Ambev SA (ADR) (NYSE: ABEV) recently announced plans to acquire Do Bem, a producer of premium juices and teas. Do Bem was founded in 2007 and has operations in Brazil, Colombia, Paraguay, France, Spain and Portugal.
Ambev SA (ADR) (NYSE: ABEV) refused to disclose how much it was paying to add Do Bem to its portfolio, but it couldn’t resist revealing its expectations of the transaction once it closes. The brewer said that it expected the acquisition of Do Bem to strengthen its business arm that deals with soft drinks.
Focus on juices
The acquisition of Do Bem would enable Ambev SA (ADR) (NYSE: ABEV) to double down on its juice business. As consumers become more concerned over health risks of soda consumption, juices have emerged as a strong alternative for soda. Demand for premium juices is especially expected to be strong in the coming years. With Do Ben in its portfolio, Ambev hopes to become more competitive in the nonalcoholic drinks marketplace, taking share from rivals and fueling top and bottom line improvements.
What happened in 1Q2016?
Ambev reported a largely mixed 1Q2016 in which net sales improved from a year ago but profits came up softer than the same period in the previous year. Revenue rose 2.6% YoY to R$7.6 billion, but consolidated volume contracted 7.7% YoY. Management explained that revenue growth would have been stronger had it not been for the sharp decline in the Brazilian business. Nevertheless, the impact in Brazil was anticipated and it didn’t come as a surprise for management, which remains upbeat about the future.
Coming to the bottom-line, Ambev SA (ADR) (NYSE: ABEV) posted normalized net income of R$2.9 billion, down 2.4% YoY, resulting in normalized EPS of R$0.18. The bottom-line was hit by higher interest expenses, unfavorable forex translation terms and higher costs related to hedging arrangements.
Ambev SA (ADR) (NYSE: ABEV) reported costs of goods rose 2.9% and costs related to selling, generation and administrative expenses jumped 3.9%.