Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Compañía de las Cervecerías Unidas S.A. (ADR) (CCU), Companhia de Bebidas das Americas (ADR) (ABV): Is It Worth Investing in Brewers in the Americas?

According to Euromonitor, beer will have the fastest per capita growth among alcoholic beverages in Latin America. In Latin America, growth in per capita beer consumption will be mainly driven by growth in domestic standard lager beer. Beer volumes continued to decline in North America as consumers looked for value over volume. Wine per capita consumption will increase 10% in both regions between 2012 and 2017.

A market leader in Chile

Compañía de las Cervecerías Unidas S.A. (ADR) (NYSE:CCU) is the largest brewer in Chile. It distributes several leading brands, including Cristal, its most important product, and holds 80% market share in the Chilean beer market. It is the only brewery with a nationwide production and distribution network in Chile.

Compañía de las Cervecerías Unidas S.A. (ADR) (NYSE:CCU) operates as the third-largest brewer in the Argentine market, which presents additional growth opportunities. Its main competitor is Quilmes, which holds nearly three fourths of local market.

In addition, it is Chile’s second-largest bottler of carbonated beverages and the leader in the mineral water market. It also has wine-making operations in Argentina and Chile. Compañía de las Cervecerías Unidas S.A. (ADR) (NYSE:CCU) is thus well-diversified between alcoholic and non-alcoholic businesses, providing some stability to operations.

The company’s first quarter net income of $85.3 million was lower than expected. Sales increased 8% year-over-year, and volumes rose 9.7%. Gross profit margin rose by 290 basis points to 57.3%, but normalized EBIT rose only 3%, as higher labor and distribution costs continue to weigh on bottom line growth.

The giant

Companhia de Bebidas das Americas (ADR) (NYSE:ABV)

Companhia de Bebidas das Americas (ADR) (NYSE:ABV), commonly known as AmBev, is the largest brewer in Latin America. It produces, distributes, and sells beer and PepsiCo products in Canada, Brazil and other Latin American countries. It also owns Argentina’s largest brewer, Quinsa.

Brazil is one of the world’s largest beer markets by volume and it is Companhia de Bebidas das Americas (ADR) (NYSE:ABV)’s largest division, as the company has 69% of market share. In fiscal year 2012 Brazilian beer operations accounted for 60% of total sales.

Companhia de Bebidas das Americas (ADR) (NYSE:ABV) also has important market share in other countries, such as Argentina (77%) and Canada (41%). In Canada it owns the Labatt brand. Companhia de Bebidas das Americas (ADR) (NYSE:ABV), combined with Molson Coors, controls just over 80% of the Canadian beer market.

Companhia de Bebidas das Americas (ADR) (NYSE:ABV)’s wide distribution network is also a key competitive advantage. As Companhia de Bebidas das Americas (ADR) (NYSE:ABV) is also a Pepsi bottler in Brazil and other South American countries, it fully uses its wide beer distribution platforms.

Companhia de Bebidas das Americas (ADR) (NYSE:ABV)’s first quarter results were marked by noticeably weaker beer volumes across Brazil (-8.2%), leading the company to revise downward its outlook for the year. Net profit rose 1.3% year-over-year to $4.68 billion. Gross margins fell by 150 basis points to 66.3%.

A big player

On a bigger scale, Anheuser-Busch InBev NV (ADR) (NYSE:BUD), which through its subsidiaries controls 91.1% of AmBev, announced recently that it will commence a tender offer to acquire all outstanding shares of Grupo Modelo that it doesn’t  already own at a price of $9.15 per share. Anheuser-Busch InBev NV (ADR) (NYSE:BUD) expects to complete the transaction in June 2013.

AB InBev revised its outlook for volume growth in Brazil and now expects that industry volumes in 2013 will be flat, in the low-single digits. Thus, the acquisition of the remaining shares of Modelo represents a step in the right direction. Also, the company’s leading position in the U.S. and Canada remains strong, and AB InBev is the third-largest brewer in China, where it has 12% market share.

In the first quarter, AB InBev’s revenue grew 1.3% while volumes declined 4.1%. EBITDA increased 0.9%, with EBITDA margin of 37.4%, a contraction of 22 basis points. Normalized net profit grew 12.2%.

Bottom line

All three stocks are good investments in the long run. Compañía de las Cervecerías Unidas S.A. (ADR) (NYSE:CCU) competitive position in Chile will continue to allow it to generate excess returns. However, competition is increasing in the beer market, and AmBev is well positioned to gain market share, as its strong fundamentals are backed by its experience in markets all over South America and Canada. Compañía de las Cervecerías Unidas S.A. (ADR) (NYSE:CCU)’s and AmBev’s diversified business is a plus.

In terms of profiting from growth in Latin America, Anheuser-Busch InBev is not the best choice. However, a much bigger business means that fixed costs and marketing expenses are spread out across greater volumes. Expansion is also expected in China, the world’s largest beer market in terms of volume. Although brewers in the U.S. are facing competitive threats from the spirits market and a growing craft beer movement, Budweiser should remain a top brand.

The article Is It Worth Investing in Brewers in the Americas? originally appeared on Fool.com.

Damian Illia has no position in any stocks mentioned. The Motley Fool recommends Compania Cervecerias (NYSE:CCU) Unidas S.A. (ADR). Damian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.