AB InBev Expects Flat Year For Beer

World's largest brewer and maker of Budweiser said its first quarter profit fell 34 percent to $475 million as global beer sales remained stagnant and were not forecast to rebound in 2010.

PARIS (AP) — Anheuser-Busch InBev SA, the world's largest brewer and maker of Budweiser, said Wednesday its first-quarter profit fell 34 percent to $475 million as global beer sales remained stagnant and were not forecast to rebound in 2010.

AB InBev sold 0.8 percent more beer and soft drinks in the first quarter and said an expected improvement in profitability would be delayed until the second half because of lower-than-expected sales and higher marketing expenses.

The company, based in Leuven, Belgium, made a $716 million profit in the same period last year.

Sluggish beer sales mirrored those of rival Molson Coors Brewing Co., which said Tuesday its volume slumped in the first three months of the year as drinkers in developed markets like Britain and the U.S, worried about the economy, continued to drink less beer.

Beer makers have been dealing with depressed appetites for their brews around the world as people struggle amid the weak economy. They're boosting their marketing spending and growing business in developing countries like Brazil and China, to snag new drinkers with more money to spend. Although sales volume is weak, revenue figures have been rising as the brewers institute price hikes to make up for their increased cost of business.

In a statement, AB InBev warned its second-quarter earnings would be hit by higher one-time costs stemming from a refinancing and bond issue in the first quarter.

"We now expect second quarter 2010 volume growth more in line with first quarter levels," the company said, while growth in earnings before interest, tax, depreciation and amortization will be lower, "largely due to the timing of sales and marketing investments." In March, the brewer had forecast gradually improving revenue and EBITDA growth over the remaining three quarters of the year.

In the United States, the company's biggest market, beer volume sales were down 6.8 percent — even though revenues grew 1.6 percent. Volumes were also down by 14.4 percent in Russia and 1.2 percent in western Europe, but rose 5.1 percent in China.

Revenues in the first quarter were $8.33 billion, up 1.9 percent from $8.2 billion in 2009's first quarter.

AB InBev had warned in March that first quarter volume sales would suffer from the cold weather in the U.S. and alcohol tax hikes in Russia.

The brewer depends on emerging economies for about half of its revenue and most of its volume sales. It is the market leader in the U.S. and in Brazil.

Brazil was the brewer's best-performing market in the first quarter, with sales of Antarctica, Brahma and other popular local brews growing 15.9 percent by volume.

Barclays Capital analyst David Belaunde said the company's investments, especially in Brazil, are paying off in terms of volume growth, and are now also yielding better pricing and margins.

AB InBev is focusing this year on growing its business after a tough year of cost-cutting and deleveraging in 2009. Debt paydown is still a top priority, it says, and is being funded by generating "significant free cash flow."

AB InBev is also still recovering from spending $52 billion in July 2008 to buy St. Louis-based brewer Anheuser-Busch, a move that formed the new company. The deal came just weeks before the financial crisis sent debt costs soaring. Since then the comapny has been selling off assets to raise money.

The company said it has now managed to extend some $20 billion in outstanding debt and this month obtained $17.2 billion in long-term bank financing to fully refinance the takeover debt.

The refinancing will weigh on second quarter earnings however, the company said. It will take a $157 million charge in addition to an estimated $55 million mark-to-market adjustment to account for non-recurring finance costs tied to the refinancing, the company said.

AP Retail Writer Emily Fredrix contributed to this report from New York.