The AmBev (NYSE:ABV) part of the AmBev/InBev equation reported first-quarter earnings last week. AmBev standalone is the world's fifth-largest brewer, and the combined company AmBev/InBev is the world's largest. I think it's safe to say that earnings this time around were outstanding -- similar to those of the Brazilian stock market, as the Brazilian iShares ETF is up more than 500% in just three years.
Revenues for AmBev were up 7.6% to $1.82 billion (using a 0.46 real/US$ exchange rate), and net income was up more than 350% to $301 million from $66.3 million last year. Brazilian beer sales grew by 8.1% in volume, boosted by high temperatures, higher disposable income, and market share gains. When we're talking about the world's fourth-largest market, those numbers are dazzling.
AmBev's margins and market share are eye-popping. According to the company, its Brazilian beer market share was 68.9% in March 2006, led by flagship brands Skol, Brahma, and Antarctica. The company has 17.4% of the Brazilian soft drink market as well, led by its Quinsa brand, which the company recently increased its stake in from 56% to 91% in a $1.2 billion deal.
Operating margins for beer and soft drinks in Brazil were 43% and 26%. Budweiser (NYSE:BUD), Molson (NYSE:TAP), and Boston Beer (NYSE:SAM), eat your heart out! The company also controls the Canadian brand Labatt, whose revenues were essentially flat year over year because of a tough operating environment in the U.S. However, this has to be one of the world's most profitable brewers, if not the most profitable. Color me impressed.
Operating cash flow came in at roughly $662 million, and free cash flow at $585 million. Annualized, free cash flow comes in at roughly $2.3 billion, which places the company at 13 times annualized free cash flow. Earnings per ADR this quarter were $0.66 (excluding amortization of goodwill). Annualized, this places the company at a 17 P/E ratio. This compares favorably with competitors like Inside Value pick Budweiser's P/E at 19, or even at 14 to 15 if you take into account its 50% Diblo stake. If you ask me, AmBev/InBev sounds like a company worthy of further due diligence.
Of course, the stock price is up roughly 150% in the last two years, but it still looks cheap on the surface.
Anheuser-Busch is a Motley Fool Inside Value selection. Care to find other great stocks selling at bargain-basement prices? Take Inside Value for a 30-day free trial.
If you're convinced your portfolio needs an international flavor, check out our new Motley Fool International Stock Report: Around the World in 80 Minutes . Or get a free copy when you subscribe to one of our newsletters.
Related content:
- Challenges Brewing for Boston Beer
- Foolish Forecast: What's Brewing in Boston?
- Bud Grows With Grolsch
Fool contributor Stephen Ellis does not own shares of any companies mentioned.
