Brazil: Ambev sees shares plummet after report of weaker operating profit in Q4

Shares in Latin American beverage giant Ambev SA plummeted on February 27 after the firm reported weaker operating profit and flagged ongoing struggles in its core beer business.

The Latin American and Canadian unit of Anheuser Busch InBev posted a 22% rise in fourth-quarter net profit, in line with forecasts, but results showed the impact of competition in Brazil, inflation in Argentina and higher raw material prices.

Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) declined 3% from a year earlier to 6.925 billion reais, missing an average analyst estimate of 7.037 billion reais, according to Refinitiv data.

In a note to clients, BTG Pactual analysts said steep beer promotions in the quarter hurt the brewer and reflected increasing competition. Arch-rival Heineken NV has expanded aggressively in Brazil, Ambev’s biggest market.

Adding to concerns, management told analysts on a call on February 24 that pressures would continue into 2020, contributing to a sharp first-quarter decline in EBITDA from a year earlier.

“This once again underscores how much tougher the (Brazil) beer market has become based on the end of Ambev’s virtual monopoly,” the BTG analysts wrote, adding that its weaker brands in the face of a craft beer boom “puts Ambev’s once remarkable pricing power and operating margins in jeopardy.”

Common shares in Ambev fell nearly 10% in morning trading, before paring losses to around 7%.

AmBev, which is 62%-owned by AB InBev, has a presence in 16 countries in the Americas.