Optimism Brewing in the Beer Industry
In a refreshing turn of events, global brewers are expected to see an increase in beer sales this year, marking a significant shift from the downward trend experienced in recent quarters. This anticipated growth is buoyed by a confluence of favorable factors, including major sports events, a deceleration in inflation rates, and more favorable weather conditions.
Heineken and Carlsberg have already reported higher volumes after a period of decline, signaling a positive start to the year. Heineken, sitting at the number two spot among the world’s brewers, has notably achieved its first quarterly volume growth in over a year as of March’s end. Carlsberg echoed this uptick, much to the industry’s encouragement.
Anheuser-Busch InBev, which faced setbacks due to a boycott impacting its Bud Light sales in the U.S., reported a smaller-than-expected drop in volumes. Analyst James Edwardes Jones of RBC Capital expressed optimism for AB InBev’s recovery, anticipating an upswing in organic volume and sales growth post the Bud Light controversy. The company is projected to witness a 1% rise in volumes over the full year, with analysts eyeing a potential return to volume growth in the second quarter—what would be its first since Q1 2023.
The beer market is also set to benefit from an exciting summer of sports, with events like the Paris 2024 Olympics and the 2024 European Championship football tournament expected to boost consumption. Carlsberg CEO Jacob Aarup-Andersen has expressed confidence in positive volume growth moving forward, highlighting the potential for increased sales in burgeoning markets across Asia.
In recent years, revenue growth within the brewing sector has been predominantly driven by price increases as companies grappled with surging costs for raw materials and production inputs. However, with these cost pressures anticipated to subside, price hikes are likely to slow down. Berndt Maisch, a fund manager at Carlsberg investor Tresides Asset Management, noted that volumes are poised to become the new engine for revenue growth.
As costs fall and volumes rise, margins are expected to improve. This is good news for brewers who can maximize their production capacity and benefit from economies of scale. Siphelele Mdudu, an investment analyst at AB InBev investor Matrix Fund Managers, added that even if more lower-priced beers are sold, the decrease in costs will contribute to margin expansion.
Investors tend to value companies with growth based on price less favorably. Maisch concluded that investors are willing to pay higher multiples for companies demonstrating volume growth—a sentiment that could herald a new era of valuation for the brewing industry.
