Anheuser-Busch Inbev SA/NV's CEO said a shrinking beer industry in the United States and headwinds overseas contributed to a sharp drop in third-quarter earnings.
CEO Carlos Brito told analysts during an Oct. 25 earnings call that beer is losing market share to wine and spirits in the U.S., citing demographic changes and shifts in health and wellness trends.
"While our Above Premium brands are accelerating growth and gaining share in a rapid pace, our portfolio in the U.S. is still heavily weighted to segments in the industry that are under pressure," Brito said.
This resulted in an overall loss of market share for the company known for Budweiser, Corona and Stella Artois and weighed on the company's significant earnings decline in the third quarter.
Brito said AB InBev is identifying gaps and opportunities for growth in the U.S.
One focus will continue to be innovation, such as new product launches and packaging, the CEO said.
In 2018, the beverage company launched three new products: Bud Light Orange; Michelob Ultra Pure Gold with organic grains; and the Budweiser Reserve Series, a partnership with Jim Beam.
"These innovations are driving incremental growth to our portfolio, with all three making it to the top 15 share gainers in the U.S. year-to-date," Brito said.
The company also sees success in testing new ideas at regional levels before scaling them up to national levels and wants to give more autonomy to those regions.
Brito said innovations can also help countries that are having tough years.
For example, the CEO said, AB InBev is working on affordable pack sizes of less than 1 liter in South Africa.
The company faced several challenges in overseas markets in the third quarter that contributed to the earnings drop, although Brito said he does not expect many of the problems to persist in the fourth quarter.
South Africa had a challenging quarter, Brito said, as consumer disposable income remained under pressure.
The company also faced out-of-stock issues there related to supply constraints, while revenue declined by mid-single digits, the CEO said.
But Brito called the stocking problem a "one-off issue" in South Africa.
In Brazil, price increases impacted sales, which fell by 3.3% overall, driven down by a 3.1% decline in beer volumes and a 3.9% decline in non-beer volumes.
"It takes two months or so for the market to stabilize and find its balance," Brito said.
Hyperinflation in Argentina led to a decline in the company's sales there, but the CEO said volume has been growing steadily since the beginning of the year. The company reported that sales in its Latin America South region declined by mid-single digits, primarily due to declines in Argentina.
"If you look at the year-to-date Argentina volume, it's growing year-to-date," Brito said. "Not last quarter, but year-to-date."
Despite what the company said were "short-term" issues, the outlook for fiscal 2018 remained unchanged, the CEO noted.