AB InBev Starts 2016 Weak Due to Slump in Beer Across Brazil

Anheuser-Busch InBev, the largest brewer in the world, is set to grow its global leadership in beer even more through its acquisition of SABMiller, reported earnings that were lower than had been expected during its first quarter after 10% less beer was sold in Brazil, its second biggest market.

Shares of AB InBev fell by 4.6% to a low of seven weeks making them amongst the worst performers of leading stocks in Europe.

The brewer of Stella Artois, Corona and Budweiser warned during February that it likely would have a weak beginning to the new year in Brazil, the largest economy in Latin America.

Brazil where two thirds of the country’s beer market is controlled by AB InBev, shrank at its steepest rate in 25 years during 2015 and the outlook this year is almost as bad with political problems adding to the crisis.

Volumes of beer were down 10% during the quarter overall compared to one year ago, but did increase some during April, said the brewer.

First quarter AB InBev core profit rose by over 2.5% excluding any impact from currencies exchange and any one-off items reaching $3.46 billion in comparison with analyst estimates that averaged over $3.73 billion.

Growth in earnings was limited as well by a rise of 13.5% in sales and marketing expenses. AB InBev said the investment had been weighted toward the first six months of 2016.

A beverage analyst in France said that the figures should show improvement during the second quarter, in part because of a poor performance a year ago during the same quarter and that the early timing this year of Carnival along with hikes in taxes and floods across Brazil should be looked at as being on-offs.

However, the analysts said company shares would not be spared, but the things mentioned previously should help establish a floor for the share decline.

The brewer has been successful in applying price hikes but has also been hit by currency weakness, notably the Real in Brazil and the peso in Mexico, against the dollar.

However, Mexico the company’s start performer sold 13% more beer during the quarter.

In all, the company kept its forecast of revenue per hectoliter growing ahead of inflation due to strong increases in volume across Mexico, improvement across the U.S. and a revenue increase in Brazil that will outweigh continued sluggish sales across China.

The manufacturing sector in China expanded for the second straight month during April, but just marginally, increasing the doubt of any pickup in the second largest economy in the world.