Potential Lawsuit Could Spell Trouble for Anheuser-Busch InBev (BUD); Check Out These 2 Stocks Instead

In a piece on April 30, we discussed how an ill-fated decision by Anheuser-Busch InBev SA/NV (BUD) to feature trans influencer Dylan Mulvaney in an ad campaign to celebrate the end of March Madness and promote a sweepstakes contest for its brand, Bud Light, stirred up controversy and outrage from outspoken conservatives over transgender rights.

Earnest efforts to contain damage and restore its brand image included parting ways with two top marketing executives who supervised the ad campaign and releasing an ad featuring its signature Clydesdale horse mascot to invoke patriotic sentiments in its patrons.

However, amid widespread calls for a boycott, Bud Light has seen its sales plummet by about 25% from the previous year, according to data from consulting firm Bump Willams. Consequently, the beer maker lost its top spot in the U.S. beer market last month to Modelo Especial by Constellation Brands, Inc. (STZ), and its parent BUD saw its shares fall from roughly $66 to $58.

While BUD believed that it might have seen the worst and that the backlash would eventually blow over, with 2024’s race to the White House underway, given the recent noise surrounding the beverage company, it ended up courting further unwanted attention.

Florida’s Governor, Ron DeSantis, who is also running for the Republican presidential nomination while riding a wave of anti-"woke" rhetoric, has been involved in a legal tussle with The Walt Disney Company (DIS) for over a year over alleged “targeted campaign of government retaliation” after the company’s former CEO spoke up about the state's classroom (so-called "Don't Say Gay") education bill.

To add fuel to his efforts to hold accountable corporations and other entities he deems are pushing “woke” progressive political ideology, the governor has now trained his guns on BUD.

DeSantis, who oversees the board of the Florida Pension Fund as a trustee along with the state’s attorney general and chief financial officer, both also Republicans, has accused the company of neglecting its stakeholders and pensioners by associating with “radical social ideologies.”

By ordering his government to investigate whether BUD breached its duties to shareholders, the conservative politician could potentially bring a derivative lawsuit against the company on behalf of the fund's shareholders.

In his letter to Lamar Taylor, the interim director of the State Board of Administration, the state agency that manages Florida’s retirement funds for public workers, DeSantis wrote, “We must prudently manage the funds of Florida’s hardworking law enforcement officers, teachers, firefighters, and first responders in a manner that focuses on growing returns, not subsidizing an ideological agenda through woke virtue signaling.”

Since, in the words of DeSantis, “All options are on the table and woke corporations that put ideology ahead of returns should be on notice,” BUD’s time in turbulence seems unlikely to end anytime soon.

The company responded, “Anheuser-Busch InBev takes our responsibility to our shareholders, employees, distributors, and customers seriously.” The spokesperson further added, “We are focused on driving long-term, sustainable growth for them by optimizing our business and providing consumers products to enjoy for any occasion.”

While DIS’ current CEO, Bob Iger, has expressed his determination to back and persist with his company’s legal challenge, a stance that has even been appreciated by Nike’s CEO, it remains to be seen how BUD responds to being in political crosshairs and under legal fire.

According to experts, changing demographics suggest that Bud Light’s inclusive ad campaigns make good sense in the long run and are expected to keep the brand in what, according to BUD’s CEO, is “the business of bringing people together over a beer.”

However, the soup the brand has landed in might warm up the prospects of two other beverage stocks. While the “woke-free” beer being brewed by “Conservative Dad” may not make the cut, here are some contenders to look out for.

Heineken N.V. (HEINY) is a beverage company headquartered in Amsterdam, Netherlands, that is involved in brewing and selling beer. Its offerings consist of beer, soft drinks, and cider. The company operates through five segments: Africa, Middle East & Eastern Europe; Americas; Asia Pacific; Europe and Head Office; and Other/eliminations.

On May 31, HEINY announced the completion of the purchase of its shares worth €333 million ($368.35 million) from FEMSA as part of the sell-down offering by the latter. The purchase, which was funded from HEINY’s existing cash resources and credit facilities, could increase the intrinsic value of the holdings of existing shareholders.

On April 26, HEINY announced the completion of its acquisition of Distell Group Holdings Limited (Distell) and Namibia Breweries Limited (NBL), which have been combined with HEINEKEN South Africa into a new HEINEKEN majority-owned business to capture significant growth opportunities in Southern Africa.

The combined businesses will be known as ‘HEINEKEN Beverages. The rebranding reflects the new company’s multi-category portfolio and commitment to delivering high-quality beverages to consumers across the continent.

Ahead of its July 31 earnings release, HEINY’s revenue for the fiscal second quarter is expected to increase by 33% year-over-year to $9.39 billion. For the entire fiscal year, both revenue and EPS are expected to increase by 15.1% and 16.5% year-over-year to $35.28 and $2.91, respectively.

Ambev S.A. (ABEV), a subsidiary of Interbrew International BVT, is a beverage company headquartered in Sao Paolo, Brazil, that distributes and sells beer, carbonated soft drinks (CSDs), and other non-alcoholic and non-carbonated (NANC) beverages across the Americas. The company operates through three geographical segments: Latin America North; Latin America South; and Canada.

On April 25, ABEV’s Board of Directors approved and homologated the issuance of new common shares as a result of the exercise, by certain beneficiaries, of stock options, within the scope of the company’s Stock Option Plan. This reflects the investors’ confidence in the company’s prospects.

Consequently, on May 18, ABEV announced a share buyback program for the repurchase of shares issued by the company up to the limit of 13,000,000 common shares with the primary purpose of covering any share delivery requirements contemplated in the company's share-based compensation plans or to be held in treasury, canceled, and/or subsequently transferred.

Ahead of its earnings release on August 3, analysts expect ABEV’s revenue to increase by 17.2% year-over-year to $4.03 billion. The company’s revenue is expected to grow by 15.9% year-over-year to $17.73 billion for the entire fiscal year. Moreover, the company has surpassed consensus EPS estimates in each trailing four quarters.