BEER
INDUSTRY
SUMMER SENIOR
ANALYST PROJECT
CARLO H. NEUMARK
DUE DATE: 08/31/2012
EXECUTIVE SUMMARY
Investment thesis:
The beer industry will have higher-than-average returns in
the next two to five years because of an increase in sales
from the U.S. and emerging markets due to higher
demand and beer prices.
Forecast:
• 2012 and 2013: Underperform
• After 2013: Outperform
INDUSTRY DEFINITION
 Companies in this industry manufacture and sell beers.
 The beer market consists of retail sales of ales, stouts & bitters,
low/no alcohol beers, premium lager, specialty beers and standard
lager. (Datamonitor Profile)
 The main buyer of their products are end consumers. However, these
companies sell mainly through food stores, restaurants, and bars.
Top 10 beer companies by Market Capitalization
Market Cap (mm)[Latest]*†
133,051.1
Revenue (mm)
39,293.0
102,988.8
14,078.3
USD
70,515.8
16,713.0
USD
31,782.5
21,938.3
Grupo Modelo, S.A.B. de C.V.
BMV:GMODELO C USD
29,246.2
7,196.4
Heineken Holding NV
ENXTAM:HEIO
USD
13,293.0
21,938.3
Carlsberg A/S
CPSE:CARL B
USD
13,119.0
10,869.0
San Miguel Brewery, Inc.
PSE:SMB
USD
12,565.5
1,721.3
Kirin Holdings Company, Limited
TSE:2503
USD
12,183.7
26,890.5
Asahi Group Holdings, Ltd.
TSE:2502
USD
11,453.7
19,370.6
Company Name
Anheuser-Busch InBev SA/NV
Exchange:Ticker
ENXTBR:ABI
Currency
USD
Companhia de Bebidas Das Americas (AMBEV)
BOVESPA:AMBV4 USD
SABMiller plc
LSE:SAB
Heineken NV
ENXTAM:HEIA
Source: CapitalIQ.com
BEVERAGE SECTOR BREAKDOWN BY MARKET CAP
Consumer Staples
$4.99 Trillion
(100%)
Food,
Beverage, and
Tobacco
Beverages
Breweries Market Cap (mm)[Latest]
Asahi Group
Holdings, Ltd.
2%
Kirin Holdings
Company, Limited
2%
Anheuser-Busch
InBev SA/NV
25%
Others
18%
San Miguel
Brewery, Inc.
2%
Carlsberg A/S
3%
Brewers
$0.53
Trillion
(10.6%)
Heineken
Holding NV
3%
Grupo Modelo,
S.A.B. de C.V.
6%
Companhia de
Bebidas Das
Americas (AMBEV)
20%
Heineken
NV
6%
SABMiller plc
13%
Summary: The beer market is highly concentrated in terms of market cap.
Source: CapitalIQ.com
BEER SECTOR BREAKDOWN BY REVENUE
Breweries Breakdown by LTM Revenue (mm)
Anheuser-Busch InBev
SA/NV
17%
Others
21%
Asahi Group Holdings,
Ltd.
8%
Kirin Holdings
Company, Limited
12%
San Miguel
Brewery, Inc.
1% Carlsberg A/S
5%
Companhia de
Bebidas Das Americas
(AMBEV)
6%
SABMiller plc
7%
Heineken NV
10%
Heineken Holding NV
10%
Grupo Modelo, S.A.B.
de C.V.
3%
•
The top five beverage industry firms accounted for more than 40% of global wholesales in 2010, up
from 33% in 2006. Paced by acquisitions in 2010, the top five global producers of non-alcoholic
beverages accounted for about 48% of sales, up from 43% in 2006. (Bloomberg)
•
Global brewers have led the alcoholic beverage industry in deal making. Since 1962, brewers have
accounted for 142 (52%) of the 272 alcoholic beverage industry deals valued at more than $250 million
each. United Kingdom companies were by far the most acquisitive, account for 64 (23%) global deals
totaling more than $120 billion (24%). (Bloomberg)
Summary: The beer industry is highly concentrated in terms of revenue.
Source: CapitalIQ.com , Bloomberg
OVERVIEW OF GEOGRAPHICAL SEGMENTATION
Global Beer Segmentation by Value for
2010
Africa and MiddleEast
2%
Europe
44%
Americas
27%
Asia-Pacific
27%
•
Producers toast emerging markets (Bull case): alcoholic beverages industry has
abundant growth opportunities throughout emerging consumer markets, with GDP per
capita rising 18% annually in China, 16% in Brazil, and 15% in Indonesia since 2002.
Rising wealth is considered a precursor to increased per capita alcoholic beverage
consumption. (Bloomberg)
Summary: Emerging markets present the greatest opportunity but are not yet the
biggest geographical segment.
Source: Bloomberg
CONSUMER TRENDS
Hispanic Growth in US as % of Tot.
Pop.
% of Total US Population
100
80
60
Hispanic
40
Non-Hispanic
20
0
2006
•
2011
2016
Hispanics represent 13.8% of consumers aged 21+ in 2011, says the U.S. Census Bureau. Beer is
particularly popular among men of Mexican, Puerto Rican, and Dominican descent. The type of beer
they consume, though, is often determined by their acculturation level. While imported beer is
important to all Hispanics (particularly Heineken and Mexican beers), light beer is consumed by just
20% of Spanish-only households compared to 28-31% of other Hispanic households. Domestic beer
follows a similar pattern. Some products, such as microbrews, have almost no following among
Spanish-only or Spanish-dominant consumers. (Mintel Oxygen)
Summary: Beer demand in U.S. should grow as Hipanics become greater
proportion of total population.
Source: Mintel Oxygen
MAIN RAW MATERIALS IN BEER INDUSTRY
• Main Ingredients for the liquid
• Barley
• Wheat
• Yeast
• Hops
• Rice
• Water
• Other components of product
• Aluminum
• Glass
Alcoholic Beverages COGS
Breakdown by % in 2012
NonAgricultural
45%
Labor/Mfg
Overhead
25%
Agricultural
30%
Summary: A significant portion of raw materials contribute to COGS, these prices
may be tracked through futures contracts.
Source: Bloomberg
BEER INDUSTRY COGS’ TRENDS
•
Key input costs for producers of alcoholic beverages are moving higher. Futures
prices for wheat and barley, key ingredients to produce whiskey and beer, have
risen more than 40% since mid-2010. The U.S. drought is further exacerbating
these and other grain futures prices. (Bloomberg)
Summary: COGS are rising in the short term under current conditions.
Source: Bloomberg
MARGIN IMPROVEMENTS FOR INDUSTRY
Key Metrics for Alcoholic Beverages
Industry
2005
42.04
2012
45.1
13.94
Gross Margin (%)
17.22
Operating Margin (%)
•
Beverage cost inflation may pressure margins in 2012 (Bear Case): US alcoholic and non-alcoholic
beverage producer prices have risen faster than beverage consumer prices since mid-2010. Bears
argue that rising costs for key inputs incurred by beverage producers may further pressure industry
profit margins in 2012, especially in light of the Midwest drought. (Bloomberg)
•
Gross Margin 2005 – 2012 CAGR of 0.88%, Operating Margin 2005 – 2012 CAGR of 2.68%
Summary: Despite the COGS increase, there are still improvements in margins in
the long term.
Source: Bloomberg
US BEVERAGE DEMAND
U.S. Annual Household Spend on
Beverages
US CPI Alcoholic Beverages
135
600
130
125
500
450
400
US House Ann.
Spend Alc Bev
US House Ann.
Spend Non-Alc Bev
CPI
120
US CPI Alcoholic
Beverages
115
110
350
105
300
100
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Actual Spend
550
•
Expanding modern grocery stores in emerging markets are raising beverage availability and
consumption. Wal-Mart’s store count rose at a 38% compound annual rate in the past five years in
China, 11% in Brazil, and 9% in Central America. This supports the growth potential for the
beverage industry. (Bloomberg)
Summary: The US is a promising market in the long-term because consumers are
increasing consumption of alcoholic beverages.
Source: Bloomberg
BEER SALES FORECAST
Total US Sales and Forecast of beer ($mm)
100,000
95,000
90,000
85,000
Total US Sales
and Forecast of
beer ($mm)
80,000
75,000
70,000
65,000
60,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
(est.) (fore.) (fore.) (fore.) (fore.) (fore.)
•
Dollar sales of beer continue to grow. Between 2006 and 2010, they went from $66.5 billion to nearly $73 billion.
From 2009 to 2010, the category grew 1.8% in dollars. In 2011, the beer category is expected to grow another 4.5%,
reaching more than $76 billion in sales. (Mintel Oxygen)
•
Mintel forecasts the market to grow 27% in current prices and 16% in inflation-adjusted prices during 2011-16.
(Mintel Oxygen)
•
While the unit volume of beer continues to decline, increased dollar sales probably result from the growth of high-end
craft beer. According to the Brewers Association, craft beer’s sales share of the beer market was 4.9% by volume in
2010; in dollars, its share was 7.6%. In addition, makers of domestic premium and popular brands have raised
prices. (Mintel Oxygen)
Summary: U.S. beer total sales will increase due to higher prices and demand.
Source: Bloomberg
ALCOHOLIC BEVERAGE SEGMENTATION
Alcoholic Beverages Breakdown By % of 2011
Revenue
Cider/Perry
0%
RTD/High-Strength
Premixes
3%
Wine
23%
Beer
44%
Spirits
30%
Summary: Beer sales volume will increase the most with the increasing alcoholic
beverage demand.
Source: Bloomberg
DISTRIBUTION CHANNEL SEGMENTATION
U.S. Beer Market Segmentation for 2011
Other*
9%
Supermarkets
11%
Liquor/packaged stores
14%
On-premise
47%
Convenience stores
19%
•
Despite declining sales in the beer category, almost every channel experienced sales growth during 2009-11. On-premise, the
largest individual channel, grew 5.8%, with sales hitting almost $36 billion. However, market share declined slightly from 47.3%
in 2009 to 47.1% in 2011. The channel has benefited from in-depth assortments of limited-distribution craft beers and wider
varieties of draft beer. Craft beer tends to be higher in price and generates more margin than traditional domestics. (Mintel
Oxygen)
•
Beer, whose on-premise dollar sales grew 2.5% in 2010 after a 2009 decline, is particularly important to bars and restaurants.
While wine is also a popular on-premise beverage, the poor economy and wine’s high on-premise markup have dissuaded
some patrons from ordering the beverage. Some are substituting beer, which often has a lower price point. (Mintel Oxygen)
Summary: On-premise consumption (i.e. Bars and restaurants) continues to be
main distribution channel.
Source: Mintel Oxygen
SUMMARY OF INVESTMENT THESIS
Investment thesis: The beer industry has a high potential for above-average
returns in the next two to five years.
Main arguments:
• The beer industry accounts for more than 10% of all consumer staples.
• The high concentration in the industry narrows the number companies that are
expected to have high growth.
• Most sales still come from Europe, therefore there is room for sales growth
through emerging markets and the United States.
• Despite a short-term growth in COGS, the beer industry’s gross and operating
margins should increase in the long term.
• Beverages have an increasing demand and beers are the biggest segment of
that group.
Conclusion: Investing in any of the top ten firms will generate a higher-thanaverage return.
APPENDIX
APPENDIX – KEY FINANCIALS FOR TOP 10
COMPANIES
Company
Name
ABI
Asahi
Carlsberg
AmBev
Modelo
Heineken
Holding
Heineken
Kirin
Holdings
SABMiller
San Miguel
Summary
Statistics
High
Low
Mean
Median
Day Close
Market
Total LTM Total
Price Latest Capitalizati Enterprise Revenue
on Latest
Value
Latest
LTM LTM EBIT
EBITDA
LTM
NTM NTM EPS 52 Week
NTM FY Diluted
FY Total
Diluted
EBITDA (Capital IQ) High Price
Forward EPS Excl. Debt/Equity
EPS Excl. (Capital IQ)
Latest - 1
P/E Extra Items
%
Extra Items
Year (Capital IQ)
83.16 133,051.1 172,589.8
39,293.0
24.59
11,453.7
16,286.3 19,370.55
85.44
13,119.0
19,653.4 10,868.95
36.72 102,988.8 103,045.3 14,078.32
9.04
29,246.2
29,559.9
7,196.44
46.15
13,293.0
31,174.6 21,938.35
15,090.0
2,160.99
2,108.09
6,659.21
2,265.92
4,320.64
12,444.0
1,311.06
1,456.81
5,932.96
1,937.67
2,819.98
4.38 16,829.62
1.76
2,268.73
6.81
2,464.38
1.4
7,701.97
0.3
2,255.72
3.5
4,865.21
4.79
1.84
6.74
1.66
0.29
3.29
57.94
21.5
104.57
27.32
5.79
47.66
13.32x
12.68x
22.18x
30.94x
14.02x
3.63
1.51
5.66
1.35
0.28
3.11
97.86%
63.91%
50.59%
15.93%
93.01%
55.3
12.67
31,782.5
12,183.7
42,916.1 21,938.35
26,931.5 26,890.52
4,320.64
3,481.53
2,819.98
1,620.26
3.48
0.03
4,951.57
3,913.48
3.81
0.69
54.13
15.46
14.52x
18.29x
3.05
0.09
93.01%
101.64%
44.26
0.82
70,515.8
12,565.5
89,773.2
13,386.0
5,159.0
546.72
3,977.0
490.11
2.64
0.02
6,536.54
-
2.39
-
37.51
0.78
18.53x
-
2.64
0.02
74.11%
191.56%
16,713.0
1,721.3
Day Close
Market
Total LTM Total
Price Latest Capitalizati Enterprise Revenue
on Latest
Value
Latest
85.44 133,051.1 172,589.8
39,293.0
0.82
11,453.7
13,386.0
1,721.3
39.82
43,019.9
54,531.6 18,000.88
40.49
21,269.6
30,367.3 18,041.78
LTM LTM EBIT
EBITDA
15,090.0
546.72
4,611.27
3,901.09
12,444.0
490.11
3,480.98
2,378.83
LTM
NTM NTM EPS 52 Week
NTM FY Diluted
FY Total
Diluted
EBITDA (Capital IQ) High Price
Forward EPS Excl. Debt/Equity
EPS Excl. (Capital IQ)
Latest - 1
P/E Extra Items
%
Extra Items
Year (Capital IQ)
6.81 16,829.62
0.02
2,255.72
2.43
5,754.14
2.2
4,865.21
6.74
0.29
2.83
2.39
104.57
0.78
37.27
32.42
30.94x
12.68x
18.06x
16.41x
5.66
0.02
2.13
2.08
191.56%
15.93%
86.85%
93.01%
Source: CapitalIQ
APPENDIX – KEY FINANCIALS FOR TOP 10
COMPANIES
Company Comp Set
Company
LTM Gross LTM EBITDA LTM EBITDA, LTM EBITDA, LTM EBITDA,
Name
Margin %
Margin % 1 Yr Growth % 3 Yr CAGR % 5 Yr CAGR %
LTM Net
Income
Margin %
LTM Net
Income, 1 Yr
Growth %
LTM Net
Income, 3 Yr
CAGR %
LTM Net
Income, 5 Yr
CAGR %
LTM Net
Income, 7 Yr
CAGR %
LTM Total
Revenues, 1
Yr Growth %
LTM Total
Revenues, 3
Yr CAGR %
LTM Total
Revenues, 7
Yr CAGR %
LTM Total
Debt/Capital
%
LTM EBIT
Margin %
AnheuserBusch InBev
SA/NV
(ENXTBR:ABI)
58.09%
38.40%
5.84%
12.61%
21.81%
18.04%
47.20%
41.41%
27.99%
29.90%
4.08%
8.64%
17.09%
48.85%
31.67%
Asahi Group
Holdings, Ltd.
(TSE:2502)
37.93%
11.16%
1.46%
7.59%
5.38%
4.24%
19.79%
10.18%
7.91%
9.50%
23.76%
15.27%
7.80%
38.09%
6.77%
Carlsberg A/S
(CPSE:CARL
B)
49.42%
19.40%
(5.68%)
1.23%
13.40%
9.57%
38.27%
26.50%
26.50%
24.87%
3.81%
1.25%
8.30%
33.50%
13.40%
Companhia de
Bebidas Das
Americas
(AMBEV)
(BOVESPA:A
MBV4)
67.79%
47.30%
14.19%
11.57%
10.79%
31.23%
8.13%
15.58%
26.65%
36.09%
11.65%
9.13%
9.93%
12.96%
42.14%
Grupo
Modelo,
S.A.B. de C.V.
(BMV:GMODE
LO C)
54.61%
31.49%
16.56%
8.70%
6.08%
13.31%
28.94%
19.48%
5.41%
8.19%
8.75%
7.19%
10.30%
-
26.93%
Heineken
Holding NV
(ENXTAM:HEI
O)
37.30%
19.69%
2.86%
8.22%
10.18%
4.59%
18.88%
76.74%
8.34%
17.94%
3.37%
5.23%
7.92%
46.01%
12.85%
Heineken NV
(ENXTAM:HEI
A)
37.30%
19.69%
2.86%
7.57%
9.38%
9.17%
18.93%
76.79%
8.29%
17.96%
3.37%
5.23%
7.92%
46.01%
12.85%
Kirin Holdings
Company,
Limited
(TSE:2503)
41.45%
12.95%
(10.62%)
1.28%
7.16%
0.12%
(88.38%)
(43.15%)
(45.03%)
(34.50%)
(2.63%)
(3.03%)
8.35%
47.87%
6.03%
SABMiller plc
(LSE:SAB)
69.49%
30.87%
10.14%
7.18%
4.86%
25.26%
75.29%
30.92%
20.68%
15.70%
10.35%
3.94%
6.71%
42.57%
23.80%
San Miguel
Brewery, Inc.
(PSE:SMB)
48.36%
31.76%
7.55%
9.65%
-
16.75%
34.66%
5.95%
-
-
5.27%
14.10%
-
65.37%
28.47%
LTM Gross LTM EBITDA LTM EBITDA, LTM EBITDA, LTM EBITDA,
Margin %
Margin % 1 Yr Growth % 3 Yr CAGR % 5 Yr CAGR %
LTM Net
Income
Margin %
LTM Net
Income, 1 Yr
Growth %
LTM Net
Income, 3 Yr
CAGR %
LTM Net
Income, 5 Yr
CAGR %
LTM Net
Income, 7 Yr
CAGR %
LTM Total
Revenues, 1
Yr Growth %
LTM Total
Revenues, 3
Yr CAGR %
LTM Total
Revenues, 7
Yr CAGR %
LTM Total
Debt/Capital
%
LTM EBIT
Margin %
31.23%
0.12%
13.23%
11.44%
75.29%
(88.38%)
20.17%
24.37%
76.79%
(43.15%)
26.04%
22.99%
27.99%
(45.03%)
9.64%
8.34%
36.09%
(34.50%)
13.96%
17.94%
23.76%
(2.63%)
7.18%
4.68%
15.27%
(3.03%)
6.70%
6.21%
17.09%
6.71%
9.37%
8.30%
65.37%
12.96%
42.36%
46.01%
42.14%
6.03%
20.49%
18.60%
Summary
Statistics
High
Low
Mean
Median
69.49%
37.30%
50.17%
48.89%
47.30%
11.16%
26.27%
25.28%
16.56%
(10.62%)
4.52%
4.35%
12.61%
1.23%
7.56%
7.91%
21.81%
4.86%
9.89%
9.38%
Source: CapitalIQ