Analysis - Brazil Price Hikes Set to Tax Brewers
The country's beer sector is expected to get a significant boost from the FIFA World Cup
How much will Brazil's beer industry be affected by the surprise tax increase announced last week?
With the FIFA World Cup just around the corner, brewers, particularly market leader AmBev, must have been licking their lips at the prospect of the tournament. That was until the Brazilian Government decided on an unexpected change to the reference price table – effectively a tax hike - on cold beverages from 1 June. This is on top of a separate tax increase on beer and soda last month.
No doubt, Brazil's beer sector will still get an enormous boost from the festival of football, but the timing is tough.
Carlos Brito, CEO of AmBev's parent Anheuser-Busch InBev, admitted to analysts yesterday it would affect volumes in the country. Analysts at Nomura agree, suggesting it will act as a “headwind” for the year. A note suggests the tax increases will mean a 4% to 5% rise in the retail price of beer in Brazil.
However, Nomura notes that AmBev has maintained its guidance for organic sales growth for the financial year at “high single to low double-digits”.
Analyst Mark Swartzberg of Stifel also strikes a more positive note. “We ... think AmBev is likely to be effective maintaining volumes while getting net revenue-per-hectolitre around 10% for the year,” he says this week in a note.
“Our Brazil outlook is based mainly on improving macros, such as moderating food inflation, and a commercial programme that is proving effective at simultaneously protecting volume share and per-case profit mix.”
Brito also suggested the country's beer market would return to overall growth this year, ultimately helped by the World Cup.
A lot is riding on those thirsty football fans.
Companies: Anheuser-Busch InBev
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