Tags: AmBev | ABV | BUD | PEP

Brazilian Brewer AmBev Bubbling Along

By Julian Dowling   |   Thursday, 18 Aug 2011 11:54 AM

For investors thirsting for a relatively safe play in Latin America with high growth potential, the region’s largest brewer, Brazil’s Companhia de Bebidas das Americas, AmBev (ABV), could hit the spot.

Majority-owned by Anheuser-Busch InBev (BUD) since 2004, AmBev produces and distributes beer and non-alcoholic beverages, including Pepsi (PEP) soft drinks, Lipton iced tea, sports drinks, and mineral water.
Despite weak beer sales in all of its markets in the second quarter, AmBev’s net profit jumped 20.4 percent to $1.16 billion due, mainly to increased prices across the region.

AmBev’s sales volume decreased 0.9 percent to $22.7 billion but its net sales grew 6.2 percent to $3.65 billion as higher prices more than offset the dip in volume.

“Overall, we had a quarter in which we registered important margin expansion in order to compensate for a lower revenue growth driven by a softer industry in most regions where we operate,” said AmBev CEO João Castro Neves.

AmBev has around 70 percent of the Brazilian beer market, with brands such as Antarctica, Brahma, and Skol. Market share continued to climb in the quarter but sales weakened compared to the positive impact of the FIFA World Cup in the same period of 2010 and bad weather in May and June.

“We are adjusting our cost base for a tougher year in volumes, without compromising our long-term goals,” said Castro Neves.

In contrast to its other business units, AmBev reported volume growth of 10.6 percent in Venezuela, Ecuador, Peru, and Central America due to market share gains in most countries.

In Argentina, Uruguay, Paraguay, Bolivia and Chile, poor soft drink sales and increasing raw material and labor costs negatively affected results. However, the beer market in these countries is recovering and AmBev has increased its market share, said Bernardo Paiva, CEO for Latin America South.

In Canada, AmBev’s subsidiary Labatt reported a drop in EBITDA mainly because of marketing investments but noted improved market share and net revenue.

AmBev has about 40 percent of the Canadian beer market with brands including Budweiser, Labatt Blue, Alexander Keith’s, and Kokanee.

Defensive play

Looking ahead, AmBev expects sales to pick up in Brazil next year due to an increase in the country’s minimum wage in early 2012. It also plans to launch Budweiser in Brazil at the end of August.

Around 80 percent of the company’s profits come from beer, making Heineken (HINKY) and fellow Brazilian brewer Schincariol its primary competitors in Latin America. In the soft drinks business, its main competitor is Coca Cola (KO).

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