Brazil: Ambev’s Q1 profit misses estimates

Ambev SA, the Latin American unit of Anheuser Busch Inbev NV, missed first-quarter profit estimates on May 4 as rapid growth in costs offset higher volumes in Brazil, Reuters reported.

Ambev's adjusted net income totaled 2.316 billion reais ($732.1 million), below the consensus estimate of 2.795 billion reais, as compiled by Thomson Reuters. Profit fell 20.1 percent between January and March from a year earlier, the steepest decline in three quarters.

The cost of goods sold climbed 26.4 percent on an annual basis, reflecting a weaker currency in Brazil and other South American countries. Costs per hectolitre jumped 23.1 percent, a sign Ambev failed again to fully pass along repressed cost inflation to consumers, especially in Brazil.

Earlier in the day, parent AB InBev said Ambev's costs per hectolitre in Brazil could grow by double-digits in percentage terms during the first half of the year but should decline more pronouncedly between July and December.

Half of São Paulo-based Ambev's sales costs in the country are pegged to the U.S. dollar.

While some indicators pointed to a gradual recovery in margins and volumes, shares seesawed on concerns that the consensus estimate may have to be cut more. The stock rose 1 percent.

"In spite of the expected sequential improvement, consensus numbers still need a downward revision ... so it could be challenging to argue for attractive upside here," said Antonio González, an analyst with Credit Suisse Securities in Mexico City.

The situation underscores the hurdles facing Chief Executive Officer Bernardo Paiva, who is wrestling with Brazil's harshest recession on record, mounting competition and consumer indifference. He says 2017 is a transition year for Ambev as it tries to focus on premium products and costs.

Management plans to discuss results at several conference calls later in the day.

Consolidated volumes rose 3.4 percent, helping to attenuate a 2.8 percent drop in net revenue to 11.242 billion reais. Both revenue and costs, which totaled a higher-than-expected 4.523 billion reais last quarter, missed consensus estimates.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) slumped 17.3 percent to 4.356 billion reais, well below an estimate of 4.932 billion reais.

Due to the rising costs and still-weak volumes, EBITDA was 38.7 percent of sales, almost seven percentage points below the 45.5 percent EBITDA margin reported a year earlier.

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