Ambev Navigates Challenges in Q1 with Resilient EBITDA Growth Amid Flat Net Profit

Ambev (ABEV), Latin America’s largest brewer, reported flat net profit of R$3.80 billion for the first quarter of 2025, matching its Q1 2024 result. While net profit remained stagnant, adjusted metrics highlighted underlying strength: normalized EBITDA surged 14% year-over-year to R$7.44 billion, driven by cost discipline and strategic pricing. The results underscore Ambev’s resilience in a challenging operating environment, though persistent tax headwinds and rising commodity costs pose risks ahead.

Financial Highlights: Cost Control Fuels Margin Expansion

Ambev’s Q1 performance was shaped by a mix of operational gains and external pressures. Key financial metrics include:

• Normalized EBITDA Margin: Expanded 180 basis points to 33.1%, reflecting disciplined cash management. Cash COGS/hl grew just 2.7%, while SG&A expenses rose 3.4%, both below inflation.
• Brazil Beer Segment: Volumes grew 0.7%, with premium brands like Corona and Budweiser driving high-teens growth. Non-alcoholic beer volumes surged 40%, benefiting from health-conscious trends.
• Cash Flow: Operating cash flow jumped 67.6% to R$1.204 billion, enabling the approval of R$2 billion in intermediary dividends for July 2025.

The company’s focus on cost containment and premiumization strategies is evident, with megabrands and premium segments outperforming the broader category. However, elevated tax expenses in Brazil—particularly income tax adjustments—limited net profit growth, a recurring theme in recent quarters.

Regional Performance: Brazil Shines, Overseas Markets Lag

Ambev’s geographic footprint showed divergent trends:

• Brazil: The core market delivered strong results, with beer volumes hitting a record high for Q1. Non-alcoholic beverages (NAB) in Brazil grew 11.4% in net revenue, though margins compressed 70 basis points due to rising PET costs.
• Latin America South (LAS): Net sales rose 26% to R$5.54 billion, fueled by price hikes and volume growth.
• Canada & CAC (Central America/Caribbean): Volumes fell 4.2% and 4.9%, respectively, reflecting weaker industry conditions and competitive pressures.

Brazil’s dominance remains critical, contributing over 60% of total revenue. The company’s ability to maintain leadership in its home market while addressing underperformance abroad will be key to future growth.

Strategic Initiatives: Digital Ecosystems Drive Innovation

Ambev’s digital platforms are increasingly central to its growth strategy:

• BEES Marketplace: Gross merchandise value (GMV) grew 92%, with 1.4 million monthly active buyers. The platform now accounts for 88% of gross revenues, enhancing distribution efficiency.
• Zé Delivery: Processed 17 million orders (+5% year-over-year), with average order value rising 10%. Real-time consumer data from Zé is informing product development, such as the successful Carnival launch of Beats Red Mix.

These initiatives not only boost top-line growth but also provide valuable insights into shifting consumer preferences, positioning Ambev to capitalize on emerging trends.

Challenges Ahead: Tax and Commodity Pressures Loom

Despite strong operational execution, Ambev faces significant headwinds:

1. Taxation in Brazil: The effective tax rate rose to nearly 60% of net value added in 2024, a trend expected to continue. Management warned that tax headwinds could further squeeze margins in 2025.
2. Commodity Costs: Rising aluminum and PET prices threaten margins, particularly in the NAB segment. Cash COGS/hl for Brazilian beer is projected to increase 5.5–8.5% in 2025.
3. Foreign Exchange: Weaker currencies in key markets could pressure costs as Q2 progresses.

Investment Considerations: A Stock of Contrasting Signals

Ambev’s stock (ABEV) has underperformed peers year-to-date, down 5%, as investors grapple with its tax and cost challenges. However, the company’s cash flow resilience and dividend discipline suggest value for long-term holders.

Key Takeaways for Investors:- Strengths: Dominant market share in Brazil, premium brand growth, and a robust digital ecosystem.- Risks: Tax volatility, commodity inflation, and geographic diversification hurdles.- Valuation: Trading at 18x 2025E EPS, Ambev’s valuation reflects these risks but also its cash-generative model.

Conclusion

Ambev’s Q1 results highlight its ability to navigate a complex operating environment through margin discipline and innovation. While flat net profit underscores the challenges of Brazil’s tax regime and global inflation, the company’s EBITDA growth and cash flow metrics suggest underlying health. Investors should weigh near-term headwinds against Ambev’s long-term structural advantages, including its brand portfolio and digital transformation. For those with a multi-year horizon, Ambev’s dividend yield of ~4% and potential margin recovery in 2026 (if tax pressures ease) make it a compelling, albeit volatile, opportunity. However, short-term traders may prefer to wait for clarity on cost trends and regulatory developments.