Ambev S.A. (NYSE:ABEV) Q3 2023 Earnings Call Transcript

Ambev S.A. (NYSE:ABEV) Q3 2023 Earnings Call Transcript October 31, 2023

Operator: Good morning, good afternoon, and thank you for waiting. We would like to welcome everyone to Ambev’s Third Quarter 2023 Results Conference Call. Today with us, we have Mr. Jean Jereissati, CEO for Ambev; and Mr. Lucas Lira, CFO and Investor Relations Officer. As a reminder, a slide presentation is available for downloading on our website, ri.ambev.com.br, as well as through the webcast link of this call. We would like to inform you that this event is being recorded and all participants will be in a listen-only mode during the company’s presentation. After Ambev’s remarks are completed, there will be a Q&A section when we kindly ask that each participating analyst asks only one question. At that time, further instructions will be given.

[Operator Instructions] Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Ambev’s management and on information currently available to the company. They involve risks, uncertainties, and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of Ambev and could cause results to differ materially from those expressed in such forward-looking statements. I would also like to remind everyone that, as usual, the percentage changes that will be discussed during today’s call are both organic and normalized in nature and, unless otherwise stated, percentage changes referred to comparisons with third-quarter 2022 results.

Normalized figures refer to performance measures before exceptional items, which are either income or expenses that do not occur regularly as part of Ambev’s normal activities. As normalized figures are non-GAAP measures, the company discloses the consolidated profit, EPS, operating profit and EBITDA on a fully reported basis in the earnings release. Now, I’ll turn the conference over to Mr. Jean Jereissati. Mr. Jereissati, you may begin your conference.

Jean Jereissati: Hello everyone and thank you for joining our Q3 earnings call. In our last call, I left you with two final messages. We were confident in terms of our ability to deliver operational leverage thanks to sustained commercial momentum and an improved costs and expenses outlook, but that we had less visibility in terms of industry volumes in Brazil and on the overall operating environment in Argentina. Looking at our Q3 results, it’s great to see that the team delivered operational leverage once again, while industry volumes in Brazil and our business in Argentina were both resilient. In fact, our performance really came together in Q3. Net revenues grew roughly 19%, EBITDA grew nearly 44% and grew over 30% ex-Argentina, with 560 basis points of EBITDA margin expansion.

Normalized profit grew about 25%, thanks to better EBITDA and better finance results. And cash flow from operating activities increased almost 30%, totaling close to $8 billion, which is about $1.8 billion ahead of 2022. Once more, it was great to see that our focus on the things we can control has continued to pay off. Let’s look by geography, starting with Brazil beer. Industry was slightly positive while our volumes declined by about 1%, as we cycled the record levels set in Q3 2022. Premium volumes outperformed once again, while our core brands grew pretty much in line with the industry, and our value brands declined more than 40% versus last year. Our commercial strategy remains in good shape. Our premium and super premium brands grew low teams, led by Corona, Original and Spaten.

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Q&A Session

We estimate we gained market share in the premium and super premium segment once again this quarter. Also, the continued investments in our brands led to another quarter of focused brand health improvement, with our premium and super premium brands improving in health metrics ahead of competition. Net revenue per hectoliter, excluding non-Ambev marketplace products, continued to grow ahead of inflation and grew 6.4%, thanks to revenue management initiatives, price increase carryover and positive brand mix. This is the fifth consecutive quarter of net revenue per hectoliter growth outperform inflation as we remain nimble regarding pricing decisions. EBITDA grew 35% with margin expansion of 720 basis points. Cash COGS per hectoliter, excluding non-Ambev marketplace products, actually decreased 2%, driven by expected effects and aluminum tailwinds, as well as more efficient supply chain given a better production and distribution footprint, contributing to a gross margin expansion of 340 basis points.

And cash SG&A also decreased by 4% as continued investments in sales and marketing were more than offset by savings in distribution and administrative expenses. Turning to Brazil NAB, volume grew almost 3% with market share pretty much flat according to our estimates. The momentum of our health and wellness brands continued as our diet/light/zero brands grew volumes in the mid-20s, resulting in market share gains for this category, where we over indexed compared to non-alcoholic beverages overall. Pepsi Black continued to be the highlight, with growth above 90% versus last year and already representing over 20% of our diet/light/zero volumes. Net revenue per hectoliter grew 2.3% as our revenue management initiatives and price carryovers were partially offset by an increase in state VAT taxable base in certain states across Brazil and also package and channel mix.

EBITDA grew 1% in the quarter with cash COGS per hectoliter growing 4.5% and cash SG&A up 5%. International operations also had a consistent performance overall, starting with CAC, where we remained steady on the recovery track. This quarter we lapped the toughest quarter of last year. As a recap, by Q3 last year we had solved most of our bottle supply constraints, however we faced a tougher than expected demand and inefficient supply chain given logistics and import needs. This time volume grew more than 13%, with Presidente in the Dominican Republic improving health and reaching volumes above Q3 2019 levels. Revenue grew 22% on the back of the continued recovery in the Dominican Republic as we see improved commercial execution in the country with overall client NPS above 75%.

EBITDA grew by over 62%, with EBITDA margin expanding to over 37%. In last, the highlight is that preparation pays off. On one hand, top-line performance was primarily impacted by volumes declining in Argentina, where the highly inflationary environment continued to impact consumer purchasing power. On the other hand, cash flow generation in dollars, which has been a particular focus of ours in Argentina, was ahead of last year despite the 22% currency devaluation that took place in the mid-August. This shows that all the work that started back in Q3 2022 is being rewarded. The combination of reducing our financial hedge while also lowering dollars exposure in supplier agreements and readiness in terms of revenue management as well as costs and expenses management are making the difference.

Outside Argentina, performance was driven by core plus and premium brands in Chile and Paraguay. All in all, LAS EBITDA grew 94% with gross margins expanding 200 basis points and EBITDA margins expanding 360 basis points. Lastly, Canada delivered stable EBITDA growth of 3.5% in line with H1 2023 and 310 basis points of margin expansion where a challenging industry was more than offset by revenue management initiatives and costs and expenses management. Commercially, our core plus and premium brands improved health and gained market share with a highlight to Corona that is the leading brand in the premium segment in the country. Before wrapping up, I would like to spend some time on our digital platforms. As this time last year, I mentioned that we were excited about the prospects of having BEES and Zé Delivery doing a memorable FIFA World Cup for our clients and consumers.

And since then both platforms have continued to grow in the right way. Starting with BEES, this quarter BEES marketplace products totaled an annualized GMV of R$1.8 million, 32% above last year. Over 80% of BEES customers also benefited from the marketplace. The top three categories, food, non-alcoholic beverages and spirits had roughly similar weight in terms of GMV. As we’ve previously mentioned, we see that SKU per POC as one of the major growth opportunities for the marketplace and we’ve seen another quarter of evolution with 21% growth year-over-year as we continue to improve the user experience. As for Zé Delivery, this quarter awareness increased 25% versus last year. We reached 4.7 million monthly active users and GMV grew by 8% year-over-year.

We more than doubled our coverage versus last year with Zé now available in more than 640 cities across Brazil. We continue to develop and expand our marketplace by increasing the assortment of products and brands available in the platform thus enhancing the consumer experience. This also represents a great opportunity to monetize the beer deliver network we build through a marketplace with accretive returns on invested capital to the company, similarly to BEES marketplace, and results have been promising. Year-to-date, we sold over 3000 non-Ambev SKUs on the marketplace, and about 20% of the orders contain at least one non-Ambev marketplace product representing low teens of Zé’s GMV. Given that this is our last call for the year, I would like to put our performance into perspective before wrapping up.

You know I talk about our transformation journey since 2020 and how consistency is a priority for us. So I believe it’s important to highlight how things are coming together quarter after quarter, despite all the challenges that have been thrown our way. Since the beginning of 2021, we grew net revenue double digits in all quarters. Thanks to our consistent commercial strategy execution, we delivered ten quarters of EBITDA growth, out of which seven were above inflation, despite FX and commodities headwinds and continued SG&A investments in the short and long term. And the EBITDA margins have expanded for the last four consecutive quarters. In closing, Q4 is always an exciting time for us, and I am looking forward to what my team has in store for the peak season with the arrival of summer in South America.

As usual, we want to deliver a strong finish for 2023 and position ourselves well for 2024. So thank you very much. Thank you for your time. And now let me hand it over to Lucas.