Ambev S.A. (ABEV3) Earnings Call Transcript

Good afternoon, and thank you for waiting. We would like to welcome everyone to Ambev's 2026 Third Quarter Conference Call. Today with us, we have Mr. Carlos Lisboa, Ambev's CEO; and Mr. Guilherme Fleury, CFO and Investor Relations Officer. As a reminder, this conference presentation is available for download on our website, ri.ambev.com.br, as well as through the webcast link. We would like to inform you that this event is being recorded. [Operator Instructions] Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Ambev's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to the future events and therefore, depend on circumstances that may or may not occur in the future. Investors should understand the general economic conditions, industrial conditions and other operating factors could also affect future results of Ambev and could cause results to differ materially from those expressed in such forward-looking statements. I would also like to remind everyone that, as usual, the percentage changes that will be discussed during today's call are both organic and normalized in nature. And unless otherwise stated, percentage changes refer to comparison with 2025 third quarter results. Normalized figures refer to performance measures before exceptional items, which are either income or expenses that do not occur regularly as part of Ambev's normal activities. As normalized figures are non-GAAP measures, the company disclosed the consolidated profit, EPS, operating profit and EBITDA on a fully reported basis in the earnings release. Now I will turn the conference over to Mr. Carlos Lisboa. Mr. Lisboa, you may begin your conference.

Good afternoon, everyone, and thank you for joining our third quarter earnings call. At the end of our last call, we said we had reached halftime. We closed the first half encouraged by what we had delivered, but with a clear challenge ahead of us to sustain that performance as the year progressed. The third quarter provides another important proof point on this journey. The shape of the performance closely mirrored what we delivered in the first half. Total volumes grew 0.8%. Net revenue grew 7.6% and normalized EBITDA increased 8.9% with 40 basis points of margin expansion, while normalized EPS grew 15.4%. Looking at the first 9 months, the consistency becomes even clearer. Total volumes grew 0.7% would be growing at more than twice that pace, bringing beer growth broadly in line with its historical growth rate over the past decade despite a still challenging environment. The quality of our portfolio together with disciplined revenue management supported net revenue growth of 7.3% ahead of inflation while normalized EBITDA grew 9.3% and normalized EPS grew 12.3%. Importantly, we delivered this while continuing to invest behind growth with marked investment growing double digits organically in both the quarter and year-to-date. This is the growth formula we are pursuing, a stronger and broader set of brands delivering healthy volume growth, net revenue ahead of inflation and disciplined conversion all the way to the bottom line, delivering it consistently requires us to be on ambidextrous. Behind that formula is a clear growth strategy based on three interconnected pillars, lead and grow the category, digitize and monetize our ecosystem and optimize our business. Together, they form the flywheel that delivers profitable growth and perpetuated over time. Before going deeper into how that flywheel works in practice, let me give you a quick view across our markets. Our unique footprint and leadership positions set us apart. We operate mostly in emerging markets, where beer is one of the most loved consumer categories. These markets have different economic and consumption cycles and close to half of our business is outside Brazil. Because those markets do not all move together, the portfolio can absorb volatility in one market while benefiting from stronger momentum in another. In both, the third quarter and year-to-date LAS, CAC and Canada all delivered EBITDA growth ahead of net revenue with margin expansion despite very different industry environments. This quarter, LAS stood out on profitability despite a still soft consumer environment. CAC delivered healthy volume growth with margin expansion. And Canada, again, expanded EBITDA and market share despite a soft industry. That balance allows the group to perform while we keep closing gaps where needed, and accelerating business with stronger momentum. In Brazil NAB, the commercial recovery became more visible in the quarter. Volumes grew by a mid-single-digit despite the continued phaseout of a lower return channel, while sell-out market share improved sequentially, reaching last year's level with price relativity remaining at historical levels. Year-to-date, net revenue and EBITDA were ahead of last year with around 200 basis points of margin expansion. Just as important, we kept investing to faster growth. Our zero-sugar portfolio grew double digits in both the quarter and year-to-date, with pioneering propositions such as Guaraná with Fibers scaling to national distribution. Brazil Beer provides the clearest example of our 3-pillar strategy working as a flywheel. On Pillar 1: lead and grow the category. The Brazil Beer industry continued its sequential recovery through the second and third quarters. data shows some timing difference between Q2 and Q3 around the capture of World Cup-related demand. In Q2, Nielsen reported an industry that was still slightly negative with its measurement period and before capturing most of the World Cup demand that took place later in June. In Q3, Nielsen reported industry growth of approximately 4%, also capturing part of that late June demand. For that reason, the 2 quarters are that understood wind read together. Across Q2 and Q3, Nielsen indicates industry volume growth of 1.3% year-over-year. We estimate that nearly half of that growth came from the FIFA World Cup with the remainder reflecting the underlying strength of the category, despite still challenging macro conditions and mixed weather. That reinforces our view that the category's foundations remain solid. Our own performance should be read through the same lens. Brazil Beer volume grew 5% in Q2 and 0.5% in Q3, resulting in 2.7% growth across the 2 quarters. Nielsen indicates that our sell-out grew approximately 3.5% over the same Q quarter period higher than reported selling. Market share momentum explains that sell outperformance versus the industry. According to Nielsen, our share continued to improve sequentially in the quarter. Versus last year, we gained share in both on and off trade with particularly strong progress premium and zero alcohol while we further expanded our leadership while mainstream remained broadly stable. Year-to-date, share gains were also brought across most regions. As category captain, we want to bridge category potential to actual consumption. This is why we have built what we believe is our most complete portfolio so far with complementary propositions across consumer needs, occasions and price points. Our brand's equity continue to strengthen reaching a 5-year record on a year-to-date basis. Our category development playbook is creating new growth engines with premium volumes growing high teens balance choices more than doubling and no-alcohol beer growing in the 40s in the quarter. And the quality of the portfolio is increasingly supporting volume growth, share expansion and value creation. In the quarter, we took another step in our revenue management agenda while maintaining price volatility above last year's level. A more complete portfolio also brings more complex, what led us to our second pillar, digitize and monetize our ecosystem and how we use it to turn that complexity into a business opportunity. On B2B, this has become the foundation of our commercial capabilities, delivering efficiency and better services to our customers. Its role is twofold. First, it strengthens the core business. The platform is embedded in how we plan, sell and execute across more than 1 million points of sale. It's data and intelligence help us improve sell-out activation, sharper product recommendations and increase the availability of the right brands and SKUs in the right points of sale. That granularity matters. In the on-premise channel, one of the most fragmented and execution intensive channels in the market, our market share reached its highest level in 5 years according to our estimates, supported by stronger distribution and execution with SKUs per point of sale growing high single digit year-to-date, and double digits in Q3 versus last year. Second, this same infrastructure enable us to build new growth engines. Through this marketplace, we are expanding the assortment available to our customers beyond our own products and therefore, expanding our total addressable market. Over 80% of our customer base has already bought through marketplace, and GMV grew above 80% in both the quarter and year-to-date supported by the continued expansion of 3P. On the consumer side, the delivery follows the same strategic role. For the core beer business that provides a direct relationship with roughly 27 million consumers annually, a user base largely composed of young adult beer lovers, that direct connection gives us a valuable window into how demand is evolving. Premium represents around mid-30s of Zé volumes versus nearly the mid-20s in Brazil beer while balanced choices over indexed by around 50% versus Brazil Beer average, helping us identify trends, test propositions and scale what works faster. In the quarter, that Zé GMV grew mid-teens while Zé Marketplace already represents close to 20% of that GMV. Similarly to this, we are also bringing to our consumer a broader assortment and expanding the categories and occasions, we can serve them beyond our own portfolio. And the more growth opportunities we create in the Pillars 1 and 2 more important, a disciplined resource allocation becomes, which brings me to Pillar 3, optimize our business. For us, optimization is not simply about spending less between the gross revenue and net income we generate, that is a significant pool of resources that we allocate every day. Our opportunity is to keep improving where those resources go, the returns they generate and how much we can recycle behind future growth. We see that discipline across different lines of the P&L. First, in revenue management. Our broader portfolio and digital capabilities allow us to manage the company's pricing and promotions more efficiently and with greater precision. As a result, the incremental gross revenue generated per Brazilian real invested in this enabled on trade promotions improved by around 50% versus 2025. Second, in cost productivity. In Brazil Beer, expected commodity headwinds, particularly aluminum and diesel-related costs have pressured cash COGS per hectoliter year-to-date. Data sourcing, increased vertical integration and continuous improvement across our operations generated approximately BRL 450 million of non-commodity savings year-to-date, helping offset a meaningful part of those pressures. Third, in organizational productivity. Year-to-date, hectoliter sold per FTE increased approximately 4% versus last year and more than 20% versus 5 years ago. This reflects continued investments in automation, technology, digital tools and increasingly artificial intelligence, helping our people simplify, processes, make better decisions and focus on higher-value activities. And we are reinvesting those efficiencies behind our brands and commercial priorities. In 2026, market investment grew almost double the top line growth. That is the flywheel. Category growth, sharp execution and disciplined resource allocation to sustain profitable growth. And we want that model to travel. We are building on that as a company without borders, scaling what works across our footprint and bringing the best ideas and capabilities through our markets back into the system. The context may differ by market, but the capabilities behind the model are increasingly replicable. With that, I will now turn it over to Fleury for the financial highlights.

Thank you, Lisboa. Hello and good afternoon, everyone. Our performance year-to-date reflects our mindset of focus on what we can control to deliver consistent results and create sustainable value over time. Disciplined resource allocation has been central to this approach, enabling us to step up investments behind our brands and commercial priorities driving organic growth. On a consolidated basis, we delivered 9.3% normalized EBITDA growth year-to-date with both gross margin and normalized EBITDA margin expansion as well as 11.6% normalized net income growth. Normalized EBITDA, as reported, grew 2.6% and stated net income increased by 2.3% in the period, reflecting one-off items recorded in the third quarter of last year. The third quarter itself is one more quarter of consistent results, reflecting our continued focus on productivity and operational efficiencies, that enable us to mitigate increased cost pressures across several of our markets. Normalized EBITDA grew 8.9% this quarter, reaching BRL 7.3 billion with 40 basis points of normalized EBITDA margin expansion, reflecting the strength of our brands and commercial execution, together with disciplined revenue, cost and expense management. Consolidated cash COGS per hectoliter, excluding marketplace, increased 6.5%, while gross margin expanded 60 basis points in the quarter. Consolidated cash SG&A grew by 7.6% in the quarter, mainly reflecting incremental sales and marketing investments, higher distribution expenses and higher bonus accruals compared to the same period of last year. Moving now to below EBITDA lines which have been an important focus area for our finance team working closely with our procurement and supply teams. Since the beginning of the year, we have been actively managing our financial FX exposures. As a result, on a year-to-date basis, we have been able to capture a meaningful improvement in our financial expenses. In the quarter, net financial expenses totaled BRL 312 million, a 71% reduction compared to the third quarter of last year. This improvement primarily reflects a favorable comparison in the nonderivative instruments line driven by lower costs associated with sorts in U.S. dollars in Bolivia, following the changes in the country's FX dynamics last quarter, together with positive effects from the translation of hard currency balances held locally, due to the further devaluation of the local currency during this third quarter. Additionally, interest income increased year-over-year largely supported by a higher average cash position in Brazil despite the continued return to our shareholders on a quarterly basis. Turning to income taxes. Our consolidated effective tax rate was 16.8% in the quarter compared to 6.7% in the third quarter of 2025. The difference mainly reflects the absence of one-off impacts recognized last year, including the partial reversal of liabilities associated with the 2017 program, part, fiscal incentive recognitions and tax impacts related to the Barbados divestment. On a year-to-date basis, our effective tax rate reached 19.2%, broadly in line with the approximately 20% level, we would have reported in the prior year, if absent the one-off effects. As a result, stated net income totaled roughly BRL 4.4 billion in the quarter, decreasing 10.2% versus last year, mostly reflecting the one-off items recorded in the third quarter of 2025. Normalized net income also reached roughly BRL 4.4 billion in the quarter, growing 14.3% versus last year. Normalized EPS increased 15.4% year-over-year in the quarter, while both stated and normalized EPS reached BRL 0.28. Taken together, our operating performance improved below EBITDA results and solid balance sheet allowed us to deliver in nominal terms normalized net profit growth ahead of normalized EBITDA growth, both year-to-date and this quarter. Now turning to cash flow generation. In the first 9 months of the year, cash flow from operating activities increased by 39%, a BRL 4.4 billion improvement, reaching BRL 15.6 billion. This performance was mainly driven by higher EBITDA and improved working capital dynamics. As part of our resource allocation mindset, our logistics team has optimized packaging and raw material inventory levels through regular inventory reviews, contributing to our working capital and cash flow generation year-to-date. On a year-to-date basis, cash flow consumed in investing activities totaled BRL 5.4 billion, BRL 2.4 billion higher than in the same period of last year. Roughly BRL 800 million of this variation relates to investments in Brazilian treasury bonds, reflecting a capital allocation decision that maintains a liquid and low-risk investment profile as disclosed in Note 5 to our financial statement. The increase was also driven by the deconsolidation of assets previously reported as restricted cash in CAC, as disclosed in our first quarter financial statements, partially offset by lower CapEx investments. Year-to-date, cash flow consumed in financing activities totaled BRL 8.7 billion, BRL 7.3 billion below last year, mainly reflecting the payment of our 2024 BRL 6.7 billion dividends in early 2025, partially offset by a higher cash outflow related to our share buyback program. All in all, this cash flow performance has continued to support our shareholder return agenda. Since our last earnings call, we have completed our 2025 share buyback program totaling roughly BRL 3.3 billion in cash disbursement. And we have also paid in October 6, the third and last tranche of the 2025 IOC of BRL 1.9 billion gross of taxes. This makes up for nearly BRL 8 billion on a cash basis gross of taxes in our shareholder return agenda as announced this year until the date of this report. And finally, as we approach year-end, our guidance for Brazil Beer, cash COGS per hectoliter excluding the sale of non-Ambev marketplace products remains unchanged, estimated to increase between 4.5% and 7.5%. As we look ahead, we remain committed to our ambition of expanding consolidated margin over time through efficient resource allocation. We will continue investing behind our growth engines, strengthening the business through investments across our operations, including brand-building investments, brewery upgrades and expansions, innovation pipeline and commercial assets, reinforcing our sustainable long-term value creation journey. Now back to you, Lisboa.

Thank you, Fleury. Let me close with one thought. With 3 quarters behind us, 1 quarter remains. Our focus is to carry this consistency into Q4. In Q4, it's more than the end of 2026. It is also the starting point for 2027. The best way to enter next year is strong is to finish this year strong. We are confident in what lies ahead, and that confidence rests on three foundations: First, confidence in the category, is one of the most loved consumer categories across our footprint with significant development potential ahead. Second, confidence in our strategy. Our three interconnected pillars work together as a flywheel, powered by capabilities that are uniquely ours. Third, confidence in our momentum. Our value creation formula delivered consistent results through the first 9 months and give us the North to carry profitable growth forward. That confidence is shared by our Board. Consistent with our capital allocation framework on October 28, the Board of Directors approved another share buyback program for up to 190 million shares, approximately BRL 3 billion. And if there is one thing that has always set this company apart, it is our culture and our people. I'm equally confident in our teams and business partners and enter ownership and delivery as we build on this momentum. Thank you very much for joining us today. With that, let me hand it back to the operator.

[Operator Instructions] Our first question comes from Henrique Brustolin of Bradesco.

My question is about your Brazil Beer pricing strategy, right, especially when we think about the standpoint of affordability versus the pricing power that you have. So if you could help us understand on affordability, you often mentioned that ratio of work hours needed to buy a beer. What does that tell you about the room to raise prices today? And on the pricing power, Lisboa, you mentioned right our price relativity already above last year levels with market share gains, strong brand equity. So how do you evaluate the room to increase prices further based on the market position that you have built rather than preserving affordability and leaving some of that incremental pricing to consumers to keep driving category growth? That would be my question.

Hello again, everyone, and thanks for having us. Thank you, Henrique. Nice to talk to you again. Let me express the following about your question. First and foremost, our approach remains unchanged, right? So managed revenue per hectoliter broadly in line with inflation over time. Protecting both, as you said, right, industry growth on one hand, through affordability and on the other hand, protect the profitability of the organization, right? These are the two full mission that we always keep in mind when we manage our revenue management. Year-to-date, our net revenue per hectoliter grew 5.8% in Beer Brazil, well above inflation on a healthy balance between pricing and portfolio mix. The third quarter net revenue per hectoliter, excluding Marketplace, increased by 4.8% year-over-year against 4.4% more or less CPI with, again, revenue management and portfolio mix driving the growth, right? Within the quarter, we took another step in our pricing agenda, sequentially, which, by the way, net revenue per hectoliter is sequentially improving and more than offsetting the state VAT growth ahead of our pricing. And as you know, states usually update the price reference tables, the VAT base on a different schedule from ours, right? All in all, price relativity, as you mentioned, was also maintained above last year level while our portfolio kept gaining share, showing momentum from a stronger portfolio of brands coupled with a stronger execution.

Our next question comes from Thiago Duarte of BTG.

My question is linked to the same the same subject. And maybe if I could ask you to develop a little bit more on when we look at those figures, you mentioned is Boa regarding revenue per hectoliter growth into the quarter and into the 9 months of the year, how you would strip out the impact of the mix and the channel relative -- especially considering premiumization and obviously, you had the World Cup, which changes a little bit the occasions as opposed to the impact of the pricing per se, effective pricing action that you've taken? And if I may, obviously, on the same subject, how comfortable you are with your pricing carryover into the next year, so -- considering the -- how you're exiting the quarter, and obviously, in light of the -- regarding affordability in the category and your price index and so on?

Thiago, thanks. Nice to you as well, and thanks for the question. Actually, the -- our performance so far is the consequence of the two right components, consistent pricing execution pretty much in line with what we designed for the year, coupled with a consistent evolution of our portfolio, especially the new category segments that bring differentiation. And as a consequence, enhance our top line, right? On the second point about the confidence, we feel confident, we do see the portfolio in a pretty interesting momentum, right? And the reason why -- I have a few data points to share. First and foremost, brand power is at the highest level in the past 5 years, right? Equity is converting into share. And this is the way we want to keep the balance. Equity always ahead and converting to incremental market share. And we again in share, Thiago, not depending only on one segment, one channel, one region. It's quite the opposite. It's a broad-based game, right? The portfolio is promoting something that for us is pretty powerful, which is a combination of segments improving year-over-year both channels evolving pretty much all regions across the country showing very encouraging results, right? And this is the kind of brand utility we aim, right? Because, in fact, either we keep relativity at the same time as similar to last year, and we increased market share or even we stay with relative price above last year. And even with that, we are gaining share. So that's the pretty much the reason why we look forward. And we feel that we are in a good momentum to jump into '27, right? Because we don't expect again a stable scenario. We have been facing a very volatile and dynamic context here, which is exactly the same we expect moving forward. But the momentum and the fact that innovation is responding really well and providing a pretty important contribution to our growth, right, this year put us in the right position moving forward.

And let me just add like one angle here, Thiago. When we think about revenue management that Lisboa explained, there's also the other component that we look together is the discipline on cost. And you always look at that together with the ambition of expanding margins over time. So I think I'm just trying to bring the perspective that revenue is not looking itself separate from the full P&L. And I believe that what we have delivered and Lisboa explained that year-to-date on a quarter is exactly the shape of the P&L that we want to deliver going forward.

Our next question comes from Lucas Ferreira of JPMorgan.

We know that very soon, the government should send to Congress, the proposal for the tax, the tax on alcohol. I know you may not have anything to comment on how much of that's going to be. But maybe Fleury, I want to sort of revert the question. So -- once this number is out, if you guys can help us in the market understand what would be sort of a tax neutral rates? My best guess would be something around the IPI tax, which would be the one that would be sort of disappeared in the transition, right, which is I estimate something around 4% on the beer, maybe a little less on the non-alcoholics. So wondering if you have any -- if you can help us sort of do this math and understand what will be the expectation of the sort of tax neutral syntax on your case?

Thank you, Lucas. As soon as we have more visibility, we'll definitely include that in our communications to the market. But I'll take the advantage of your question to really try to bring like two aspects for us to think together. One is that we have grown our company together the senior management here always working on like volatile environment, and we know quite well how to navigate changes in economy, change in politics, so on and so forth, that's the history of our company. The second one is that just to reinforce what we have said before, we need to remember ourselves that Brazil Beer already faced one of the highest tax burden. More than 50% of the final price to consumers go into tax. And with that comes that Ambev is one of the Brazil's largest taxpayers. The other point to remember is that we've been very supportive on the objective of signifying Brazil tax systems. I believe that in another call, we also commented with you guys that we have an important part of the organization, our shared services really focusing on that method. And we believe that this should be aligned with what the government has demonstrated before, they should preserve tax neutrality to maintain the tax burden going forward. With that, as soon as we have more details, we will definitely come back to you.

The next question comes from Ben Theurer from Barclays.

I wanted to follow up on some of the commentary you already made to the portfolio and the performance, particularly outside of Brazil. If you could elaborate me what has changed and what has been working, particularly in Latin America South as it relates to profitability improvements? What were the factors here? Was that commercial initiatives? Was that just market conditions because of raw materials? Just to understand a little bit better the drivers of the margin expansion despite the volume contraction in the region?