AB InBev Profit Growth Tops Expectations on Better Brazil

Anheuser-Busch InBev NV, the world’s biggest brewer, rose the most in more than three years after second-quarter profit growth topped estimates as it improved sales in Brazil and sold higher-priced beers in the U.S.

So-called organic normalized earnings before interest, taxation, amortization and depreciation rose 5.8 percent, the Leuven, Belgium-based brewer of Budweiser said today. That compares with the median estimate of 10 analysts for a 3.7 percent increase. The measure excludes one-time items and the effects of acquisitions and currency fluctuations. AB InBev’s normalized Ebitda totalled $3.9 billion.

Profitability improved in North America as drinkers splashed out on more high-end beers such as Stella Artois and Goose Island and as the company extended production of its Bud Light Lime Lime-a-Rita in three breweries to help limit distribution expenses. Beer volume in Brazil, the company’s second-biggest market, dropped 0.4 percent, improving from the first quarter’s 8.2 percent plunge.

“The volumes were much better than people had expected in the Brazil beer, and there was good margin expansion in the U.S.,” Trevor Stirling, an analyst at Sanford C. Bernstein in London, said today. The brewer also benefited from some one-time factors including lower food inflation in Brazil and the FIFA Confederations Cup soccer tournament in June, he said. “It’s a good set of numbers and the market’s worst fears weren’t realized.”

Stock Performance

Shares of AB InBev, which this year shelled out $20.1 billion to buy the rest of Mexican brewer Grupo Modelo SAB, advanced as much as 7.9 percent, the biggest intraday gain since May 10, 2010. The stock traded up 7.8 percent at 72.95 euros in Brussels at 12:22 p.m., giving the company a market value of 117 billion euros ($155 billion.)

AB InBev sales advanced 3.9 percent on an organic basis, boosted by sales of higher-priced drinks. Analysts had anticipated growth of 3.7 percent. The company estimated it lost 40 basis points of market share in the U.S. as shoppers shifted away from its lower-priced beers. AB InBev has been aiming to sell more expensive beer to support its target of increasing revenue per hectoliter ahead of inflation and to offset a projected “mid single-digit” increase in the cost of sales.

Brazil Volume

The volume of AB InBev’s own beer sold declined less than anticipated as sales in the U.S. and Brazil fell at a slower pace than analysts had expected, with North American organic volume sliding 1.9 percent, and volume in the region AB InBev calls Latin America North 0.5 percent lower. The company repeated its outlook that industry volume in Brazil will be unchanged or drop by a percentage in the low single digits this year amid political unrest in the nation.

Today’s report may lead to a “reconsideration about the company’s medium-term potential in Brazil,” Philip Morrisey, an analyst at Berenberg Bank in London, said today. “They were more positive about the second half, and 2014 may also benefit from the soccer World Cup and potential macro improvements.”

AB InBev raised its guidance for net capital expenditure for this year to about $3.9 billion from a previous target of about $3.7 billion, due to the addition of Mexico in the estimate.