Ambev S.A. (NYSE:ABEV; BVMF:ABEV3) reported a significant surge in operating cash flow for the second quarter, driven largely by favorable working capital movements. The Brazilian beverage giant's operating cash flow reached R$4.71 billion, marking a 54.5% increase compared to the same period last year. According to the company's filing, an impressive 79% of this growth was attributable to working capital relief.
The company's cash flow before changes in working capital rose only 1.3% year-over-year, to R$6.29 billion. However, the drag from receivables, inventories, and payables decreased by R$1.32 billion, providing a substantial boost to overall operating cash flow. This improvement in working capital management led to a notable increase in the operating cash conversion rate, which climbed 24.3 percentage points to 73.9% of normalized EBITDA.
Market Reaction and Share Performance
Despite the strong cash flow numbers, the market's response was relatively muted. Ambev's shares on the New York Stock Exchange closed Friday at $3.11, up 1.6% for the week, while shares traded in São Paulo settled at R$15.99, a 2.2% weekly advance. On the day of the earnings release, both listings saw gains of less than 1%. The ADR's trading volume on Friday was 2.1 times its 65-day average, yet no significant rerating occurred, suggesting investors are differentiating between recurring earnings growth and balance sheet timing effects.
Organic Growth Outpaces Reported Revenue
Underlying business performance proved stronger than the reported top-line figures suggest. Organic revenue advanced by 6.1%, compared to a mere 0.3% increase in reported revenue, with the divergence primarily due to currency fluctuations and changes in scope. Consolidated volume grew 1.4% on an organic basis, with Brazil Beer contributing the most to the increase. Premium volumes posted mid-twenties percent growth, and no-alcohol beer expanded by approximately 30%. Additionally, gross merchandise value at Brazil's BEES Marketplace surged 87%.
Normalized EBITDA rose 8.9% organically to R$6.38 billion, with the margin expanding by 80 basis points to 31.6%. Normalized profit attributable to shareholders increased 23.3% to R$3.49 billion, while normalized earnings per share climbed 24.2% to R$0.22. Chief Executive Carlos Lisboa highlighted that the strategy delivered "another quarter of beer volume growth."
Segment Performance
In the Brazil segment, beer volumes grew 5.0% organically, with revenue up 8.9% and normalized EBITDA rising 12.8%, leading to a 110 basis point improvement in EBITDA margin. Non-alcoholic beverages experienced a 4.4% volume decline, but revenue still managed a 1.4% gain, and normalized EBITDA jumped 13.8%, with margin expansion of 320 basis points.
Ambev's performance outpaced that of its parent company, Anheuser-Busch InBev SA/NV (EBR:ABI; NYSE:BUD). While the parent saw organic volume growth of 0.9%, revenue growth of 5.6%, and EBITDA growth of 5.8%, Ambev achieved 1.4% volume growth, 6.1% revenue growth, and 8.9% EBITDA growth, respectively.
Capital Returns and Central Bank Watch
Ambev continues to return significant capital to shareholders. As of Thursday, the company had distributed approximately R$5.9 billion to shareholders, with nearly 95% of its share buyback program completed. The board has also authorized approximately R$1.1 billion in additional interest on capital, scheduled for payment by December.
Investor attention now turns to Brazil's central bank, with the Copom meeting scheduled for August 4-5. The Selic rate currently stands at 14.25%, but easing inflation—mid-July inflation came in at 4.52%, lower than any forecast in a Reuters survey—has prompted economists like Liam Peach of Capital Economics to suggest there is "scope for another 25-basis-point interest rate cut." Reduced rates could bolster consumer confidence and potentially impact the Brazilian real and Ambev's ADR conversion.
Risks and Outlook
While the cash flow improvement is notable, risks remain. The working capital tailwind could reverse as balances return to normal levels. Additionally, non-alcoholic beverage volumes in Brazil continue to show softness, and currency fluctuations may continue to mask organic growth in reported figures. Investors will be watching these factors closely as the company navigates the remainder of the year.