Brazil's AmBev , part of world No.1 brewer InBev , posted strong beer sales growth for the third quarter on Wednesday, but higher costs led to a surprise 61 percent drop in net profit.

Companhia de Bebidas das Americas (AmBev), which was incorporated into InBev in late August, said it earned a net profit of 131.7 million reais ($46 million), down from 340.4 million reais profit in the third quarter of 2003.

That was far below market expectation of a net profit of about 422 million reais, according to the average of five analysts' forecasts collected by Reuters. It made a net profit of 265.1 million reais in the second quarter of this year.

Nevertheless, stronger beer sales in Brazil, where the economy is bouncing back from a slump in 2003, helped AmBev post a higher-than-expected third quarter net revenue of 2.95 billion reais, a 46 percent improvement on last year.

Third quarter earnings before interest, taxes, depreciation and amortization (EBITDA), a measure of cash generation many AmBev watchers say is a better gauge of performance than the bottom line, also rose 46 percent to 1.14 billion reais.

"We think the recovery in market share and beer volumes in Brazil is impressive," Joaquin Lopez-Doriga, an analyst at Deutsche Ixe in New York. "All in all I think it was a very solid set of numbers."

AmBev stock was steady at 713 reais in early afternoon trade in Brazil after recovering from an early plunge of more than 3 percent. The country's benchmark Bovespa stock index was up 1.7 percent at the time.

"The EBITDA was higher than expected ... but after that came financial costs ... which ate up more of the earnings than was expected." said Pedro Galdi, an analyst at ABN Amro Real brokerage in Sao Paulo.

HIGHER MARKETING SPENDING PAYS OFF

AmBev said expenses relating to foreign units such as Argentina's Quinsa and Canada's Labatt as well as losses from the exchange rate effect on its foreign investments led to costs of 332.7 million reais. It booked a gain of 5.4 million reais in the item last year.

(From Reuters, November 03, 2004)

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