Photographer: Akos Stiller/Bloomberg

AB InBev Takes Beating in Brazil Amid Toughest Quarter in Years

  • Brazil beer volume drops 10%, though April saw improvement
  • Locals drink less beer as economy shrinks, unemployment rises

Anheuser-Busch InBev NV said its Brazilian business had its most challenging quarter in years, with sales sliding as consumer confidence sagged.

Beer volume in the Latin American country -- one of the brewer’s top markets -- fell 10 percent, causing sales and profit growth to miss analysts’ estimates. The shares fell as much as 4.6 percent in Brussels, the most since January.

The Brazilian unit “faced a perfect storm,” Robert Ottenstein, an analyst at Evercore ISI, said in a note. Increased taxes, a sliding economy and the outbreak of the Zika virus all hurt business, he said.

The weak first quarter was a one-off, AB InBev Chief Financial Officer Felipe Dutra said on a call. Brazil’s shrinking economy, high unemployment and low consumer confidence more than offset sales growth in Mexico and compounded a lackluster performance in the U.S., the company’s largest market.

“The weak performance is due to the fact that beer consumption is finally reflecting the challenging macroeconomic environment,” Bryan Garnier analyst Nikolaas Faes said of Brazil. The brewer nonetheless reiterated its forecast for net revenue in the country to grow by mid-to-high single digits for the year, helped in part by the summer Olympics in Rio de Janeiro.

In the U.S., where consumers are increasingly drinking small-batch beer over mainstream brands, AB InBev’s sales to retailers declined, trailing industry growth which the company estimated at 0.7 percent. Bud Light, the country’s best-selling beer, ceded market share despite new packaging and a Super Bowl advert featuring comedians Amy Schumer and Seth Rogen. That decline is starting to ease, Dutra said.

“It is a bit frustrating for investors and the company, but they’re inching in the right direction,” Canaccord Genuity analyst Eddy Hargreaves said of AB InBev’s progress in the U.S., where the company has bought distributors and craft brewers to boost sales.

Selling Brands

AB InBev also reiterated that it expects to close its $108 billion takeover of rival SABMiller Plc in the second half of the year. To satisfy competition regulators, AB InBev is selling some of the target’s beer brands in Europe. South Africa’s antitrust agency has until Thursday to complete its assessment of the deal’s impact on the market there.

In February, AB InBev forecast organic revenue-per-hectoliter growth ahead of inflation, and flagged a weak first quarter performance in Brazil. U.S. volumes would improve this year, the company also said.

Earnings before interest, tax, depreciation and amortization rose to $3.46 billion on the same basis. Analysts expected $3.74 billion.

Before it's here, it's on the Bloomberg Terminal.