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9th February 2023

Christmas Cheers: Winter World Cup may bring joy to the world of beverage industry

Christmas Cheers: Winter World Cup may bring joy to the world of beverage industry

 Industry set for pre-Christmas football World Cup – but cost of living crisis likely to keep focus on socialising at home rather than in bars
Drinks industry hit by ban on alcohol sales by host country Qatar

 

Analysis from Bloomberg Intelligence (BI) suggests that beverage companies may get a boost in revenue from the football world cup being held in the lead-up to Christmas, with the FIFA Men’s World Cup being held in Qatar from the 20thNovember to the 18th December. However, gains may be driven more by consumers socialising at home rather than meeting in bars, with the cost of living crisis continuing to put pressure on consumer spending. As a result, major names in the industry including AB InBev, Diageo and Heineken all have stable rating outlooks and stable-to-improving credit profiles after the post-pandemic recovery.

Louise Parker, Credit Analyst at Bloomberg Intelligence, commented: “Increased input costs continue to weigh on margin forecasts for beverage companies, with energy and glass packaging seeing the largest price spikes. Higher costs have been passed on in price increases, but there’s a limit to how much consumers can bear – especially since domestic energy costs have spiralled and rising interest rates have pushed mortgage rates up, testing householders’ ability to pay basic bills. This is playing out in flat gross-margin estimates for the beverage sector for 2023, reflecting weak consumer sentiment in the face of record inflation and possible recession.”

 

AB InBev’s Leverage High But Steadily Improving

AB InBev’s 4.4x gross leverage remains higher than its beverage peers and is a legacy of the 2016 acquisition of SABMiller. The world’s largest brewer has been focused on reducing debt, from asset sales and cash flow, and this is expected to continue as post-pandemic earnings and cash flow increase. Consensus estimates see ABI leverage improving to 4.1x this year, 3.7x by the end of 2023 and 3.2x in 2024. This ties in with S&P’s expectation for ABI to gradually improve its credit metrics, with the rater projecting adjusted debt to Ebitda of 3.6x at end-2022, 3.4x in 2023 and around 3x in 2024, despite the weaker macroeconomic outlook and currency volatility. Similarly, Moody’s projects ABI’s gross leverage to fall below 4x in the next 12-18 months.

Beverage Rating Outlooks Have Stabilized

Beverage names’ credit profiles rebounded in the past year, with most rating outlooks stable. AB InBev has an improving profile with positive outlooks. S&P’s recent revision in ABI’s outlook from stable reflects volume growth, price rises and positive product mix offsetting high operating-cost inflation. Moody’s did the same in September, expecting a continued recovery from pandemic shutdowns. S&P and Moody’s could review ABI’s rating if the company’s credit metrics continue to improve as expected over the next two years. JDE Peet’s BBB- Fitch rating is the only other positive outlook for our beverage names, with the rater seeing the coffee maker maintaining profitability and deleveraging, despite global input-cost inflation. This is supported by management’s conservative financial policy and 2.5x net leverage target.