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AB InBev Lifts Profits but Struggles in Brazil

05/05/2017 - 14h54

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FINANCIAL TIMES

After a torrid 2016, Anheuser-Busch InBev, the brewer that sells one in four beers globally, reported an increase in underlying first-quarter profits and a return to growth in Brazil but failed to stem the decline of Bud Light in the US.

The Belgium-based group cheered investors with a recovery in beer volumes in recession-hit Brazil in the first three months of 2017 compared with the same period last year.

But the recovery was only partial. Earnings before interest, tax, depreciation and amortisation slid 23 per cent in the country.

Brazil is AB InBev's second-biggest market after the US, with 15 per cent of group sales, and a slump in demand last year hit group profits and disqualified top management from bonuses.

Asked whether he could expect a bonus this year, Felipe Dutra, finance director, said: "We always fight for it as part of our ownership mindset. We definitely expect a better performance this year."

Mr Dutra said the negative currency impact of the devaluation of the Brazilian real against the dollar, would ease later this year.

Sales in the US underperformed the market despite a relaunch of Bud Light, the country's biggest-selling brand. Bud Light continued to lose US market share as did Budweiser, AB InBev's flagship brand.

"Budweiser's share declined by 35 basis points, although its 'Born the Hard Way' Super Bowl commercial was the most watched ad on YouTube," AB InBev said.

But Budweiser did better outside the US, with sales up 16 per cent. Stella Artois, a more premium beer, also had a good quarter with sales 21 per cent higher, driven mainly by the US and Argentina.

US mainstream brands have been under pressure from faster-growing craft brewers. AB InBev's thirst for premium-priced craft brands continued with the acquisition this week of North Carolina-based Wicked Weed, the group's 10th US acquisition in the craft sector.

Revenues rose 3.7 per cent to $12.9bn. Group ebitda of $4.8bn was 5.8 per cent higher on an organic basis, thanks in part to cost savings from the £79bn acquisition of rival brewer SABMiller last year.

Mr Dutra said the integration was on track with $252m of savings extracted in the first quarter, from an expected $2.8bn total.

However, SAB's acquisition costs have not yet been matched by profit growth, which weighed on earnings per share growth.

EPS of $0.74 was higher than last year's $0.51 but lower than analysts' expectations of $0.90.

James Edwardes Jones, analyst at RBC Capital Markets, said: "Until AB InBev delivers meaningful, consistent volume growth, the efficacy of its business model will be open to question."

Analysts at Liberum said: "AB InBev owns the best beer network in the world with market-leading positions in nearly all key markets. As it leverages the power of its enlarged network and broad emerging market footprint, sales growth should accelerate."

The shares rose 4.5 per cent in afternoon trading to €108.75, up 2 per cent over the past 12 months.

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