AB InBev published mixed 1Q11 results with volumes below expectations (-0.4% organically) but thanks to very strong pricing/mix revenue and normalized EBITDA were approximately in line with our and consensus forecasts.
Volumecame in below expectations with a 0.4% organic decrease (which compares to +1.4% y/y in 4Q10) to 91.45m hl (KBCS 93.4m hl, CSS 93.2m hl) with the shortfall mainly coming from North America (US sales-to-retailers declined by 2.2% and the company lost 60bps of market share) and Latin America North (Brazil volume was up only 0.2% and the company lost 100bps of market share). Note that the market share losses in the US and Brazil are probably the result of aggressive pricing initiatives (revenue per hl was up 10.8% in Latin America North and up 3.7% in the US in 1Q11).
Revenuewas approximately in line with our and consensus forecasts and grew by 5.6% organically to $ 9,003m (KBCS $ 9,050m, CSS $ 8,897m) with revenue per hl (on a constant geo-mix basis) up an impressive 6.8%, which is an acceleration from the 4Q10 number (6.0%).
Normalized EBITDA increased by 6.5% organically to $ 3,408m (KBCS $ 3,400m, CSS $ 3,423m). North America was below our forecasts (-0.1% organically to $ 1,429m vs. our and consensus forecasts of $ 1,571m and $ 1,491m, respectively) whereas Latin America North was better (+11.4% organically to $ 1,396m vs. our and consensus forecast of $ 1,289m and $ 1,358m, respectively). The impact from differences with our forecasts in the other zones was fairly limited on group total. The increase in EBITDA margin (from 37.1% in 1Q10 to 37.9% in 1Q11) reflects an additional $ 75m AB-related synergies and mainly the strong pricing (Cos/hl was up 3.8% vs. revenue/hl +6.8%). Net profitapproximately doubled (1Q10 was heavily impacted by one-offs relating to restructuring of the debts) and landed at $ 964m (KBCS $ 1,213m, CSS $ 1,186m).
ABI gave no precise profit outlook for 2011 but repeated previous guidance of a mid to high single digit increase in sales and marketing investments. Cost of sales/hl is still hinted to increase by low single digits on a constant geo basis whereas revenue per hl should grow ahead of inflation. We note a new comment on distribution expenses (hinted up by mid single digits in 2011) and the absence of volume comments (at the FY10 results release volume comparisons were hinted to be tough for the first quarter with volume momentum said at that time to build into the 2Q/2H of 2011).
1Q11 volumes were weaker than expected although partly relate to aggressive pricing initiatives which helped drive a very strong revenue per hl performance and further EBITDA increase. We expect the strong pricing to continue in 2011 with volume performance improving as market shares in Brazil and the US improve again (we expect competition to eventually follow pricing initiatives of the market leader). We stick to our Accumulate rating and € 47 target price.