October 28, 2016 / 4:51 PM / 2 years ago

UPDATE 1-Ambev cuts guidance as Brazil recession weighs on beer sales

(Adds comments from CEO Pinto Paiva, share performance)

By Guillermo Parra-Bernal and Paula Arend Laier

SAO PAULO, Oct 28 (Reuters) - Ambev SA expects no net revenue growth this year and will cut investments, reflecting the challenges facing Latin America’s largest beverage maker as the harshest Brazilian recession in eight decades and rising unemployment weigh down beer sales.

In a call to discuss third-quarter results, executives at São Paulo-based Ambev said they no longer hope to post flat growth in net revenue as demand remains tepid. Costs and sales, general and administrative expenses in Brazil are expected to rise in the low to high single-digits this year, they added.

“Consumption in Brazil in the short term faces downward pressure, but we expect a better 2017,” Chief Executive Officer Bernardo Pinto Paiva said during the call. Another reason why Ambev cut guidance for net revenue growth this year was diverging annual pricing comparisons which he did not specify.

Shares posted their biggest drop in more than a year on Friday, reflecting doubts among investors whether Pinto Paiva has taken the right strategic approach to help Ambev navigate the downturn in Brazil and parent company AB Inbev SA’s acquisition of SAB Miller Holdings Inc.

Ambev SA, Anheuser Busch Inbev SA’s Latin American subsidiary, saw adjusted net income rise 3.6 percent to 3.198 billion reais ($1 billion) on an annual basis, 10 percent above a consensus estimate compiled by Thomson Reuters.

Even as net income beat analyst estimates due to a reversion of withholding tax provisions in Argentina and the booking of deferred tax assets at overseas units, Ambev’s operational profit disappointed as volumes suffered.

Continuing weakness in Brazil led to a 20 percent annual slump in earnings before interest, tax, debt and amortization to 3.999 billion reais, about 16 percent below analyst consensus estimates. EBITDA, as the gauge is known, is a widely followed metric of operational profitability.

The stock was down 2.1 percent at 19.10 reais in early afternoon trading in São Paulo. Ambev is up 7.2 percent this year, lagging behind the 48 percent gain in the benchmark Bovespa stock index.

While management stated that the third quarter was the toughest in a challenging year, growth opportunities are emerging outside Brazil - the company’s home turf and Latin America’s most populous country. As a result, Ambev plans to cut investment in Brazil this year, without providing a figure.

$1 = 3.1645 reais Additional reporting by Ana Mano in São Paulo; Editing by Chizu Nomiyama and Phil Berlowitz

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