UPDATE 2-AmBev profit effervescent on price rise, cost cuts

reuters.com Mon February 24, 2003 10:51 AM ET (Recasts with details, analyst comment, background, share price)

By Nicholas Winning

SAO PAULO, Brazil, Feb 24 (Reuters) - Brazil's AmBev ABV.N AMBV4.SA , the world's fifth-largest brewer, on Monday posted slightly stronger-than-expected fourth quarter earnings as price rises and cost cuts offset a drop in sales volumes.

Companhia de Bebidas das Americas (AmBev) failed last year to match 2001 sales volumes as Brazil's economy posted sluggish growth, although a drive to expand into new Latin American markets helped it bolster international beer sales volumes.

Although sales were stronger in the last three months of the year than they were over the same period in 2001, the volume of beer sold in Brazil dropped 1.7 percent in 2002 while soft drink volumes fell 1.1 percent.

Nevertheless, price hikes in October to compensate for higher dollar-linked ingredients and packaging costs, coupled with greater direct distribution, and more sales of premium and new more expensive niche brands, boosted Brazil beer revenues.

Costs of beer sold fell due to "better U.S. dollar prices for aluminum cans, malt and hops, as well as a shift in the packaging toward returnable bottles," AmBev said in a statement.

Fourth quarter earnings before interest, tax, depreciation and amortization (EBITDA), the gauge of operating performance many analysts focus on, jumped to 1.1 billion reais ($304.6 million) from 761.5 million reais in the year-earlier period.

The market expected the company, which was formed from the 2000 merger of Brazil's two biggest beverage firms, to post EBITDA of 1 billion reais, according to an average of five forecasts collected by Reuters last week.

Fourth quarter net profit leaped to 431.4 million reais from 178.7 million in the same period in 2001. That fell short of the analysts' average forecast of 653 million reais after the firm unexpectedly hiked its provision for taxes.

"The operational side was above what we were expecting, and they made a much bigger provision for tax than they normally do which is why the net profit was below expectations," said Fabio Zagatti, an analyst at HSBC CTVM Research.

AmBev stock dipped 0.4 percent to 513 reais in early trade in Brazil. The country's benchmark Bovespa .BVSP stock index was 0.5 percent higher at the time. AmBev's stock has lost 5 percent of its value this year, while the Bovespa is about 8 percent weaker.

ALREADY RECOUPING BRAZIL BEER MARKET SHARE

AmBev's share of the Brazilian beer market fell to 67.1 percent at the end of December from 70.1 percent at end-September and 68.5 percent in December 2001, but it said it had started to recover some of the lost ground this year.

"During the (fourth) quarter the decline was concentrated in supermarkets, and is the effect of strong discount levels in the marketplace," AmBev said. "We already recovered some market share in early 2003, reaching 67.9 percent."

AmBev's beers include Skol Pilsen, the third-biggest selling brand in the world. It also makes Brahma, Antarctica and Bohemia. Its main rival is Kaiser, brewed in Brazil by Canada's Molson Inc MOLa.TO with Dutch giant Heineken NV HEHN.AS .

AmBev's share of the Brazilian soft drink market, where it trails Coca-Cola Co. KO.N , dipped to 16 percent from 16.6 percent in September. The firm's main soft drink is Guarana, a sweet fizzy pop made from an Amazon berry of the same name.

Although AmBev sold more beer abroad in the fourth quarter of 2002 than in the previous year, currency depreciations in Argentina and other countries reduced earnings while a general strike and political crisis in Venezuela hit sales there.

A near-6 percent strengthening of Brazil's currency, the real BRBY , in the fourth quarter gave AmBev a financial gain. It raised prices to counter cost increases linked to the real's 35 percent slump over 2002.

AmBev has nevertheless continued to expand across Latin America through an alliance with Argentina's top brewer Quilmes Industrial QUIN.LU , which will give it greater access to Argentina, Bolivia, Paraguay, and Uruguay, and a plan to build a brewer in Peru by early 2004.

AmBev executives have scheduled a conference call to discuss the results on Wednesday.

($1 = 3.62 reais)