Ambev’s Profits Fall Amid Higher Costs, Aims for Growth Goals at Qatar World Cup

The beverage giant is betting on the FIFA 2022 Qatar World Cup to boost last-quarter results after beer-sales growth in Brazil stalls

Higher commodities prices and freight costs have impacted Ambev's bottom line
October 27, 2022 | 11:27 AM

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São Paulo — Despite double-digit growth (11%) in its 20.5-billion-reis ($3.88 billion) quarterly revenues, Ambev (ABEV3) suffered the effects of high inflation and higher commodity prices in the third quarter, with profits down 13%, to 3.2 billion reais ($605.7 million), compared with second quarter.

The growth in revenues was mainly due to its focus on the premium beer segment, Ambev said.

Looking ahead, the Brazilian beverage giant hopes to boost its sales during the FIFA 2022 World Cup in Qatar, which starts on November 20, since it is the first time that the mega sporting event will be held during the summer period in the southern hemisphere.

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During third quarter, growth in the volume of beer sales in Brazil stalled, something that the company attributed to the strong comparison base of the same period last year, when its profit grew more than expected.

To reverse the stagnation of beer sales in Brazil, Ambev has increased its focus on foreign, more expensive brands, aimed at consumers willing to pay more in the domestic market, and which is a strategy that the numbers show is working.

“Our businesses in Brazil continue to build momentum, delivering double-digit growth in revenue and EBITDA, which more than offset continued headwinds in some of our international operations,” said the company’s CEO, Jean Jereissati, in a statement.

To help consolidate the “core-plus” segment, the beverage manufacturer resorted, for example, to a traditional German pure malt brand, launched a year ago in Brazil: Spaten.

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According to the company, the brand surprised Ambev by leading the development of the “core-plus” segment. The brands in this segment currently represent around 10% of Ambev’s total beer volume.

Before the pandemic, the segment’s contribution rate was 4%.

“Innovations have represented more than 15% of our net revenue, and Brahma Double Malt and Spaten lead the development of our core-plus segment, representing more than 25% of volume growth compared to 2018″, the company said in a statement, adding that it is now better positioned to boost its result compared to the previous World Cup in 2018.

Higher diesel and freight costs

The international operations of the Brazilian multinational also weighed on the result. The negative highlight was the decline in sales volumes in Central America and the Caribbean, which decreased 19.7%, with the sharpest declines in the Dominican Republic and Panama, due to a highly inflationary environment.

In addition, costs and expenses were higher due to the continued increase in commodity prices, as well as rising inflation that pushed up diesel fuel and ocean freight costs, as the region is more dependent on imports.

“Rising inflation and supply chain disruption hit the region hard,” the company said.

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Analysis of results

By highlighting points of Ambev’s balance sheet, Bradesco BBI’s team predicted, in a note, a positive reaction from investors on the B3, considering that the company’s adjusted EBITDA (5.6 billion reais) came slightly above market expectations, and that of its analysts (5.5 billion reais), due to the company’s Brazilian division’s better-than-expected results.

Bradesco BBI pointed out two reasons for that: EBITDA 1% above the expected level for the Brazil beer division (the main driver of Ambev’s shares) due to stable volumes in relation to the same period last year, and which was above analysts’ projections of a 1% drop, and EBITDA 13% above the result expected for the non-alcoholic beverages division on volumes 3.5% above expectations and cost of goods sold per hectoliter below the estimated level.

In turn, the team of Genial Investimentos, which has a sell recommendation for Ambev shares, said “cost pressures and persistent inflation continue to negatively affect the brewery’s result”.