As the world's largest brewer sought to gain control over a debt load that had ballooned to $109 billion following the acquisition of SABMiller, it halved its shareholder payout to $2.03 per share and applied the $4 billion in annual savings to debt reduction.
Shares plunged 11% on the news, as markets almost always punish companies that cut their dividends. But in the year since the dividend cut, the brewer's stock has bounded 28% higher and now trades 16% above where it stood the day before it announced the decision.
Considering how badly the market viewed the news, it seems pretty remarkable it has recovered in so short a time. Here's why the brewer's stock was able to bounce back so quickly.
The beer business is growing globally
A dividend cut is typically seen as an admission by a company that its financial position is deteriorating -- and for income-loving investors, its stock becomes undesirable to own. But in this case, the cut was actually a smart move that suggests management has more in mind than just short-term concern about the stock price.
Certainly Anheuser-Busch faces challenges, even a year after the move. Beer consumption is on the decline in the U.S., and the brewer's sales to retailers fell 4% in the second quarter (much worse than the 2.8% drop industrywide), while its sales to wholesalers were off another 2.3%. It lost a bit over half a percentage point of market share in the period.
Yet Anheuser-Busch is a global brewer. Its North American market is just about as big as the other regions it serves, representing about 20% of total sales. While that's not a small amount, the aggregate of the rest of the world far surpasses that, and sales in those regions are growing.
Still the king of beers
Volume in Central America, which equals 23% of the total -- more than any other region -- rose more than 6% in the quarter, better than any of Anheuser-Busch's others markets, although they all saw increases.
Total worldwide beer volume, even accounting for the steep decline in the U.S., was up 2.2% in the second quarter and is up 1.7% over the first six months of 2019.
The company owns some of the best brands in the business, and its reach into emerging markets is greater than any other brewer. Even in established markets in Europe, it remains the biggest.
Its premier Budweiser brand is still a global powerhouse, growing 5.6% outside of the U.S. last quarter. Plus, its premium Stella Artois brand was up nearly 12%, and Corona surged almost 24% higher everywhere in the world except Mexico (Constellation Brands owns the rights to Corona in the U.S., and it has been knocking it out of the park here).
Debt is now moving in the right direction
Anheuser-Busch has made several other moves to pare down its debt load. It sold its Australian brewing business to Japanese brewer Asahi Group for $11.3 billion, and it just spun off its Budweiser Brewing Company APAC Asian business, raising about $5 billion. The proceeds from those actions will go toward debt reduction.
Net debt is current more than four times EBITDA, and the brewer believes two times is a more appropriate multiple. It thinks it will be down to four times EBITDA by the end of next year, and analysts say its ability to pay down debt is not impaired.
For all of the above, Anheuser-Busch wasn't a financially damaged company when it slashed its dividend. It just saw taming the debt monster as a much more prudent decision. And it said it could always raise its payout again in the future.
That's the kind of management that investors should want to put their money with -- even income-seeking investors. And after the shock of the cut subsided, it's why Anheuser-Busch's stock is once again on the rise.