AB InBev: Slight Disappointment Is Nothing to Worry About

The world’s largest beer maker Anheuser-Busch InBev (NYSE:BUD) reported first-quarter earnings that missed expectations as the cost of expansion in Brazil offset the first increase in U.S. beer sales in three years.

The maker of Budweiser, Stella Artois, and Beck’s announced on Monday economic trends were improving in the United States, with unemployment falling and consumer confidence rising. However, the company did admit that a 1 percent rise in volumes was largely the result of mild winter weather. The company predicted softer U.S. shipments in the second quarter.

AB InBev brings in 90 percent of its profit from the Americas, and is currently relying on the fast-growing Brazilian market. The company also depends on a policy of price hikes and trading up to premium brands in the United States, where revenues have risen even while volumes have fallen against a tough economic backdrop. According to Chief Financial Officer Felipe Dutra, AB InBev’s U.S. operations have seen improved trends and market share trends with improving overall conditions.

The company said that shipments for the group rose 1.8 percent in the first quarter, and net profit increased 45 percent due to lower financing costs and a sharply reduced tax rate. On the other hand, its core profit missed forecasts as a result of higher sales and transportation costs in Brazil. AB InBev’s only change to its full-year guidance was for an effective tax rate of 19-21 percent from a previous 21-23 percent range.

The company’s expansion in Brazil saw a rise in distributions costs that pressured profit margins in the region, along with larger than normal state VAT increases. AB InBev predicted a 7.5 percent real increase in the minimum wage to help accelerate consumption in Brazil this year.

According to analysts, improvement in the U.S. and higher costs in Brazil were expected. The headline core profit figure was slightly disappointing, but the higher than expected net profit and lower expected tax rate could boost earning per share estimates. Analysts have said that they would not be surprised for shares to trade flat and later increase, as the U.S. and Brazil show positive signs and tax goes down.

In comparison, rival SABMiller reported a 3 percent rise in beer volumes in the January to March period as growth in emerging markets offset declines in Europe and North America. Europe’s top seller Heineken sold more beer than expected in the first quarter as it persuaded consumers to switch to premium brands. Carlsberg will report first-quarter earnings on May 9, SAB Miller will report on May 24, and MillerCoors — a joint venture between SAB Miller and Molson Coors (NYSE:TAP) — is expected to report on May 8.

Currently, AB InBev has nearly 50 percent of the beer market in the United States, the world’s second biggest after China, and approximately 70 percent in Brazil.  The company announced that U.S. performance was helped by the launch of Bud Light Platinum a week before the Super Bowl. The group also spent more on advertising related to its sponsorship of the National Football League.

AB InBev shares were down 1.54 percent in early afternoon trading.