanding of the company’s underlying core operation after adjusting for these incomes or expenses.

All told, AB InBev’s operating profit before non-recurring items experienced a similar pattern as the gross profit where the TTM figures topped out in the same quarter at $18 billion before slowly declining to about $12.7 billion in 4Q 2020.

Similarly, AB InBev’s merger with SABMiller back in FY2016 has subsequently raised the company’s operating profit before non-recurring items significantly.

Despite being a larger conglomerate, AB InBev still succumbed to the competition of craft beers in subsequent years.

As a result, AB InBev’s TTM operating profit before non-recurring items has steadily declined and reached its lowest level at slightly below $13 billion as of 2020 Q4.

Again, AB Inbev’s lower operating profit has been primarily driven by the decreasing sales and production volumes over the years.

AB InBev’s Operating Profit

AB InBev's operating profit

AB InBev’s operating profit

* Operating profit is an IFRS accounting measure and is obtained from AB InBev’s half-year and annual financial reports.
* TTM figures are calculated by adding the quarterly data on a trailing 12-month or 4-quarter basis.

After considering all operating expenses, including the excluded non-recurring items, AB InBev’s operating profit reached only $9.6 billion as of 2020 4Q on a TTM basis.

Additionally, AB InBev’s TTM operating profits were nearly 40% below its FY2019 result, at only $10 billion and $9.6 billion in 2020 2Q and 2020 4Q, respectively.

The poor results in FY2020 were most likely driven by the COVID-19 disruptions, including stay-at-home orders, which have seriously affected not only the supply chains but also the demand for beverages.

AB InBev’s Profit Before Tax

AB InBev's profit before tax

AB InBev’s profit before tax

* Profit before tax is an IFRS accounting measure and is obtained from AB InBev’s half-year and annual financial reports.
* TTM figures are calculated by adding the quarterly data on a trailing 12-month or 4-quarter basis.

AB InBev is loaded with debt.

As such, there are significant numbers of finance costs such as interest expenses, both recurring and non-recurring, associated with AB InBev’s indebtedness.

After accounting for these expenses, AB InBev’s profit after tax reached only $2 billion in 4Q 2020 on a TTM basis, one of the lowest since FY2016.

Prior to 4Q 2020, AB InBev’s TTM profit before tax was even lower at only $1.2 billion in Q2 2020.

As seen from the chart, AB InBev’s profit before tax fell off the cliff in FY2020, as much as a 90% decline compared to FY2019.

AB InBev’s Profit Attributable to Stockholders

AB InBev's net profit

AB InBev’s net profit

* Profit attributable to stockholders is an IFRS accounting measure and is obtained from AB InBev’s half-year and annual financial reports.
* TTM figures are calculated by adding the quarterly data on a trailing 12-month or 4-quarter basis.

AB InBev’s profit attributable to stockholders is also referred to as the net income or net profit available to AB InBev’s stockholders.

This figure is measured after adjusting for taxes incurred and profit attributable to non-controlling interest.

That said, AB InBev’s net profit or net income totaled only $1.2 billion and $1.4 billion on a TTM basis in 2Q 2020 and 4Q 2020, respectively.

One thing worth mentioning is that AB InBev’s net profit pattern does not look exactly the same as the one seen in gross and operating profits.

According to the chart, AB InBev’s TTM net profit reached its peak figure at $9.2 billion in 4Q 2019 before being reduced to a little more than $1 billion in 2Q 2020.

The decline was sudden and brutal in the sense that AB Inbev’s net profit was nearly wiped out in FY2020 compared to FY2019.

Fortunately, AB InBev’s TTM net profit managed to recover to $1.4 billion as of 2020 4Q.

AB InBev’s Earnings Per Share (EPS)

AB InBev<'s earnings per share

AB InBev<'s earnings per share/p>

* EPS is an IFRS accounting measure and is obtained from AB InBev’s half-year and annual financial reports.
* TTM figures are calculated by adding the quarterly data on a trailing 12-month or 4-quarter basis.

AB InBev’s earnings per share or EPS reached $4.53 in Q4 2019 before being significantly reduced to $0.57 in Q2 2020.

AB InBev’s earnings per share recovered slightly to $0.69 as of Q4 2020 on a TTM basis.

Similarly, AB InBev’s EPS was nearly wiped out in FY2020, driven mainly by the COVID-19 disruptions and reduced demand for its flagship beverage products.

Conclusion

AB InBev is a profitable company and made tonnes of profits even during the rampage of the COVID-19 pandemic.

In FY2020, AB InBev still managed to make more than $1 billion in net profit despite being negatively impacted by the COVID-19 outbreak around the world.

However, AB InBev’s underlying core operations have weakened quite considerably in FY2020 as seen from the 40% declined in operating income compared to FY2019, the worst drop the company has ever seen.

Even before the arrival of COVID-19, AB InBev’s underlying core operations have already started to crack, driven primarily by the increasing popularity of craft beers.

The COVID-19 pandemic has further reduced AB InBev’s profitability.

In this case, AB InBev’s profitability was seen falling off the cliff in FY2020.

References and Credits

1. Financial figures in all charts above were obtained and referenced from AB InBev’s annual and half-year statements available in AB InBev Financial Results.

2. Featured image was used under Creative Common Licenses and obtained from N i c o l a and Roger W.

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