As iconic American brands like Budweiser and Miller are acquired by foreign companies, U.S. investors are embracing (Latin) America's Team. Large Latin American brewers have corporate names that roll off the tongue and stock prices that have rolled up impressive long-term gains. What they have in common is U.S. listings, large market caps, and stock performances that have easily surpassed the S&P 500 index over the last five years.
From Brazil, there's Companhia de Bebidas das Americas, better known in the U.S. as AmBev
As a long-term investment, they've outperformed the last of the big U.S.-based brewers, Molson Coors
The Latin brew kings have succeeded because they dominate the beer business in their respective countries and/or have strong showings in their own country and other selected markets. Their principal markets offer greater potential growth than the mature markets in the U.S., Canada, and Western Europe, and their success has been aided by diversifying outside the beer business.
For example, FEMSA operates a chain of convenience stores called Oxxo. For the second quarter, income from operations for this division rose 40.9% versus the year-ago period, far outpacing the company's performance in its beer division.
FEMSA is also in the soft-drink business. It owns 53.7% of Coca-Cola FEMSA
As the worldwide beer business continues to consolidate, some companies could be attractive to giants such as SABMiller that have demonstrated a thirst for expansion. Four years ago, SABMiller bought a major Colombia brewer, giving it a strong presence in Colombia, Panama, Peru, and Ecuador.
The boys from Brazil and Belgium
AmBev epitomizes worldwide beer consolidation. It was formed by the merger of two giant Brazilian brewers in 1999. It has acquired Quinsa, a Luxembourg-based holding company that owned most of a Bermuda-based company that controls beer and/or soft-drink businesses in five South American countries.
AmBev also owns big Canadian brewer Labatt. Gaining control of Labatt in 2004 was part of a complex deal that enabled the Belgian brewer InBev to buy a majority stake in AmBev. U.S. beer drinkers know InBev as the acquirer of Anheuser-Busch. The beverage behemoth is now called Anheuser-Busch InBev (OTC BB: AHBIY.PK).
AmBev's second-quarter performance illustrates the benefits of Latin American beer investing. Its profit rose 34%, and its revenue climbed 13% from the year-ago period.
But AmBev comes with a bunch of warnings, too. It reminded investors in a recent SEC filing that Brazil has "periodically experienced extremely high rates of inflation." Don't forget the stronger U.S. dollar that has buffeted dollar-reported earnings of foreign companies. Last year, Brazil's real depreciated 24.2% versus the dollar. And thanks to its market dominance in Brazil, AmBev has tilted with that country's antitrust regulators.
Risks and rewards
United Breweries also illustrates the value of diversity. It is the largest brewer in Chile, the second-largest brewer in Argentina, the third-largest soft-drink company in Chile, and the largest mineral water company in Chile. Its licensing agreements range from Nestle to Guinness, the latter of which is owned by Diageo
United posted a 3.5% gain in second-quarter revenue because gains in its Chilean beer, nonalcoholic beverage, and wine businesses offset declines in its Argentina beer and its spirits businesses. Operating profit fell 5%.
Risk factors include volatility in Chile's securities markets, erratic foreign exchange rates over time, and industry consolidation that toughens competition.
Other ways to invest
U.S. investors uncertain about taking the plunge with a Latin American beer giant can dip their toes in in other ways.
A small toe might be Constellation Brands, which has a joint venture, Crown Imports, with Mexico's leading brewer, Grupo Modelo, to sell the popular Corona brand in the U.S. Last year, Crown had the third-largest beer shipments in the U.S. behind Anheuser-Busch InBev and the joint venture of SABMiller and Molson Coors, according to Beer Marketer's Insights. The Corona Extra brand had the sixth-biggest market share.
If you invest in Anheuser-Busch InBev, you get exposure not only to AmBev but also to Grupo Modelo. When InBev bought Anheuser-Busch, the deal included the St. Louis brewer's 50.2% stake in Grupo Modelo. Operational control remains in the hands of Grupo Modelo.
Amidst these choices, Foolish investors know that past results can't guarantee future performance. There are potential impediments to these brewing giants continuing their torrid pace in the short run.
However, for the long run, keep an eye on the companies, their diversification strategies, and industry consolidation trends to find investing opportunities. You wouldn't want to look back and cry in your beer.
FEMSA and SABMiller are Motley Fool Global Gains picks. Coca-Cola is an Inside Value recommendation. Diageo and Coca-Cola are Income Investor picks. Try any of our Foolish newsletters today, free for 30 days.