InBev profit drops on rising costs

By AOIFE WHITE AP Business Writer

BRUSSELS, Belgium (AP) - InBev SA, the brewer of Stella Artois and Beck's, posted an unexpected 11 percent drop in its first-quarter profit on Thursday, blaming rising costs for ingredients and shipping and weak sales in Brazil, where it does half its business.

The company said its costs for raw materials such as malt, rice and hops have been rising, and that they have driven InBev to raise beer prices in many of the regions where it operates.

It also noted the latest results were being compared with strong earnings a year ago.

InBev's profit fell to 249 million euros ($384 million) in the first three months of the year, down from 280 million euros in the same period in 2007.

It came in well below a forecast of 341 million euros ($526 million) by analysts surveyed by Dow Jones Newswires.

Revenue rose 4.8 percent to 3.19 billion euros ($4.92 billion), up from 3.05 billion euros a year ago, again missing analysts' more optimistic forecast of a 9 percent surge.

Overall volume sales fell 0.4 percent. InBev now depends largely on sales in South America and emerging markets in Eastern Europe and Asia for growth as drinkers in Western Europe and North America consume less and turn to wine.

The company said weak results from Brazil and Russia hit volumes hard. In Brazil, it said bad weather and an early carnival reduced the summer period when it would sell more beer.

Brazil's consumer market was also showing "some softness" driven by food inflation of more than 11 percent, it said, but was confident that beer sales would pick up during the rest of the year. Russia was affected by strong shipments in the final quarter of 2007, it said.

However, efforts to boost sales in the United States and Canada are paying off with a distribution deal under which Anheuser-Busch sells more of InBev's European beers. That helped volumes grow by 2.9 percent from a year ago - with surging imports of Stella Artois lager up by nearly a fifth.

In Western Europe - the company's second major market - sales fell slightly as InBev stripped out lower-value products from its range.

Both Germany and Britain saw sales increase as new beer types rolled out and Stella Artois gradually recovered in Britain. The high-alcohol lager had been hit by strong competition as well as a debate on excessive drinking.