Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ambev SA (ABEV, Financial) reported consistent performance in Q2, with volume growth led by Brazil and pack, offsetting declines in Argentina and Canada.
- EBITDA grew by double digits with margin expansion, and free cash flow performance improved compared to last year.
- Brazil NABs (non-alcoholic beverages) saw an 8% volume growth, with the non-sugar portfolio growing by 15%, and the company was awarded the Best Pepsi bottler in the world.
- The company's focus brands, including Corona, Budweiser, and Brahma, showed strong performance, contributing significantly to overall growth.
- Ambev SA (ABEV) has been investing in sustainability, with significant progress in reducing Scope 3 carbon emissions through partnerships with suppliers.
Negative Points
- Normalized net profit was impacted by higher income taxes, which totaled almost BRL1 billion in Q2, equivalent to an effective tax rate of nearly 29%.
- Argentina's beverage industry continued to suffer, with volumes declining by over 21% due to challenging consumption environments and significant EBITDA reduction due to currency devaluation.
- Canada experienced a tough industry environment, leading to a 2% EBITDA decline despite disciplined cost management.
- The company faces ongoing tax headwinds in Brazil, which are expected to continue impacting performance in the second half of the year.
- Despite improvements, the working capital in Brazil and Argentina, as well as cash taxes in Brazil, negatively impacted cash flow from operating activities.
Q & A Highlights
Q: Can you clarify the pricing strategy for Brazil beer and what to expect in the upcoming pricing season?
A: We did not take prices in Q2 but did so at the end of Q1. Moving forward, we will remain nimble in our pricing strategy, focusing on a sustainable balance between volume and net revenue per hectoliter growth. Our medium to long-term strategy remains unchanged, prioritizing price increases in line with inflation and favorable brand pack and channel mix. (Jean Jereissati Neto, CEO)
Q: Could you elaborate on the brand health metrics and how you measure them?
A: We measure brand health using three KPIs: how meaningful, differentiated, and remembered our brands are to consumers. These metrics are combined to give a comprehensive picture of brand power. The focus brands are at all-time high levels of brand health and volumes. (Jean Jereissati Neto, CEO)
Q: What are the dynamics in the mainstream beer segment in Brazil, and how are you addressing competition?
A: Our core brands grew low single digits this quarter, which we consider a good performance. Brahma, our national brand, is doing very well, and Antarctica is performing well in both premium and core segments. We aim to keep mainstream growth in line with the total industry. (Jean Jereissati Neto, CEO)
Q: Can you provide more details on your capital allocation strategy, especially regarding CapEx and free cash flow?
A: We are in a lower investment cycle compared to the pandemic years. For 2024, we expect lower CapEx investments. Our capital allocation strategy remains focused on reinvestment for growth, both organically and non-organically. Decisions on dividends and share buybacks will be made towards the end of the year. (Lucas Machado Lira, CFO)
Q: Why keep Ambev stock listed given its low valuation compared to peers?
A: We see value in having Ambev as a listed entity in Brazil due to our significant local presence and the benefits in talent attraction and retention. Our management compensation model aligns with shareholder interests, which has helped us attract and retain great talent. (Lucas Machado Lira, CFO)
Q: How did you perform in terms of market share in Brazil beer, and what are the competitive dynamics?
A: The beer industry in Brazil continues to show structural strength. While we don't disclose specific market share data, we are very excited about our performance. The value segment is under-indexed in our company, impacting our competitors more. (Jean Jereissati Neto, CEO)
Q: What is your strategic view on the core portfolio and the next TAM for the beer industry in Brazil?
A: We aim to keep the core portfolio relevant and in line with the total industry. We are also focusing on premiumization and innovation, such as zero alcohol and low-calorie options. Our strategy is to maintain a balanced portfolio that caters to various consumer needs. (Jean Jereissati Neto, CEO)
Q: Can you provide more details on your award as the top Pepsi bottler and the metrics used for this recognition?
A: PepsiCo evaluates various metrics, including distribution, brand execution, and performance. Our non-sugar portfolio is particularly strong, and innovations like Pepsi Black have been well-received. We are excited about future collaborations with PepsiCo, especially in areas like Gatorade and energy drinks. (Lucas Machado Lira, CFO)
Q: How do you see the impact of external factors like weather and economic conditions on the beer industry in Brazil?
A: While temperature and rainfall do impact consumption, we are also seeing positive trends in the job market and economic activity. These factors contribute to a healthier industry overall. (Jean Jereissati Neto, CEO)
Q: What is your outlook on costs, especially considering the current FX and aluminum prices?
A: We hedge on average 12 months out, and currently, we see a net headwind from FX and aluminum prices. However, we have invested significantly in cost efficiency projects, which should help mitigate some of these headwinds. (Lucas Machado Lira, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
