Call it sobering up or an effect of the poor economic conditions in the country, people in Brazil have decided to quit beer, and that has hit the beer giant Anheuser Busch Inbev SA NV (NYSE:BUD) hard. The Belgian-based company has revealed that their sales in the country have come down sharply in the last quarter. Investors are worried.
AB InBev is the world’s biggest beer brewing business.
The Brazilian economy is going through its worst economic recession since the great depression of the 1930s. Wages are down. Unemployment is up. There has been both political tension and social unrest in the country as a result. But it could get worse before things begin to pick up. The International Monetary Fund (IMF) has said that Brazil’s economy is likely to go down by another 3.3 percent this year.
The 9 percent drop in sales has affected the overall profitability of the business. In what is sure to be a bigger cause for worry is that, the Olympics was hosted in Brazil in the same quarter, and as a result, beer sales were expected to go up. But that did not happen. So the actual sales reduction could be even higher in the next quarter.
Bottle Refund Schemes Hurting AB Inbev
Many of those who are still drinking beer are switching over to brands that issue a refund when the bottles are returned. This allows people to make a small saving. These refunds are hurting the company’s bottom lines.
An analyst working in the beverages industry said, “As the consumer has come more and more under pressure, AB InBev is selling more and more returnable glass bottles instead of cans”.
AB InBev (NYSE:BUD), however, says that devaluation of Brazil’s currency have also hurt the business since the second quarter of this year. Earnings prior to taxes and interest have come down by 33 percent.
Overall Business Revenues Are Down Too
The growth of their overall organic revenue has dropped by 2.8 percent. The net finance costs have also gone up to $1.226 billion from $810 million in the same quarter of last year. The cost has increased mainly because of interest expenses from the bonds the company issued in this year’s first quarter to fund the takeover of SABMiller (OTCMKTS:SBMRF).
Earlier this month, Anheuser Busch Inbev SA NV (NYSE:BUD) acquired their rival SABMiller of London, UK, making it one of the largest takeovers ever in the world.