The world’s largest brewer, Anheuser-Busch InBev SA/NV (BUD Quick QuoteBUD - Free Report) , also known as AB InBev, posted fourth-quarter 2016 results, wherein both the top line and bottom line declined year over year. While earnings lagged estimates, revenues topped the same.

Despite a solid show across most of its markets, the company’s results were majorly hurt by a disappointing Brazilian performance, which in turn was marred by difficult consumer trends, tough year-over-year comparisons and unfavorable currency movements. Additionally, the company provided a dismal guidance for 2017.

While the stock did not react much to the disappointing results, AB InBev has underperformed the broader industry in the past one year. The stock has declined 3.2% in the past one year, while the Zacks categorized Beverages–Alcoholic industry gained 7.3% in the same period.

Q3 Highlights

Normalized earnings per share of 43 cents plunged 72.4% from $1.56 earned in the year-ago quarter and lagged the Zacks Consensus Estimate of $1.03 by a wide margin.

Revenues for the quarter fell 32.4% to $14,202 million, but surpassed the Zacks Consensus Estimate of $13,885 million. However, the company registered organic revenue growth of 0.2% on the back of a 3.1% rise in revenues per hectoliter (hl) on a constant geographic basis. This improvement resulted from ongoing revenue management and premiumization initiatives, offset by softness across Brazil. Also, revenue per hl advanced 3.9% on a reported basis.

Moreover, revenues for the company’s three global brands, namely Budweiser, Corona and Stella Artois, increased 2.8% in the fourth quarter, while the same rose 6.5% in 2016. Global brands revenue for 2016 comprised 14.3% growth at Corona, a 6.3% rise in Stella Artois and a 2.8% upside at Budweiser.

Total volumes dipped 3.3% in the fourth quarter, including a 3% fall in the company’s own beer volumes and 4.4% decline in non-beer volumes. While most of its markets witnessed improved market share trends, the decline can be largely attributed to decline in Brazil owing to a weak industry and unfavorable year-over-year comparisons.

Cost of sales escalated 34.1% year over year to $5,407 million, while organically the same increased 0.7%. Organic cost of sales per hl rose 5.2% due to negative foreign currency translations and product mix. On a constant geographic basis, cost of sales per hl jumped 5.3%.

Battered by the Brazilian disaster, the company’s normalized earnings before interest, taxes, depreciation and amortization (EBITDA) declined 21.7% year over year to $5,248 million, while slipping 3.6% on an organic basis. EBITDA margin contracted 320 basis points (bps) to 37%, while organically, the same contracted 152 bps. Excluding Brazil, EBITDA grew 6.4% in the quarter.

Other Developments

On Oct 10, 2016, AB InBev concluded its long-awaited merger with SABMiller plc, thus creating a combined entity with seven of the top 10 important beer brands across the global brewing space. We believe that this collaboration is likely to benefit both the companies by bringing together their individual solid brand portfolios and innovative teams. Further, their robust geographical reach would enable the combined giant to serve all major beer markets that have sturdy growth potential.

During the reported quarter, the board proposed a final dividend of 2 euros per share, which is subject to approval at the AGM to be held on Apr 26, 2017. This dividend along with the company’s interim dividend of 1.60 euros per share paid in Nov 2016 will bring the total dividend for 2016 to 3.60 euros per share. The company also expects modest dividend growth in the future.

Outlook

Owing to the volatility in some of its key markets, AB InBev projects revenue growth in 2017 to be backed by robust growth of global brands and its commercial plans, including revenue management initiatives.

For 2017, AB InBev expects cost of goods sold per hl, on a constant geographic basis, to increase in the low-single digits range, considering adverse currency movements and growth in premium brands. Selling, general and administrative (SG&A) expenses are estimated to remain flat, driven by savings in overhead costs that will be reinvested to boost strength of its brands. Management expects normalized effective tax rate for 2017 in the range of 24–26%.

Additionally, AB InBev anticipates incurring nearly $3.7 billion as net capital expenditure for 2017.

Zacks Rank

AB InBev currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry include Tsingtao Brewery Company Limited (TSGTY Quick QuoteTSGTY - Free Report) , Ambev S.A. (ABEV Quick QuoteABEV - Free Report) and Compania Cervecerias Unidas, S.A. (CCU Quick QuoteCCU - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Tsingtao Brewery, with a long-term earnings growth rate of 12.8%, has surged 26.5% in the past one year.

Ambev has gained nearly 20.3% in the last three months. Moreover, it has a long-term earnings growth rate of 3%.

Compania Cervecerias has jumped 9.6% in the last six months. Further, the company has witnessed positive estimate revisions for fourth quarter 2016, in the past 30 days.

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