Brazil brewer Ambev beats second-quarter profit forecasts; shares up 9%

SAO PAULO (Reuters) - Brazilian beverages firm Ambev SA ABEV3.SA on Thursday posted a better-than-expected 8.5% rise in second-quarter net profit, triggering strong gains in its shares.

FILE PHOTO: The AmBev (Companhia de Bebidas das Americas) logo is pictured in their unit in Fortaleza, Brazil January 10, 2019. REUTERS/Paulo Whitaker

The Latin American unit of Anheuser Busch InBev ABI.BR said net income reached 2.616 billion reais ($693.42 million), beating a consensus estimate of 2.286 billion reais ($606.58 million) compiled by Refinitiv.

“2019 has been a good year for us and our portfolio is delivering healthy top line growth that is likely to continue going forward,” Chief Executive Officer Bernardo Paiva told analysts in a conference call.

Ambev shares were up 9.13% in early afternoon trading at 19.60 reais. The stock has risen over 26% so far this year, more than recovering from a 25% drop in 2018.

Paiva said the brewer is betting heavily on premium brands to further boost market share and has no plans to change its pricing strategy despite a still-challenging economic environment in some areas, particularly Brazil and Argentina.

Ambev started raising prices in July and should conclude the process during the third quarter, Paiva said. “At the end of the day you always find ways to be more efficient in how you price your product,” Chief Financial Officer Fernando Tennenbaum said.

Both executives still saw room for the company to further reduce beer discounts and improve margins, especially with cans gaining space over glass bottles in some markets, including Brazil.

Even with premium brands gaining in the Brazilian market, Paiva said core brands such as Brahma and Skol were expected to benefit most if consumer income improves in coming months.

“Innovations in our portfolio’s core brands led to sales growth in Brazil’s the North and Northeast in Q2 and we started seeing a tradeoff movement from value to core,” he said.

Ambev reported quarterly net revenue of 12.145 billion reais, up 5.5% year on year, with double-digit growth in all regions, except for Canada and Latin America South (LAS).

However, the total cost of goods sold rose 13.2% to 4.961 billion reais, partially due to currency exchange effects, higher commodity prices and inflation pressure in Argentina.

In Brazil, beer volumes grew by 2.9% year-over-year, which some market participants saw as a highlight. In Central America and Caribbean, volumes grew by 5.7%.

“We note that Brazil’s profitability in second half of 2019 should benefit from price increase, better product mix and cost of goods sold pressures easing off,” analysts from Goldman Sachs wrote.

The Brazilian subsidiary AmBev, of which AB InBev owns 61.9 percent, has a presence in 16 countries in the Americas, including Argentina and Canada.

(This story corrects name of Ambev CEO to Bernardo Paiva instead of Bernardo Winik in paragraph 3; corrects surname to Paiva instead of Winik in paragraphs 5, 6 and 8)

Reporting by Gabriela Mello; editing by Deepa Babington, David Evans and Cynthia Osterman