The beverage industry has been growing amid stable demand, rising popularity of healthier options, and innovative flavors. However, as macroeconomic uncertainties remain, I think it could be wise to wait for a better entry point in Anheuser-Busch InBev SA/NV (BUD) and The Coca-Cola Company (KO) for reasons discussed throughout this article.
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s happening in the beverage industry.
According to Statista, beverage revenue is expected to increase at a CAGR of 14.6% to reach $62.46 billion by 2028. This growth can be attributed to various factors, such as the rising demand for healthier and functional beverages, increasing disposable income, and changing consumer preferences towards premium and innovative drinks.
However, the US beverage industry is facing a decline due to macroeconomic concerns, rising inflation, economic uncertainty, and pandemic-induced lockdowns, causing a reduction in discretionary spending and profitability.
Also, inflation caused Americans to reduce their discretionary expenditures. According to Statista, there is probability of 46.1% that the United States will fall into an economic recession by October 2024.
Customer behavior changes have reduced beverage companies' revenue, leading to potential layoffs. To adapt, companies are implementing cost-cutting measures, diversifying products, and focusing on marketing strategies.
Let’s delve into the fundamentals of the featured stocks.
Anheuser-Busch InBev SA/NV (BUD)
Headquartered in Leuven, Belgium, centuries-old BUD produces, distributes, and sells beer, alcoholic beverages, and soft drinks worldwide. It offers a portfolio of approximately 500 beer brands.
BUD’s trailing-12-month gross profit margin of 54.04% is 59.5% higher than the 33.89% industry average. However, its trailing-12-month asset turnover ratio of 0.28x is 67% lower than the industry average of 0.84x.
During the fiscal third quarter that ended September 30, 2023, BUD’s revenue rose 3.2% year-over-year to $15.57 billion. Its gross profit grew marginally from the prior-year quarter to $8.39 billion. Also, underlying profit attributable to equity holders of BUD and EPS increased 3.2% and 2.4% year-over-year to $1.74 billion and $0.86, respectively.
However, the company’s normalized EBIT declined marginally from the year-ago quarter to $4.03 billion. Its total volume declined 3.4% year-over-year to $151.89 billion.
Analysts expect BUD’s revenue to increase 4.8% year-over-year to $60.55 billion for the year ending December 2023. Its EPS is expected to decline 3.6% year-over-year to $3.04 for the same period. Over the past year the stock has gained 14.3% to close the last trading session at $63.06.
BUD’s POWR Ratings reflect this uncertain outlook. The stock has an overall rating of C, equating to a Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
BUD also has a C grade for Value, Momentum and Quality. It is ranked #25 out of 35 stocks in the Beverages industry. Click here for the additional POWR Ratings for Growth, Stability and Sentiment for BUD.
The Coca-Cola Company (KO)
KO is a beverage giant that operates through segments, including Europe, the Middle East, and Africa; Latin America; North America; Asia Pacific; Global Ventures; and Bottling Investments. It owns and markets five non-alcoholic sparkling soft drink brands, and its products are sold in more than 200 countries.
KO’s trailing-12-month gross profit margin of 59.14% is 74.5% higher than the 33.89% industry average while, its trailing-12-month asset turnover ratio of 0.47x is 43.3% lower than the industry average of 0.84x.
KO’s net operating revenues increased 8% year-over-year to $11.95 billion in the fiscal second quarter that ended September 29, 2023. Also, KO’s net income and net income per share increased 9.3% and 9.2% from the prior-year quarter to $3.09 billion and $0.71, respectively.
However, as of September 29, 2023, STZ’s total current liabilities stood at $24.41 billion compared to $19.72 billion as of December 31, 2022.
Street expects KO’s revenue to increase 5.5% year-over-year to $45.41 billion for the year ending December 2023. Its EPS is expected to grow 8.2% year-over-year to $2.68 for the same period. The stock has gained 4.1% over the past month to close the last trading session at $59.04.
KO’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall C rating, translating to a Neutral in our POWR Ratings system.
KO is ranked #15 in the same industry. It has a C grade for Growth and Momentum. Beyond what is stated above, we’ve also rated KO for Value, Stability, Sentiment and Quality. Get all KO ratings here.
What To Do Next?
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BUD shares were trading at $63.39 per share on Tuesday morning, up $0.33 (+0.52%). Year-to-date, BUD has gained 6.60%, versus a 22.19% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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