Sector financial performance:

This company, who has been grouped into regular or mass-produced or premium beer sector of beer industry, is a regular beer brewer.

This is a downturning sector in which all major beer makers have suffered from considerable declining demand in the past several years while have trying to raise price to offset the decreased volume. Since 2017, the trend in US beer market has continued worse as indicated by more than 3% annual decrease in sales volume. However, the decrease in US market seems to have been largely offset by increase in demand from international market. The major reason behind the trend can be explained with economy and changes in beer drinkers’ lifestyle (shifting to premium product and service).

While continuingly declining sales volume in US market hurt companies’ profitability, rising price, especially largely rising price in international market, and improved operation efficiency as a result of active consolidation helped some of major players in this sector successfully improve their margins. The average gross margin of typical companies is about 46% with 24% SG&A/sale. The average operating margin is about 22% (2018). The increasingly intensive competition also caused additional spending on selling and marketing. 

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Company performance:

The declining trend in demand of US market for its brand beers has continued in the past several years as indicated by the declining sales volume to its wholesalers (2-3% annual rate) and in retail. However, the slowing down decline in STW in the recent quarter may be a signal that demand may be coming back in US market. Its performance in international market seems to be better than in its domestic market.

For the first nine months of fiscal 2018 compared with same period of 2017(ended 20180930)

Sales volume of beers increased 0.6% with increase of 4.3% in unit price.

US STR (volume) declined 2.6% and US STW (volume) declined 3.4.

For fiscal 2017 compared with 2016

Sales volume of beers increased 0.6% with increase 5.1% in price.

US STR (volume) declined 3% and US STW (volume) declined 3.5 due to lower sales in light and premium beers.

For fiscal 2016 compared with 2015

Sales volume decreased 1.9% offset by increase of 4.4% in price.

US STR (volume) declined 2% and US STW (volume) declined 1.7 due to lower sales in light and premium beers.

In the current situation, this company’s merger and acquisition indeed give it an opportunity to improve operating efficiency and save synergies. In addition, the continuingly rising sales price improved its gross margin with the help of slightly increasing sales volume of worldwide. Its gross margin is about 52% with about 21% SG&A% and thus it presents an about 31% operating margin.

Stock price

As we can see from our relativity of valuation methods and analysis that its acquisition with Sabmiller presents addition to this company, its enterprise price/EBI ratio of 19 ($76) may be slightly overvalued compared with its peers considering its ability to maintain its high margin/high price.