Anheuser-Busch InBev outlook revised to positive by S&P on strong cash flow

Investing.com -- S&P Global Ratings has revised its outlook on Anheuser-Busch InBev S.A./N.V. (EBR:ABI) to positive from stable, citing the company’s strong free cash flow generation and momentum in reducing debt. The ’A-/A-2’ long- and short-term issuer credit ratings on ABI and the ’A-/A-2’ issue ratings on its senior unsecured debt instruments and programs have been affirmed.

The world’s largest brewer, ABI, significantly outperformed S&P’s base-case forecasts for fiscal 2024, which ended on December 31. The company’s debt to EBITDA ratio was 2.9x, lower than the expected 3.2x, due to a strong EBITDA margin improvement to 36% and large discretionary cash flows of $7.6 billion, which were primarily used to pay down more debt.

ABI is projected to deliver a steady operating performance in 2025-2026, supported by its global leadership position in the beer industry, benefits from recent portfolio repositioning, and high operating efficiency. The company’s free operating cash flow (FOCF) generation is expected to be about $11 billion annually, and if a consistent financial policy is maintained, ABI’s debt to EBITDA ratio could fall further to 2.6x-2.7x in 2025 and 2.4x-2.5x in 2026.

The positive outlook reflects the possibility of a ratings increase on ABI within the next 12-24 months if the company’s strong operating performance continues, supported by a consistent financial policy resulting in a debt to EBITDA ratio well below 3.0x on a sustained basis.

The rating action reflects ABI’s stronger-than-expected performance in fiscal 2024, with high profitability and free cash flow generation supporting improved credit metrics. ABI’s debt to EBITDA improved to 2.9x, from 3.4x in 2023 and 3.6x in 2022, marking the first time since fiscal 2015 that it has been below 3.0x.

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ABI’s reported revenue growth was slightly higher at 0.7%, with a stronger EBITDA margin of about 36%, a 200 basis point improvement from 2023. Excluding negative foreign exchange movements, the company posted organic revenue growth of 2.7%, reflecting a total volume decline of 1.4%, offset by 4.3% net revenue per hectoliter growth. The company’s performance has been positive in most markets, except Argentina and China, due to weaker macroeconomic conditions.

ABI is expected to further improve its credit metrics in 2025-2026, with debt to EBITDA falling to the 2.0x-3.0x range. The company is also expected to maintain strong FOCF of about $11 billion annually, providing ample coverage for the announced increase in dividends and share buybacks.

ABI’s profitability and cash flow conversion is attributed in part to recent efforts in beer portfolio repositioning and ongoing digital channel investments. The company is committed to reaching its debt leverage target of 2.0x over the next three years, which signals a supportive financial policy. ABI reduced its net debt in 2024 to $62.4 billion, down from $69.9 billion in 2023 and $72.1 billion in 2022. The company has consistently used a sizable portion of its net cash flows to early bond redemptions via tender offers.

The positive outlook reflects the possibility of a ratings increase on ABI within the next 12-24 months if the company continues to show strong business performance and a consistent financial policy that supports further debt reduction. Conversely, the outlook could be revised to stable if ABI is unable to further reduce debt, such that adjusted debt to EBITDA is at or above 3.0x, with no prospect for rapid improvement. This could be due to an unexpected shift in the company’s financial policy or a significant underperformance in the company’s core Latin American markets.

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