E-Malt.com News article: 2632

Brazil: Companhia de Bebidas das Americas (AmBev), the Sao Paulo-based brewer that's merging with Interbrew SA, announced on May 12 its results for the first quarter 2004 (1Q04). Company’s consolidated net profit in the first quarter fell 40% on financial costs while beer sales by volume plunged in its home market. Consolidated net profit for AmBev fell for the third time in four quarters, declining to 305 million reais ($99 million) from 509 million reais in the same period a year earlier and also down from 433.7 million reais in the fourth quarter. AmBev was expected to post a profit of about 351 million reais, according to the average of six analyst forecasts collected by Reuters. Costs rose "a lot, much more than we were expecting," said Marcio Kawassaki, an analyst at Fator Doria Atherino brokerage.

AmBev’s Brazilian operations are comprised of the Brazilian beer segment, the Brazilian soft drinks and non-alcoholic noncarbonated (Nanc) segment and the other products segment. AmBev’s consolidated operations are comprised of AmBev’s Brazilian operations and its international operations, which include AmBev’s 50.34% average economic stake in Quinsa in the quarter and other international operations (Venezuela, Guatemala, Peru, Ecuador and Dominican Republic).

AmBev’s consolidated EBITDA reached R$893.6 million, a 32% increase compared to the year-ago quarter. Adjusting 1Q03 EBITDA to reflect the same economic stake in Quinsa we currently own, it would have resulted in a 26.6% growth. “Our strategy to recover market share without compromising profitability continued to present strong results. Our market share reached 65% in March, 180 bps up from December last year.” Brazilian CSD segment performance continued to reflect the benefits of our “right fews” strategy: volumes up 6.3% yoy; net sales up 10.6% yoy; and EBITDA over 124% higher, reaching a 25.5% margin in the 1Q04. International operations accounted for 17.4% of consolidated EBITDA. Quinsa continued to deliver very positive results and our Guatemalan operation is proving to be a remarkable case of a greenfield project.

EBITDA per hectoliter in the Brazilian Beer segment reached R$48.6 in the first quarter 2004, representing a 17.8% growth yoy. Despite the lower beer volume sold and the higher SG&A/hl in the quarter, higher net revenues per hectoliter as well as a slightly better cost, assured an EBITDA margin of 41.9% in the quarter, 90 basis points higher compared to the first quarter 2003. Net sales reached R$1,533.6 million in the quarter, up 8.2% compared to the 1Q03. Net sales were positively impacted by a 15.3% increase in net sales per hectoliter. This increase is the result of the June/July 2003 price adjustment combined with higher volumes sold through our own direct distribution network (37.9% in this quarter versus 27.8% in 1Q03) and the higher presence of ours super-premium brands in the beer portfolio (6.8% of total beer volume sold in the quarter versus 6.1% in 1Q03).

``It looks like the Brazilian market for beer is getting tougher for AmBev,'' said Dubuis in a phone interview. ``I don't hold AmBev but I do hold Interbrew and it does not look good.''

AmBev, which sells beer from Argentina to Guatemala, said beer sales by volume fell 6.2 percent in its core market, Brazil, as the brewer's average share of a shrinking beer market declined. AmBev's performance may raise concern among Interbrew investors as the company presses ahead with plans to take control of AmBev in a $11.2 billion transaction to form the world's second-biggest beermaker, said Edouard Dubuis, who manages about $30 million of consumer goods stocks at Clariden Bank in Zurich.

Earnings came in lower than the median estimate of a 338 million-real profit made by five analysts in a Bloomberg News survey. AmBev preferred shares, which have lost 28 percent of their value since the Interbrew transaction was announced on March 3, rose 1.1 percent to 556 reais on the Sao Paulo stock exchange. Interbrew shares rose 0.4 percent to 24.28 euros.

``Everyone will be looking for evidence of improving trends in the second quarter to see if things are going to turn round,'' said Joaquim Lopez-Doriga, an analyst at Deutsche Bank AG in Mexico City in a phone interview before earnings were released. ``Interbrew investors may be a bit surprised if they're not used to seeing such volatility in earnings. They could get a bit scared.''

AmBev said financial expenses, which include debt servicing costs and the impact of currency fluctuations on its debt, soared to 301 million reais from 38 million reais in the same quarter a year earlier.

Rising financial costs offset an increase in net revenue, which climbed 19 percent to 2.37 billion reais, the company said in a statement sent by e-mail. Revenue is higher for the brewer even after declines in beer volumes because it raised prices since last year.

Even so, AmBev's costs increase as it spent more on marketing to ``face the tougher environment in the beer business,'' AmBev said.

A sales drives begun by its competitor, Primo Schincariol Industria de Cervejas e Refrigerantes SA. Interbrew SA has hurt AmBev's market share. Selling, general and administrative expenses in Brazil surged 31 percent in the quarter to 547.6 million reais.

AmBev had 6.2 billion reais of debt at the end of the first quarter, of which 86 percent is in foreign currency. Earnings before interest, tax, depreciation and amortization, or EBITDA, rose 32 percent to 893.6 million reais, it said.

AmBev benefited from rising sales abroad and an increase in prices and rising volume sales to their direct distribution network in Brazil, the company said.

In Argentina, a recovering economy helped boost beer volume sales by 5.1 percent, while the company was able to raise prices by 10 percent in February. International operations accounted for 17 percent of AmBev's EBITDA, up from 5.9 percent a year earlier, the brewer said.


14 May, 2004