Brazilian Beer Is Good for You

Brazil's AmBev (NYSE: ABV  ) has delivered some mighty tasty results for investors recently. Of course, it always helps that the company almost totally dominates one of the world's largest markets. And like its cool, custom refrigerators that chill beer to the perfect temperatures for customers, these results go down nice and smooth.

Year-over-year revenues were up nearly 11% to just more than $2 billion (converted from Brazilian reals), while EBITDA rose 18% to $839.5 million. Once again, the Brazilian beer market was king, nudging up market share to 68.6% and EBITDA margins to a sudsy 42%. The Quinsa brand was strong, raising volumes 15.3% in beer and more than 30% in soft drinks. I have to admit, it looks like a uphill battle for competitor FEMSA (NYSE: FMX  ) , which launched an everyday version of its popular Sol brand to chip away against AmBev's dominant brands Skol, Brahma, and Antarctica.

However, like skilled domestic brewers Anheuser-Busch (NYSE: BUD  ) , and Molson Coors (NYSE: TAP  ) , much of AmBev's moat is in the distribution system it has built. Consider that the Brazilian marketplace is fragmented into more than a million points of sale, which are served by more than 300 distributors and 30 distribution centers. That is a substantial barrier to entry for any competitor looking to overcome it, although Coca-Cola (NYSE: KO  ) has been quite successful in the Brazilian soft drink market, with more than 50% market share compared with AmBev's 17% share.

With growth over the past few quarters showing little sign of slowing down -- revenue growth actually accelerated from last quarter's pace -- the stock still looks quite attractive at these levels, even though investors would have done well to grab the stock when it dove into the mid-$30s earlier this year, when the international markets went through a case of the hiccups. As Budweiser has proved repeatedly in the domestic market, it is nearly impossible to unseat the market-share leader, and the same applies to AmBev. While the valuation may not qualify as dirt cheap, it still is one of beer's most profitable companies.

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Fool contributorStephen Ellis does not own shares in any companies mentioned. You canview the stocks he owns and check out his96th-percentile ranking in Motley FoolCAPS, the Fool's new stock-rating community. The Motley Fool has adisclosure policy.

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