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Sports in Brazil, margin control in U.S. boost AB InBev

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Brazil's footballers triumphed over Spain in the final of the Fifa Confederations Cup in Rio de Janeiro in June. The crowds roared, and then drank lots of beer. Anheuser-Busch InBev SA was happy, too. As Wednesday's second-quarter numbers from the brewer showed, a recovery in Brazilian volumes drove second-quarter revenue growth and boosted earnings before interest, tax, depreciation and amortisation by 6 per cent from a year earlier. The shares rose 7 per cent.

Brazil contributes most of AB InBev's sales volumes in Latin America, which in turn make up a third of the group total. Volumes in the country were flat from a year earlier in the second quarter, but that was an improvement on the first, when inflation ate into disposable income and dragged volumes down 8 per cent. The football tournament will not repeat in the third quarter, however, and a price rise during the third quarter last year will make for a tough comparison this time.

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AB InBev also did well elsewhere. In spite of being one of the most efficient brewers in the business, it managed to boost margins in the second quarter. The ebitda margin picked up 67 basis points from a year earlier to 37 per cent. That was partly down to lower distribution costs in the U.S., the brewer's second-biggest market, where margins hit an impressive 43 per cent.

There is room for margins to improve more in the long term. Mexico's Grupo Modelo was finally combined with the business in June. And AB InBev hopes to extract $1-billion (U.S.) in annual synergies over the next four years.

AB InBev's enterprise value sits at just over 10 times its forecast earnings before interest, depreciation and taxes, down a little from early this year but still near long-term highs. Like Brazil's football fans, investors will need a lot to go right for big gains from today.

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