Analyst: Anheuser-Busch InBev poised to rebound, pay off debt
Will Anheuser-Busch InBev sink under the weight of its massive debt? It’s a question that has popped up in various forms since InBev of Belgium shouldered $45 billion in loans to buy St. Louis-based Anheuser-Busch earlier this year. By A-B InBev’s own reckoning, repaying debt is a top priority. By some estimates, the company will have to pay off $29 billion within two years — over half of what it borrowed.
The debt load makes some people very nervous; they see the potential for the company to act counter-productively, slashing costs without regard to protecting brands or reputations.
Well, count Chad Brand among those who are NOT worried. Brand, head of Peridot Capital Management who moonlights as a finance blogger at The Peridot Capitalist, wrote recently that A-B InBev was poised to use its strong cash flow to whittle down its indebtedness. Brand argues that the company is positioned to come back from a massive stock-market beatdown earlier this year, when concerns about the wisdom of the Anheuser-Busch buyout caused its stock to drop. It’s an interesting analysis, and worth a read.
From the post:
“The business prospects for the combined company have not really changed, which is at the heart of why I think there is a good chance they can actually pay back the loans successfully. Beer sales worldwide are not going to be dramatically affected by the global recession and lower commodity prices could even help boost margins as input costs decline.”
(2 votes, average: 5 out of 5)
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Jeremiah McWilliams is a native Virginian who came to the Post-Dispatch in early 2007 to cover beer and other consumer products. He previously covered manufacturing for the Virginian-Pilot newspaper in Norfolk, Va. He is a graduate of Washington and Lee University. 
I’ll pass. ABI has too much debt for my taste. This guy focuses way to much on EBITDA. EBITDA is useless, from the point of view of an investor.
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Here is what some other people have to say on the subject:
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“References to EBITDA make us shudder. Too many investors focus on earnings before interest, taxes, depreciation and amortization. That makes sense, only if you think capital expenditures are funded by the tooth fairy.” - Warren Buffett
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“Among those who talk about EBITDA and those who don’t, there are more frauds among those who do. Either they are trying to con you, or they’re conning themselves.” - Warren Buffett
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“If you want to know what FedEx is worth, look at what’s left after it has paid for trucks and airplanes, not before. ” - Steve Hanke, Forbes Magazine
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“Depreciation is a real cost but people were encouraged not to think that by investment bankers who wanted them to talk about EBITDA. Why not put all expenses in the footnotes, just put in sales and say that equals profits? EBITDA is a term that has lost investors a lot of money.” - Warren Buffett
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“Wherever you read EBITDA, you should substitute it with ‘bullsh*t earnings’. ” - Charlie Munger
He says beer sales are not going to be affected. That may be true. However, the sales mix will be less in the premium brand category and more in the sub-premium category. That means margins will be lower.
AB Inbev needs to sink on what it has done to all its fine lower level white management collar employees, letting people go that have dedicated their lives, so many 20 plus years and so many close to retirement, all the ones that were 6-7 months pregnant, all the ones disabled…you couldn’t be decent enough to fine a place for these individuals for 1 year/the current AB regime is at fault, they could of made adjustments…again greed on their part..when you can find your buddies a hidding place, go figure…things still have not changed…brito wake up….there is no loyalty to save this company… for 2009 you really need to think hard before you purchase an AB product…the local breweries should have all the support….miller/coors doesn’t look bad either or just go for the hard liquor
I know first hand the kind of evil that InBev represents. No one should ever pay for a single product made by Anheuser-Busch InBev again! If you’re from St. Louis and you’re worried about hurting the local economy, you can drink Schlafly. Schlafly is infinitely more interested in supporting all things local than InBev is! InBev has absolutely no concern for what happens in St. Louis, so don’t give me the BS argument that not drinking A-B products is bad for the local economy! If you just have a conscience and don’t want to support greedy tyrants, you should drink anything other than A-BI products, period…hard liquor, water, whatever. Just don’t support these jerks.
Every company is “greedy,” it’s what capitalism is based on, making a profit.
Personally I buy my beer based on how good it tastes, not based on which multinational is owning which brand. If everybody only bought local products the whole economy would collapse.
I think inbev will be able to make the payments, though it won’t be easy.
You’ll be seeing a lot go to pay off this debt. Say good by to the born on date. Say good by to a lot of the fad brands. Say good by to the massive amount of money spent on advertising. A-B bought 10 30-second slots on the last two superbowls. You won’t see that happening in 2010. Say good by to Nascar and the Miss Budweiser boat. The top 10 brands will stay: Bud-Light (42Mil barrels), Budweiser (23Mil), Natural-Light (8Mil), Busch-Light (6Mil), Busch (6Mil), Select, Mic-Ultra, and a few more… After In-Bev hacks up this company and can’t pay off the loan, you’ll see them sell off more (brand names and breweries). Hopefully, US investors will pull it together and buy the In-Bev off-fall and start producing a new high quality American beer to replace Budwieser. It can be done.
Couldnt agree more with My Thoughts. Hopefully some of the VP’s who walked away with megabucks arent forbidden from banding together and starting a new brewery, ala Sam Adams. Except without the skunky, overpriced snob appeal beer.
Wow, the bitterness here is wildly misplaced. As AAB 3 and 4 walk with well north of 600 million dollars the st. louis suckers blame Brito.
Years of blind loyalty to this family brought them millions and st. louisans pink slips. The nostalgia for the AB you thought you knew was always false. This was blue bloods milking the blue collared and now we see the results.
The blame lies nowhere else but locally.
whatajoke
I blame greedy owners and our so-called leadership in Government.
Most new jobs may be created by small business, But how much longer are we going to watch real controlling ownership and true wealth leave our country! If we continue to let major MFG or Assembly jobs leaving the country, much of the small business growth we are banking on are based on selling products and services in some cases to larger businesses. Why do we continue to innovate technology and so easily ship it away?
Soon, will all the jobs in the US be service oriented with no real bonifide MFG of products that mean “real” growth? How many more jobs are going to be shipped out to Canada, Mexico, China, you name the country.
I would like some confidence our economy is really going to continue to grow and get back the jobs we are losing. Does anyone feel this is a sinking ship?
Whatajoke, you were correct in that AAB IV is counting his money trying to figure out how to spend it and had very little loyalty to the company. He cared not a lick for keeping the company and is going to do what he can to remain far removed. I am not so convinced about AAB III however. He was the brains of the family and company and truly is a brilliant brewer…but was not a brilliant businessman in that he didn’t put in place a way to protect the company.
I have no doubt that Brito will pay down the debt through massive cost cutting including closing breweries, letting hundreds of employees go, and removing half of the beers AB currently produces. Brito’s goal is to make BUDWEISER a world beer..not Michelob Golden. The problem with his goal is that he has no idea what marketing means in the US and many parts of the world. He has only European and South American knowledge and believes that his fellow henchmen can figure out the American and Asian markets. His statement to some Canadian workers was very, very telling when asked whether he learned any best practices from the folks in St. Louis(paraphrasing here): “let me make something very clear, WE purchased Anheuser-Busch. They will learn best practices from us”. For a new owner to say this is ignorant and arrogant and may doom the company.