UPDATE 2-AB InBev profit capped by weak US, Brazil recession

* Q3 core profit $4.75 bln vs $5 bln Reuters poll average

* U.S. weaker, Brazil stagnant, limited cost savings in

Mexico

* Large shift in China to higher-margin lagers

* Shares down 0.9 pct, weakest in sector

(Adds background, shares, analyst comment)

By Philip Blenkinsop

BRUSSELS, Oct 31 (Reuters) – Anheuser-Busch InBev,

the world’s largest beer maker, increased earnings by less than

expected in the third quarter as U.S. consumers drank less,

Brazil fell into recession and Mexican cost savings dropped

sharply.

The maker of Budweiser, Stella Artois and Corona has coped

with past sales falls by raising prices and selling more premium

beers, but the strategy had limited impact in the United States

and Brazil in the three months to Sept. 30, depressing earnings

in its two largest markets. Overall volumes dropped 2.7 percent.

The brewer’s shares were down 0.9 percent at 86.40 euros by

1030 GMT, making them the worst performer on the STOXX European

food and beverage index and among the weakest of all

European blue chips.

“I’m not too sure about the fourth quarter either. I think

that could be quite tough,” said Societe Generale beverage

analyst Andrew Holland, who recently upgraded the stock to

“hold” in the expectation of strengthening U.S. wage growth.

“There’s not much comfort from the underlying U.S. beer

market and I can’t see the Brazilian economy suddenly turning

around in Q4.”

AB InBev reported a 1.3 percent like-for-like rise in

third-quarter earnings before interest, tax, depreciation and

amortisation (EBITDA) to $4.75 billion, against an average

forecast of $5 billion in a Reuters poll of nine analysts.

The brewer, which sold more than one in five beers drunk

worldwide last year, blamed wholesaler inventory cuts in the

United States, its largest market, the timing of price increases

in Brazil and reduced cost savings in Mexico – down to $10

million from more than $200 million a year earlier.

“We believe that the third quarter was a one-off in terms of

EBITDA performance and is not reflective of expected future

trends for the business,” the company said.

CHINESE AND MEXICAN BUD BOOST

The brewer did benefit from consumers trading up to premium

brands Harbin and Budweiser in China, more than making up for

reduced volumes because of cold weather.

In Mexico, meanwhile, a strengthening economy led consumers

to drink more and swallow price increases, with increasing

numbers also switching to more expensive Bud Light.

AB InBev is the market leader in the United States, Brazil

and Mexico – three of the four beer markets generating the most

profit – but volume growth was minimal in Brazil. The country

fell into recession in the first half of the year, though the

soccer World Cup tournament provided a sales uplift in the

second quarter.

Europe was also weak, with Russian volumes down 20 percent

and consumption falling elsewhere because of very wet weather

that dampened sales in the usually busy month of August.

The brewer repeated its view that volume trends would

improve in the United States and that sales in Brazil and Mexico

would return to growth this year. The company suffered declining

sales last year in all regions but Asia-Pacific.

AB InBev’s performance chimed in part with Dutch rival

Heineken, which last week reported lower than expected

third-quarter sales, citing Europe’s wet summer. [ID:nL6N0SH0XO}

The growth ambitions of world’s top brewers are relying

increasingly on Latin America, Asia and Africa amid subdued

consumer spending in slowly recovering Europe and limited U.S.

expansion.

Still, growth in a number of emerging markets has slowed and

consumers there also drink less when it rains, as Heineken

discovered in Nigeria and SABMiller in central provinces

of China.

More muted growth has led some analysts to suggest that the

industry is ripe for further consolidation, with speculation

that fierce cost-cutter AB InBev could have SABMiller in its

sights.

“MA remains part of our DNA, but given the brands we have,

the market positions we have, we don’t feel any pressure for MA

transactions,” Chief Financial Officer Felipe Dutra said in a

conference call.

(Editing by David Goodman)

Article source: http://www.rte.ie/ten/news/2014/0920/645156-leonard-cohen-at-80-i-like-life-on-the-road/

* Q3 core profit $4.75 bln vs $5 bln Reuters poll average
* U.S. weaker, Brazil stagnant, limited cost savings in
Mexico* Large shift in China to higher-margin lagers* Shares down 0.9 pct, weakest in sector

(Adds background, shares, analyst comment)By Philip BlenkinsopBRUSSELS, Oct 31...

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