AmBev Balances BUD, Headwinds

Source: http://www.zacks.com/
Posted on Tuesday, August 19th, 2008 | In Stocks to Watch

Contributed by: Zacks Market Commentaries (http://www.zacks.com/) -

We are keeping our Hold recommendation on Companhia de Bebidas das Americas, or AmBev (ABV). The company posted slightly positive results for the second quarter of 2008 with excellent results in Brazil and in Argentina.

However, consolidated net income declined due to continued appreciation of the Brazilian real against the U.S. dollar. Nevertheless, parent company InBev’s desire to acquire Anheuser-Busch Companies, Inc. (BUD) appears to be positive for the company.

However, the tighter monetary policy in Brazil, growing inflation in Argentina, the strength of the Brazilian real and its effect on the company’s international sales, weak results in Central America, commodity costs and the difficult economic environment in the U.S. are matters of high concern.

We believe AmBev’s strategy to focus on a few premium brands with higher quality and higher margins is already delivering strong results and will continue to boost revenues and earnings. This strategy enabled the company to deliver strong organic growth during the first half of 2008. However, market share declined to 67.3% in the second quarter of 2008 from 67.8% in the previous quarter.

The continuous strong performance in the company’s Brazilian soft drink division has been quite encouraging, including continued growth in revenues and volumes and a strict cost discipline that keeps cost of goods under control.

The launch of a new law in Brazil, in June, which established zero tolerance limits for drinking and driving is very negative for the company as it has been reducing beverage sales considerably. We need more time to have a more accurate measure of the effect of this law on the company’s revenues, but the effect is a definite negative and worth noting.

Read the full analyst report on ABV

Read the full analyst report on BUD

“ABV” Free Stock Analysis: Buy? Sell? Hold?
“BUD” Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research