Anheuser-Busch InBev SA/NV Q3 FY2024 Earnings Call

Welcome to AB InBev's Third Quarter 2024 Earnings Conference Call and Webcast. Hosting the call today from AB InBev are Mr. Michel Doukeris, Chief Executive Officer, and Mr. Fernando Tennenbaum, Chief Financial Officer. To access the slides accompanying today's call, please visit AB InBev's website at www.ab-inbev.com and click on the Investors tab and the Reports and Results Center page. Today's webcast will be available for on-demand playback later today. At this time, all participants have been placed in a listen-only mode. The floor will be open for your questions following the presentation. Some of the information provided during the conference call may contain statements of future expectations and other forward-looking statements. These expectations are based on management's current views and assumptions and involve known and unknown risks and uncertainties. It is possible that AB InBev's actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. For a discussion of some of the risks and important factors that could affect AB InBev's future results, see the risk factors in the company's latest annual report on Form 20-F filed with the Securities and Exchange Commission on March 11, 2024. AB InBev assumes no obligation to update or revise any forward-looking information provided during the conference call and shall not be liable for any action taken in reliance upon such information. It is now my pleasure to turn the floor over to Mr. Michel Doukeris. Sir, you may begin.

Thank you, and welcome, everyone, to our third quarter 2024 earnings call. It is a great pleasure to be speaking with you all today. Today, Fernando and I will take you through our third quarter operating highlights and provide you with an update on the progress we have made in executing our strategic priorities. After that, we will be happy to answer your questions. Let's start with our operating performance and the key highlights for the quarter. The global momentum of our business continued this quarter with the consistent execution of our strategy delivering revenue growth in more than 60% of our markets and overall EBITDA growth of 7.1% with margin expansion of 169 basis points. Organic growth and the ongoing optimization of our business delivered another quarter of double-digit underlying dollar EPS growth. As a result of our performance in the first nine months of the year and our continued momentum, we are raising our full-year EBITDA outlook to 6% to 8%. In addition, we have announced that we will be proceeding with a $2 billion share buyback program to be executed within the next 12 months. While the operating environment remains dynamic in some of our markets, the strength of our global footprint, brand portfolio, and our focus on disciplined resource allocation are enabling us to invest for the long-term while delivering efficient and profitable growth. Turning to our operating performance. Total revenue grew by 2.1% this quarter with our revenue management choices and ongoing premiumization driving revenue per hectoliter growth of 4.6%. Volumes increased in 50% of our markets. However, growth was offset by a soft consumer environment in China and Argentina, resulting in an overall volume decline of 2.4%. As we noted at our full-year '23 results, for 2024, the definition of organic growth in Argentina has been amended to cap the price growth to a maximum of 26.8% year-over-year. We delivered broad-based growth this quarter with revenue increases in more than 60% of our markets and EBITDA growth and margin expansion in four of our five operating regions. Our diversified geographic footprint enables us to deliver consistent results and has us well placed to drive superior long-term value creation. Now I'll take a few minutes to walk you through the operational highlights for the quarter from our key regions, starting with North America. In the U.S., the beer industry remains resilient, improving in both volume and revenue trends quarter-over-quarter. Our beer portfolio gained volume share of the industry, driven by Michelob ULTRA and Busch Light, which were two of the top three volume share gainers in the industry. Our improved market share trend and productivity initiatives drove EBITDA growth of 13.7% with a margin improvement of approximately 375 basis points. Our business in the U.S. is regaining momentum, and we are continuing to invest to fuel the growth. Now moving to Middle Americas. In Mexico, our volumes declined by low-single digits, outperforming the industry, which was negatively impacted by adverse weather in a slower economic environment. Revenue was flattish, and EBITDA grew by mid-single digits with margin expansion. In Colombia, our business delivered high-single digit top line and double-digit bottom line growth with margin expansion. Beer volumes were flattish, while total volumes declined by low-single digits as the industry was impacted by a week-long national trucking strike in September. Our premium and super premium brands led our performance, delivering high teens volume growth. In South America, our business in Brazil delivered mid-single digit top line and double-digit bottom line growth with margin expansion of 174 basis points. Volume increased by 1.3%, led by our premium and super premium brands, which delivered volume growth in the low 20s. Now let's talk about EMEA. In Europe, we grew bottom line by low-single digits with further margin recovery. Volumes declined by low-single digits, estimated to have outperformed the soft industry in the majority of our markets. Our portfolio continues to premiumize with our premium and super premium portfolio making up approximately 57% of our revenue. Performance was led by Corona, which delivered another quarter of double-digit volume growth. In South Africa, the momentum of our business continued, delivering double-digit top and bottom line growth with margin expansion. Volumes increased by low-single digits, with our performance driven by our above core brands, which grew volumes by high teens, led by Corona and Stella Artois. In APAC, in China, a soft consumer environment continued to impact the overall beer industry and our performance, particularly from continued weakness in the on-premise channel. As a result, our revenue declined by 16.1% this quarter. While the industry has had a challenging nine months, we continue to focus on controlling what we can control. The consistent execution of our strategy, investing in our brands and digital capabilities to drive value for our customers and consumers, remaining disciplined with our cost and revenue management initiatives, and agile with our commercial investments. We remain confident that we are well-positioned to capture the future growth opportunities given the consumer demand for our premium and super premium brands and our unwavering commitment to invest for the long-term. Now let's discuss our strategic pillars. Let's start with pillar one of our strategy, lead and grow the category. While our overall growth was constrained by performance in China, our mega brands continue to lead our growth. Increasing net revenue by 3.1%, led by Corona, which grew revenue by 10.2% outside of Mexico. With a more focused portfolio, we are disproportionately investing in our mega brands to increase our brand power and drive efficient growth. Through the consistent execution of our replicable growth drivers, in our five category expansion levers, we are leading and growing the category by offering superior corporate positions, developing new consumption occasions, and expanding our premium and old beer portfolios. As part of our strategy to lead and grow the category, we view the non-alcohol beer segment as a key opportunity to develop new beer consumption occasions. The Olympics mega platform provided us with a unique opportunity to activate Corona Cero at scale across more than 40 markets. We gained market share of non-alcohol beer in over 60% of our key markets in the third quarter with Corona Cero more than doubling both volumes and revenues. While non-alcohol beer is currently a small portion of our global volume, we believe there is a significant opportunity for incremental growth, and we are committed to providing consumers with best-in-class liquids and brands to lead the development of the segment. Now let's turn to our second strategic pillar digitized and monetize our ecosystem. This continues to expand usage and reach, capturing approximately $12.1 billion in gross merchandising value, a 14% increase year-over-year, and reaching 3.9 million monthly active users. Customer subsection improved with our Net Promoter Score improving to plus 66. This marketplace continued to grow, generating 9.5 million orders of non-ABI products and delivering $630 million in GMV this quarter, an increase of 51% versus last year. This is the equivalent of approximately $2.5 billion on an annualized basis. Now let's talk about our direct relationship with our consumers. Through our digital direct-to-consumer platforms, we generated approximately 19 million unique orders and 11% revenue growth this quarter. That's 19 million data points to generate deep consumer insights, develop new consumption occasions, and drive incremental revenue for our business. With that, I would like to hand it over to Fernando to discuss the third pillar of our strategy, optimize our business. Fernando, over to you.

Thank you, Michel. Good morning. Good afternoon, everyone. First, let me share how we have progressed on some of our 2025 sustainability growth in the first nine months of 2024. In climate action, we continue to focus on reducing emissions across our operations globally. Our scopes 1 and 2 emissions per hectoliter of production have improved by 46% versus our 2017 baseline. In water stewardship, our water use efficiency ratio improved to 2.47 hectoliters per hectoliter year-to-date versus 2.53% in the same period last year as we continue working towards our ambition to reach 2.50 hectoliters per hectoliter on an annual basis by 2025. Moving to our financial performance. Our EBITDA margin improved by 169 basis points this quarter with margin expansions in four of our five operating regions. Our leadership advantages, disciplined revenue management, continued premiumization, and efficient operating model create an opportunity for further margin expansion over time. Turning to our debt profile. You can see that our debt maturities remain well distributed with no relevant medium-term refinancing needs. We have approximately $3 billion worth of bonds maturing through 2026, a weighted average maturity of 14 years, and no financial covenants. We delivered underlying EPS of $0.98 per share, a 14% increase versus last year. Organic EBITDA growth accounted for a $0.19 per share increase, which was mostly offset by translational FX headwinds. As we continue to optimize our business, improvements in below EBITDA items drove the balance of our EPS growth, such as lower net interest expense from active net debt management and continued deleveraging, as well as lower cost of hedging and reduced FX losses. Given our continued progress on deleveraging, we have additional flexibility in our capital allocation choices. We remain disciplined with our capital allocation decisions, which we are dynamically balancing to maximize long-term value creation. We remain confident in the long-term growth of our business and have announced today that we'll be proceeding with a $2 billion share buyback program to be executed within the next 12 months. With that, I would like to hand back to Michel for some final comments before we start our Q&A session. Michel?

Thanks, Fernando. Before opening for Q&A, I would like to take a moment to recap on the quarter. We have a resilient strategy that, like beer, works for all occasions. And we continue to make progress executing across each of our three strategic pillars. Driven by the continued momentum of our mega brands, we gained or maintained market share and delivered revenue growth in 60% of our markets. This marketplace continues to expand, increasing GMV of third-party products by 51% versus last year. EBITDA grew by 7.1% and, giving our performance year-to-date, we are raising our full-year outlook to 6% to 8%. As we continue to optimize our business, underlying EPS increased by double digits and we are announcing the launch of a $2 billion share buyback program. Wrapping up, we continue to be encouraged by our operating results, and we are well positioned to take advantage of the opportunities ahead of us to generate superior value for our stakeholders. With that, I will hand it back to the operator for the Q&A.

The floor is now open for questions. Our first question comes from Rob Ottenstein with Evercore ISI. Please proceed with your questions.

Great, thanks you very much. So Michel, it looks like your market share in the U.S. is stabilizing, maybe even improving, and the overall business is gaining momentum. So I was just wondering, it's been a long and tougher deal; could you assess and your thinking about the progress of the U.S. business? Any kind of tweaks or changes strategy kind of looking forward, levers to pull, as well as key initiatives for 2025 to build on the momentum, maybe touching on Michelob ULTRA Zero. Thank you.

Robert, good morning. Thanks for the question. Maybe step back for a second and talk about the U.S. We see that the industry remains resilient and actually improved in the third quarter versus the second quarter. The latest data now that we see this month shows further improvement. So I think that this is a good signal for the U.S. market. In terms of our strategy, we continue to make progress, and we discussed this before. In the U.S., it's all about rebalancing our portfolio towards growing segments while stabilizing our mainstream brands. The consistent execution behind our brands is driving some very good outcomes. We saw this quarter Michelob ULTRA and Busch Light, for example, among the top 3 brands in volume growth, with Michelob ULTRA leading in the quarter as #1. When you think about Busch Light in the mainstream segment leading growth as well, it is noteworthy that we hadn't seen a brand in the midstream gain share in such a consistent way. So there is very strong momentum for Busch Light. The bet that we have on new brands, Corona is doing very well, and especially when you look at the old beer, both Cutwater and NUTRL are driving very good growth. We have now this 1.8% share in the spirit segment. Just to make the point, these two brands in the quarter represented more than one-third of the entire growth of the spirits industry in revenues in the U.S. So as we look forward, we will continue to invest to accelerate this momentum. Next year, you mentioned we have some new tools to play with, one that everybody is very excited about is Michelob ULTRA Zero, which is a very good liquid. The brand itself represents this trend in the segment. If we can add Michelob ULTRA growth with the Zero proposition, then you can see how much contribution this can bring to the entire system. So I think that increasing investments and keeping the focus on what is working while further accelerating the momentum we are building throughout the year will be our approach. Thanks for the question, Robert.

Thank you.

Thank you. Our next questions come from the line of Edward Mundy with Jefferies. Please proceed with your questions.

Good morning, Michel. Good morning, Fernando. So first question is around China. Michel, this is a market you’re very familiar with. Perhaps you can unpack a little bit what's happened in this quarter. Is your view this as cyclical or structural? And when you think about potential recovery, what things will you be tracking for any signs of green shoots? And then, Fernando, one on margins: pretty good margin recovery this year despite the challenges in Asia-Pac. Based on what you're seeing on key line items going into 2025, are there any flags that would suggest that profits won't be able to grow ahead of sales into next year?

Hi, good afternoon. Let me take the first one here, and then I'll hand it over to Fernando. So in China, what we observe is a soft consumer environment that continues to impact the overall consumer goods sector, the beer market, and our own performance. We just spent a full week in China, and at the end of the day, when you look at the overall conditions in the market, they are not deteriorating too badly, but they are not good because consumers are holding on to occasions and consuming less out of home. You know that our footprint skews towards the East Coast, but a lot towards out-of-home, and both the East Coast had some very bad weather conditions, but also people are going less to restaurants, bars, and out-of-home occasions. Our STWs lagged our STR sales because we keep an eye, especially after the summer, on the inventories, and we want to have very fresh beer and very controlled inventories while ensuring that our route to market is very healthy. So we play the long-term game in China always, controlling prices, controlling the rough market, and managing inventories well. This means when conditions get better, our route to market and our brands can recover faster than the competition. We haven't seen an improvement in the short term, to be honest, other than the weather looking more normal now as we phase from summer to autumn. And we think that not in the short term will things improve too quickly, but the power of our brands and consumer demand remains healthy when conditions are appropriate. We do have some innovation working well under Harbin, which is gaining momentum and growing. So we are optimistic about that. It will take some time before we see the overall conditions in China improving, but the brands are healthy, the route to market is healthy, inventories are fine, and we have some good innovations playing in our favor there.

Hi, Ed, Fernando here. So on your second question about costs, we don't give any specific guidance or outlook for costs into next year, and this year hasn't finished yet. There are some prices that are still open. But if you look at the prices to date, 2025 seems like more of an ordinary year. So you should expect some cost pressures, like with some items such as aluminum, which will have slight cost pressures, while some grains will be in your favor, with varying effects by market. Overall, we anticipate to see some cost pressures that align more closely with inflation, so it won't be anything massively out of line as we have seen in previous years. The important thing to note is that when you look at our margins, I see no reasons why our margins would not improve. If you look at where they come from, the previous years had very high commodity increases that were way above inflation. Now that things are getting more normalized, we definitely see a path for margins to continue to improve going forward.

And Ed, just elaborating on my answer because I think you posed two questions about the short-term and the long-term in China, and I didn't mention the long-term. When you look at the fundamentals for the long-term, the size of the industry, the premiumization, and the power of our brands commanding both share gains and premium price, we don't see changes on that. When you talk to consumers and observe how retailers are developing, under the right conditions, consumption is developing in China, and we are gaining share of throat, which is a very interesting trend happening there. Long-term fundamentals remain in place, and the potential for price growth in the market remains substantial.

Thanks.

Thank you. Our next questions come from the line of Sanjeet Aujla with UBS. Please proceed with your questions.

Good morning, Michel and Fernando. A couple for me, please. Firstly, Michel, can you just dig into the Middle Americas region and give us a view of the consumer kind of broader macro landscape and how you're thinking about that into 2025? And my second question for Fernando, just coming on to capital allocation with the share buyback announcement today. I just wanted to get your view on how you're thinking about dividends versus buybacks. I don't think in the past you had rebalanced your dividends with the interim dividend as well; is that something you could potentially look to in the focus of time? Thanks.

Hi, Sanjeet, good afternoon. I'll take the first one and then Fernando will handle the second. So Middle Americas, if you look at the year so far, we are seeing strength in the industry, very good demand for our brands, and solid performance across all markets. The short-term was a little bit abnormal—it had a little bit of everything. For instance, if you consider the weather, it was colder than expected across Middle Americas, especially in Mexico. Also, the elections impacted government expenditure in the first half of the year, which might lead us to see some turbulence in quarters three and four due to the differential spent from the government. If you look at markets such as Colombia, we have record-high sales to retailers in this quarter. Our market share remains healthy across the majority of markets. In Mexico specifically, we expect some phasing effects from government investments in quarters four and one next year, but the longer-term outlook is strong. Remittances in dollars remain robust, and the fundamentals of the markets are strong because participation is increasing. Inflation is moving down, and purchasing power is normalizing. So there is some normalization happening now, but the fundamentals remain solid for us.

And Sanjeet, Fernando here on your second question. Before discussing any specific trade-off, I would like to give a step back to discuss our capital allocation choices. The key thing is that our objective is to maximize value creation. We have various options, from deleveraging, buybacks, to different M&A decisions, or the choice between dividends and share buybacks. Rest assured, we remain disciplined in our capital allocation decisions. With respect to the added flexibility we have, the share buyback speaks to that. Last year, we executed a $1 billion share buyback; this year we're doing a $2 billion buyback, which speaks to our greater flexibility. However, we will continue to make decisions dynamically because the optimal combination can alter depending on the moment. Deleveraging remains a priority, and this added share buyback demonstrates our confidence in pursuing it, combined with our robust business performance and cash flow.

Thank you very much.

Thank you. Our next question has come from the line of Laurence Whyatt with Barclays. Please proceed with your questions.

Hi, thanks very much. A couple of questions for me as well. Following on from the inquiry about the share buyback, you mentioned that the buyback is going to be $2 billion now from $1 billion last year. I was wondering if you could be precise as to why you chose that number specifically. You could have gone with $1.5 billion, you could have gone with $2.5 billion. Why specifically was that $2 billion this year? And then, secondly, we've seen a bit of weakness across the European markets at ABI and across a number of other consumer staples companies. Do you think there's anything structurally going wrong within European countries with regards to why the consumers are behaving more weakly recently? Thank you.

Hi, Laurence, Fernando here. Regarding your first question about the share buyback, our capital allocation is dynamic. We balance different priorities at a given moment in time to create shareholder value. The $2 billion buyback reflects the added flexibility we have this year and echoes our ability to concentrate strong cash flows within our business. I wouldn’t elaborate much more—it can vary based on circumstances, but this decision reflects the current confidence we have.

Michel here, Laurence. On Europe, I think that looking back at the third quarter, similar to my comments regarding Mexico, summer in Europe was a bit unusual. It was weaker in terms of weather than expected. Nevertheless, we achieved flattish top line and gained share in most of our markets. Look at the full year-to-date: Europe appears healthy in terms of share and financial performance, with consumers trading up in beer categories favoring our portfolio. More than half of our brands are in the premium and super-premium segments. We observe competitors aggressively increasing promotional activities to chase volume, compromising brand integrity. We remain focused on long-term premiumization, and our revenue per hectoliter is well above competition due to our channel shift into premium and super-premium growth, keeping us well positioned for positive outcomes moving forward.

Understood.

Thank you. Our next question has come from the line of Mitch Collett with Deutsche Bank. Please proceed with your questions.

Thank you. Hi, Michel. Hi, Fernando. Two questions on the U.S., please. You talked earlier about the success you're having with Busch Light. Could you provide a bit more color on what's driving the strength of that brand and how should we think about its growth and share gain opportunity going forward? And then my follow-up, again, you mentioned the success of spirit-based RTD, which grew, I think mid-teens. How big do you think the spirits-based RTD segment can become for you? And are there any particular production constraints that we should be mindful of?

Hi, Mitch, thank you for the question. Our U.S. business is regaining momentum, and we're investing to fuel growth where we have the biggest opportunities to grow our business and our brands in the U.S. Talking specifically about Busch Light, it has been growing for many quarters in a row. It was the third fastest-growing brand in the industry this quarter. When you analyze the mainstream segment, let’s note that Busch Light is a 10% share brand in the Great Lakes, Midwest, and the Corn Belt. In the rest of the country, it holds only a 2% to 3% share, presenting a massive opportunity across half the country. This brand over-indexes amongst consumers aged 24-25, indicating a huge long-term potential for the brand. The platforms it activates around outdoor and lifestyle occasions are resonating well with consumers. We are continuing to see strong growth in off-trade channels, as well as in on-trade, contributing to consistent gains. With regard to spirit-based ready-to-drink propositions, we currently hold just 1.8% share in the spirits industry, but these two brands together represented over one-third of the industry's revenue growth in the U.S. The production differences between beer and ready-to-drink spirits yield good installed capacity. Consumer demand is high and growing with our formulations, and they are outpacing distribution growth, which remains significant for both brands. We are expanding merchant reach, especially by growing Cutwater in California, where it possesses a strong 40%-plus market share, alongside NUTRL expanding from the southeast to broader regions. There are enormous growth opportunities for both brands, and we’ll continue to facilitate their healthy development.

Great color.

Thank you. Our next questions come from the line of Chris Pitcher with Redburn Atlantic. Please proceed with your questions.

Hi, thanks very much for the questions. Apologies, I missed a bit of the call, but I have two questions for you. Firstly, on China, again, looking at the impact that the volumes have had on EBITDA. How flexible are you in terms of your media investment there? Are you able to course-correct quite quickly and redeploy investment from China elsewhere in the region, which helps soften some of that negative operating leverage that would have been expected? And then, secondly, could you give us a bit more detail on the BEES rollout in some of those markets where you don't have the big market shares that you do in Latin America? How well is it being received by retailers in Europe or the U.S.? Thanks very much.

Thank you, Chris. So on the China matter, the main takeaway is that long-term, the fundamentals for the industry remain strong, including premiumization and demand for our brands. Regarding media investment, we maintain strict control over our budgets and spend efficiently on our brands for long-term growth. This does include potential relocation of funds towards markets with stronger performance or growth potential. For instance, we have been successfully honoring our strong markets in South Korea and India, where we see plenty of opportunity in both premium categories, supported through active investment. In China, our BEES initiative has significant reach; we are operating in over 300 cities with a view that 70% of our total revenues flow through this channel. We use it advantageously to maintain visibility in these cities, gaining a competitive advantage. Our BEES strategy enhances our reach both directly and indirectly, and this creates further opportunities for us to control the marketplace effectively in terms of non-ABI products, showing impressive growth.

Thank you. Our next questions come from the line of Simon Hales with Citi. Please proceed with your questions.

Hey, thanks. Hi, Michel. Hi, Fernando. Just a couple for me then. Firstly, sorry to come back again to the comments around the share buyback program. But I just want to understand, Fernando; does the planned $2 billion buyback, as it stands, include any capacity to potentially buy back stock from Altria if they were to choose to place again? Or would any participation in a further placing come on top of that $2 billion buyback? And then the second question, I wonder, Michel, if you could talk a little bit more about what you're seeing from a pricing and a competitive environment standpoint in Brazil at the moment? What you've seen in Q3 and perhaps more importantly, are we seeing any signs at all of easing price pressures, particularly from Metropolis as we head into the back end of the year?

Simon, Fernando here. Regarding your first question, I cannot speak to Altria's intention regarding future placements. We're going to execute our capital allocation within our framework, emphasizing maximizing value for our shareholders while remaining disciplined. Regarding your second question, the quarter in Brazil looks solid; we experienced double-digit EBITDA growth and margin expansion with healthy net revenues per liter from both pricing and premiumization. The industry in Brazil is healthy and continues to premiumize. There's competitive activity primarily at the value segment where our competitors are gaining share and may operate more aggressively. Nevertheless, we are advancing share gains in the premium segment with brands like Budweiser and Corona, which have plenty of growth potential, and our overall portfolio remains resilient against pricing pressures.

Solid quarter indeed. It's a competitive market in Brazil. We do face competition on both the low end, where rivals are trading shares, and at the premium end, where our brands are currently gaining significant share. Consumers are responding favorably to our offerings, and brands like Corona are experiencing a great year with substantial growth opportunities ahead. With a robust portfolio of premium products and advanced distribution management, we're in a great position to attract consumers while maintaining healthy prices.

Thank you. Our next questions come from the line of Andrea Pistacchi with Bank of America. Please proceed with your questions.

Yes, so thank you. I also have two, please. The first one is a general one on SG&A. So probably for Fernando. So besides in the U.S. where your SG&A is down this year, also in other regions, your SG&A has grown at a pretty modest level this year, completely below the levels of recent years. Are there any specific factors behind this, like a more conscious cost control effort across the group this year or efficiencies in any specific functional areas or, I don't know, distribution costs increasing less because most of the upfront investments for these B2C are in the base now? Then the second question is on the U.S. Just going back to the recent share gains this year on the portfolio rebalancing. Michel, do you feel there was a portfolio rebalancing that you had much discussed? Do you think the portfolio is now at a point, or close to the point, where you can continue to hold or even grow slightly going forward, even once you've lapped the easy comps next year?

Andrea, Fernando here. Before diving into SG&A specifics, I want to emphasize optimizing our business is a key pillar of our strategy. We aim to ensure our spend generates desired returns. This effort spans all regions, cutting across all expenses. Comparing SG&A this year to prior years, some of the discrepancies are from our cost efficiency mindsets rather than specific initiatives. Of course, in the U.S., there are comps from previous years that affected costs, but we are focused on deriving the most value from our investments by constantly optimally re-evaluating expenditures, which will enhance our business's overall efficiency.

On the second part of your question regarding our U.S. portfolio rebalancing, we are indeed making progress on that strategy. We have a robust mainstream portfolio that needs stabilization and growth, and achieving milestones with brands like Busch Light is crucial. Around 45% of our portfolio aligns above Core segments, which are positioned for growth, while also ensuring mainstream brands are stabilized. We’ve seen significant gains, highlighted by Busch Light's strong performance, complementing our growth in premium brands. Additionally, brands such as Michelob ULTRA continue to see profitability and hit upward growth, which allows us to effectively capture long-term opportunities in both on-trade and off-trade channels.

Thank you.

Thank you. Our final questions will come from the line of Celine Pannuti with JPMorgan. Please proceed with your questions.

Good morning, good afternoon. My question is one question and maybe Fernando, to come back on your point about the opportunity for margin upside in the short and midterm. And clearly, you did well year-to-date. I wanted to know if you could give me two specific points. First of all, in terms of the operational deleverage that you've seen from volume impact this year. Could you try to help us quantify what has been the headwind in the nine months? And as we look into next year, thinking about what you said in a normalized environment, in terms of cost inflation, can you help us understand your ability to price? We discussed China mix, and we discuss Brazil. Is there any other regions where you feel that things may be tough as you look into next year? And if you could remind me how big premiumization is in your portfolio and what has been the performance? Thank you.

Hi, Celine. So a lot of questions into one. Let me start kind of on your first piece: volume deleverage margins and what is normalized going forward. More volume certainly helps, however, we also maintain meaningful scale thus allowing us to optimize our network through distribution, regardless of small swings in individual volumes. While significant variations can create challenges, we expect to manage through anticipated normal seasonal ranges. When I mention normalizing costs, I mean that we expect pressures from commodities similar to inflation metrics as we did in 2021, 2022, and 2023, where costs escalated sharply. Moving forward, your normal pricing dynamics should enable continued profitability growth while there are opportunities that can enhance our operational performance.

Celine, to build on your other points, we remain committed to managing brand strength over the long term and innovating to optimize consumer value. We're investing in initiatives that yield the best economic returns, leveraging our strongest brands to drive pricing power. At present, we have less than 40% of our global volumes in premium segments—significant headroom for future performance. The ongoing strength of our brands translated over a solid revenue management capability, as our premium and super-premium segments ongoing visibility remains crucial while price approaches outpace inflation, leading to healthy margin improvements.

Thank you.

Thank you. This was the final question. If your question has not been answered, please feel free to contact the Investor Relations team. I will now turn the floor back over to Mr. Michel Doukeris for closing remarks.

Thank you. So thank you for all your time today. Thank you for the ongoing partnership and support for our business. Stay safe and well, and talk soon.

Thank you. This concludes today's earnings conference call and webcast. Please disconnect your lines and have a wonderful day.