The bottom line: Only here for the beer (and the pricey grub)
AB InBev and Woolworths under the microscope
Does AB InBev need some Coca-Cola?
Financial 2016 was a grim year for Anheuser-Busch InBev (AB InBev) executives as a disappointing operating performance meant there were limited bonuses that year. CEO Carlos Brito received no bonus at all. Things picked up significantly in 2017 enabling Brito to pick up a bonus of $5.77-million, in addition to his basic pay of almost $3-million.
The even better news for Brito and his executives is that the long-term share options they were awarded as part of the group’s incentive scheme were dished out on January 22 2018 at an exercise price of €94.36 (about R1,400). That wasn’t quite the share’s all-time low on the JSE; it reached that level in mid-February when it touched R1,204.52.
The AB InBev share price had been on a firmly downward trajectory from the end of October 2017 until mid February 2018 when it reached the all-time low. In mid-February, ahead of the release of better than expected fourth quarter results to end-December, the share moved onto an upward trajectory. The results appear to have secured the upward momentum with the share price advancing almost 4% since they were released.The better and faster than expected synergies from the acquisition of SABMiller appear to be driving the uptick in sentiment. These are likely to underpin solid performances for the next two years or so. By then AB InBev will need to have made some progress with the generally slack volume performance particularly in the US and Brazil.
Brazil volumes may recover as and when that economy recovers but the US market seems to have gone into terminal decline. AB InBev can get earnings out of ever more cost cutting but eventually if it is unable to persuade more people to drink more of its beer, it will run out of earnings road.
At that stage it will have to look to another mega-merger if it wants to maintain investor support. With no more significant beer groups to swallow it’s inevitable that Coca-Cola will be back on the rumour mill.More power to the Woolies food machine
While Woolworths has positioned itself as a fashion-first company, its food division has been its saving grace.
The acquisition of David Jones, which was meant to be a game changer for Woolworths, has turned out to be a blight on its record. And not only has its international clothing divisions come under pressure, locally its women’s wear ranges have disappointed critics and consumers.
Perhaps it is time to start redirecting more investment into the profitable food division. Typically companies that have a higher food offering do much better than clothing, footwear and textiles.
The Woolworths Food division grew sales by 9.4% while operating profit in the group’s food division was up 15.9%.Analysts agree that continued investments into its private label and the rollout of the David Jones food division could prove beneficial to the retailer.
As food producers and retailers scramble to clamp down on the listeriosis outbreak, the demand for healthy, clean and quality produce is surging, presenting an opportunity for prime food retailers to step up their offerings. Although the retailer has also recalled some of its cold meat products, because of the health department’s listeriosis alert, it was likely to come out of the crisis unscathed due to its unmatched focus on quality and innovative food throughout the years.
Even if it is slightly pricier than most retailers, consumers don’t seem to mind coughing up an extra buck — as reflected in Woolworths’ strong food sales.