We are removing AB InBev (BUD) from our Long Bias list. We added the company to the list two months ago as we saw improving trends internationally combined with the prospect for improving margin trends in the U.S. driven by accelerating price increases. The Bud Light marketing mishap shocked us. We remained with our reasoning to be a buyer on weakness despite the concerns about the company’s #1 U.S. brand seeing significant reputational harm from a core customer. The company is global, diversified, and built to withstand not every business performing optimally.
The resilient share performance has surprised us. We are taking advantage of that and moving to the sidelines. We still believe the international business is a more significant driver of 2023 results. Our thesis for the improvement outside the U.S. has not changed. However, Bud Light’s continued slide in the U.S. off-premise channel from a 1.6% decrease YOY in the week before the marketing blunder to a 26% decline in the week ended April 29 has us concerned that the necessary marketing campaign will be more costly that we anticipated.
Management’s response to date gives no confidence that customer loyalty has not been permanently impaired. There does not appear to be an adjustment that management can make to the marketing besides the passage of time, so it will likely be costly. Bud Light’s most recent TV commercial shown over the weekend has comments disabled on social media which speaks to the tough road ahead for the brand to reconnect with lost customers.
Our rating change reflects a stock price that is relatively unchanged and numerous more questions about the sales and margin trajectory in the U.S. It is not a read on Q1 results or the larger international business which is inflecting.