Executive Summary / Key Takeaways

• Ambev is executing a three-pillar growth strategy focused on leading the category, digitizing its ecosystem, and optimizing its business, driving consistent top and bottom-line growth.
• The company's digital platforms, BEES Marketplace and Zé Delivery, are significant differentiators, enhancing customer engagement, providing data insights, and creating new revenue streams, with BEES GMV growing in the 90s and Zé Delivery GMV up 7% in Q2 2025.
• Despite facing cost headwinds and adverse weather in Q2 2025, Ambev achieved high single-digit organic EBITDA growth and 110 basis points of margin expansion through disciplined cost management, including a 10% SKU rationalization.
• Ambev maintains a strong competitive position in its core Latin American markets, leveraging a diversified brand portfolio and strategic revenue management to drive premiumization and defend market share against global rivals.
• The company is committed to sustainable value creation, aiming for continued margin expansion in 2025 with Brazil Beer Cash COGS per hectoliter guidance of 5.5% to 8.5% growth, supported by resilient cash flow and shareholder returns.

Setting the Scene: Ambev's Strategic Foundation in a Dynamic Market

Ambev S.A. (NASDAQ:ABEV), founded in 1885 and headquartered in São Paulo, Brazil, stands as a dominant force in the beverage industry across the Americas. Its core business encompasses the production, distribution, and sale of a vast array of beer, draft beer, carbonated soft drinks, and other alcoholic and non-alcoholic beverages. Operating primarily in Brazil, Central America and the Caribbean (CAC), Latin America South (LAS), and Canada, Ambev's strategic positioning is deeply rooted in its extensive history and continuous evolution to meet diverse consumer demands. The company's overarching strategy is built upon three interconnected pillars: leading and growing the category, digitizing and monetizing its ecosystem, and optimizing its business. This integrated approach aims to drive sustainable growth and value creation in a highly competitive and dynamic market landscape.

The beverage industry, particularly in Ambev's key emerging markets, presents both significant opportunities and challenges. While per capita consumption in Brazil and other regions still lags behind more developed markets, indicating substantial room for growth, the industry is also susceptible to macroeconomic volatility, inflationary pressures, and shifting consumer preferences. Ambev's competitive environment is characterized by intense rivalry from global giants such as Anheuser-Busch InBev NV , The Coca-Cola Co. , PepsiCo Inc. , and Heineken N.V. . Ambev's strength lies in its deep regional roots, extensive distribution networks, and a diversified portfolio that caters to various price points and occasions.

Technological Edge: Fueling Growth and Efficiency

A cornerstone of Ambev's modern strategy and a significant competitive differentiator is its advanced digital ecosystem, which acts as a powerful technological moat. This ecosystem comprises two primary platforms: BEES Marketplace and Zé Delivery.

BEES Marketplace, Ambev's B2B platform, has transformed its route to market by digitizing transactions with over 1 million points of sale. This technology provides tangible benefits by enhancing customer engagement and service levels. In Q2 2025, BEES Marketplace's Gross Merchandise Volume (GMV) grew in the 90s, reaching an annualized amount of BRL 7.4 billion, driven by strategic partnerships with third-party vendors like Nestle (NSRGY) and L'Oréal (LRLCY). The platform's gross margin improved by 400 basis points to 15% overall, and by an impressive 600 basis points to 17% in Brazil, demonstrating its increasing profitability. The deeper engagement fostered by BEES, with Brazilian customers spending nearly 40 minutes per week on the platform and in-person visits—a fivefold increase from pre-BEES levels—allows Ambev to focus on sell-out rather than sell-in. This has led to a 3.4% increase in the number of brands and SKUs per point of contact in 2025 alone, driving efficiencies in net revenue per hectoliter and improving customer Net Promoter Score (NPS) to an all-time high of nearly 70 points.

Complementing BEES is Zé Delivery, Ambev's direct-to-consumer (DTC) e-commerce platform. Zé Delivery is the company's fastest-growing channel, fulfilling nearly 17 million orders in Q1 2025 and achieving a 7% increase in GMV in Q2 2025, supported by an 11% rise in average order value. This platform is particularly effective in engaging younger demographics, with Gen Z LDA and millennials representing nearly 80% of its buyers. Zé Delivery consumers exhibit a 47% higher frequency of beer consumption compared to the category average, making it a powerful engagement tool that drives portfolio forward. For instance, in H1 2025, 14% of Zé users added at least one product from Ambev's Balanced Choice portfolio, which grew almost twice as fast on Zé compared to the total business. The platform also plays a crucial role in product innovation, as exemplified by Beats Red Mix, developed based on consumer surveys conducted through Zé Delivery.

Beyond these digital platforms, Ambev's operational technology extends to its supply chain and production. The company's disciplined focus on cost efficiency includes a 10% SKU rationalization in 2025, eliminating low-churn items to increase productivity in breweries and distribution centers. This initiative directly contributes to better cost performance and margin protection. Ambev's R&D efforts are also evident in its "functionality in beer" strategy, with new product developments like Corona Zero Alcohol, Budweiser Zero, Stella Artois Pure Gold (gluten-free), and Michelob ULTRA (low-calorie). These innovations aim to address evolving consumer preferences and expand consumption occasions.

For investors, these technological differentiators are critical. BEES and Zé Delivery create a significant competitive moat by enhancing customer loyalty, providing invaluable data insights for targeted marketing and product development, and generating new, high-margin revenue streams. The operational efficiencies from SKU rationalization and a data-driven approach directly contribute to Ambev's ability to expand margins even in challenging cost environments. The continuous innovation in the product portfolio, supported by digital insights, ensures Ambev remains relevant and captures growth in evolving consumer segments.

Competitive Landscape: A Regional Powerhouse in a Global Arena

Ambev operates in a highly competitive global beverage market, facing off against formidable rivals. Against Anheuser-Busch InBev (BUD), its parent company, Ambev leverages its deep regional expertise and localized brand strength in the Americas. While BUD boasts a larger global scale and diversified revenue streams, Ambev's operational execution and cost leadership in its core markets provide a distinct advantage. Ambev's gross profit margin of 51.50% and EBITDA margin of 31.87% (TTM) demonstrate robust profitability. BUD's P/E ratio of 20.40 and P/B ratio of 1.53 (2025) suggest a higher valuation, reflecting its global reach, but Ambev's lower P/E of 12.78 and P/B of 0.39 (TTM) indicate potential undervaluation given its strong regional performance and digital growth.

In the non-alcoholic beverage segment, Ambev competes with giants like The Coca-Cola Co. (KO) and PepsiCo Inc. (PEP). Ambev's integrated distribution system, bolstered by BEES, offers greater efficiency and faster market penetration for its non-alcoholic brands like Guaraná Antarctica and Pepsi Black (under license). KO's P/E of 23.20 and P/B of 9.89 (2025), and PEP's P/E of 25.50 and P/B of 10.45 (2025), reflect their strong brand equity and global diversification. Ambev's strategy of bundling beer and non-alcoholic offerings, combined with its direct distribution capabilities, provides a unique value proposition that enhances customer loyalty and market share in its operating regions. However, KO and PEP often lead in product diversity and health-focused innovation, necessitating Ambev's continued investment in its Balanced Choice portfolio and non-sugar options.

Heineken N.V. (HEINY) is another significant competitor in the beer market, particularly in the premium segment. While HEINY focuses on global premiumization, Ambev's extensive Latin American network provides superior distribution efficiency and market positioning for its premium brands like Corona and Spaten. Ambev's deep regional roots foster stronger customer loyalty, and its cost-effective production methods contribute to its competitive edge. HEINY's gross profit margin of 0.35 and operating profit margin of 0.12 (2024) are lower than Ambev's, suggesting Ambev's operational efficiency in its core markets. Ambev's strategic emphasis on premiumization, with its premium and super premium brands growing mid-teens in Q2 2025, directly counters HEINY's focus and aims to capture higher-value segments.

The Brazilian market, in particular, remains highly competitive. Carlos Lisboa, Ambev's CEO, emphasized that "competition is good, make us stronger. Competition is good, make the category stronger." This mindset drives Ambev to continuously challenge itself and bring a better version of the company to be more competitive in this dynamic reality. The company's ability to maintain or gain market share in various segments, even in challenging environments like Argentina and Canada, underscores its competitive resilience.

Financial Performance: Resilience Amidst Headwinds

Ambev's recent financial performance reflects a company executing its strategy effectively, even when confronted with significant headwinds. In Q2 2025, the company delivered a high single-digit organic EBITDA increase with 110 basis points of margin expansion, despite soft industry volumes largely attributed to adverse weather conditions in Brazil. Year-to-date 2025, Ambev achieved mid-single-digit top-line growth, double-digit EBITDA growth with 160 basis points of margin expansion, and a 6.5% increase in EPS. Cash flow from operating activities remained resilient, growing 4% year-to-date, despite working capital dynamics.

Revenue trends demonstrate the strength of Ambev's diversified portfolio and strategic revenue management. In Q1 2025, Brazil Beer volumes grew 0.7%, with net revenue per hectoliter increasing 2.5%, driving a 260 basis points improvement in gross margin. Brazil NAB also showed double-digit top-line performance. While Q2 2025 saw a 9% volume decline in Brazil Beer due to weather, brand equity improved, softening market share impact to a low single-digit decline. Premium and super Premium brands continued their strong trajectory, growing mid-teens and gaining market share. The Balanced Choice portfolio also maintained strong growth momentum, expanding in the low 20s.

Profitability metrics highlight Ambev's disciplined cost management. The company achieved over BRL 500 million in savings in Q2 2025, offsetting non-commodity cost inflation. This disciplined approach, combined with effective SG&A management, resulted in an operational leverage of 2.2x in the quarter. The effective tax rate for Q2 2025 was 18.4%, a decrease from 28.6% in Q2 2024, driven by a non-recurring event, income tax exemption on state VAT government grants, and a favorable country mix of earnings. Consolidated net income for Q2 2025 improved by 15% year-over-year to BRL 2.8 billion.

Liquidity remains robust, with the Board of Directors approving another intermediary dividend payout of BRL 2 billion in Q2 2025, totaling BRL 6 billion declared for the year. This underscores Ambev's commitment to returning cash to shareholders while maintaining financial flexibility. The company's hedging strategy, which looks 12 months forward, provides protection against FX and commodity volatility, ensuring greater predictability in its cost structure.

Outlook and Guidance: Paving the Path for Continued Growth

Ambev's management is confident in its ability to deliver another year of growth with value creation, despite anticipating significant cost pressures, particularly in Brazil. The company's cash COGS per hectoliter guidance for Brazil Beer (excluding non-Ambev marketplace products) is projected to grow between 5.5% and 8.5% in 2025. This outlook is predicated on current FX and commodity prices, with expected headwinds from the depreciation of the Brazilian Real and increased aluminum prices.

Carlos Lisboa emphasized that "net revenue per hectoliter will remain a key lever to support our ambition to continue expanding margins in Brazil," balancing long-term pricing aligned with CPI and managing short-term cost inflation. The company's strategic initiatives, including the 10% SKU rationalization and the continued monetization of its digital ecosystem, are crucial to offsetting these cost pressures and achieving its margin expansion ambition. Management's proactive revenue management decisions, implemented after Carnival in Q1 2025 and built throughout Q2, position the company well for the remainder of the year.

Regionally, Ambev remains "very positive about Argentina's future," noting sequential improvements in economic indicators and a commitment to leading the category's recovery. In Brazil, the company anticipates a significant improvement in industry volumes in the second half of the year, driven by a normalization of weather conditions and easing consumer price relativity. The focus on strengthening core brands like Skol, which is a priority for 2025, is expected to contribute to overall category health and growth.

Risks and Challenges: Vigilance in a Dynamic Environment

While Ambev's strategic execution has been strong, several risks warrant investor attention. Adverse weather conditions, as seen in Q2 2025, can significantly impact volumes and profitability, particularly in weather-sensitive markets like Brazil. Inflationary pressures, especially on essential goods, continue to affect disposable income for Brazilian consumers, potentially impacting demand for discretionary items like beer.

Currency volatility, particularly the devaluation of the Argentine peso and FX carry costs in Brazil, can negatively affect financial results. The competitive landscape remains intense, requiring continuous investment in brands, innovation, and digital platforms to maintain market share and pricing power. Regulatory changes, particularly regarding taxes, can also impact profitability, as evidenced by past tax headwinds in Brazil. Ambev's reliance on its regional markets, while a strength, also exposes it to localized economic downturns more directly than globally diversified competitors.

Conclusion

Ambev S.A. (NASDAQ:ABEV) is a resilient and strategically agile beverage leader, successfully transforming its business through a powerful combination of brand strength, digital innovation, and disciplined operational optimization. The company's commitment to its three-pillar growth strategy has enabled it to deliver consistent top and bottom-line growth, even in the face of macroeconomic headwinds and adverse weather conditions. Its pioneering digital platforms, BEES Marketplace and Zé Delivery, are not merely operational tools but fundamental technological differentiators that enhance customer engagement, generate valuable data insights, and create new, profitable revenue streams, solidifying its competitive moat.

Looking ahead, Ambev is well-positioned for continued margin expansion in 2025, underpinned by proactive cost management, strategic revenue initiatives, and a robust portfolio of premium and core brands. While challenges such as inflation, currency volatility, and intense competition persist, Ambev's proven ability to adapt and execute, coupled with its technological leadership, reinforces its investment thesis as a company capable of generating sustainable value for shareholders. The focus on category development, particularly in emerging markets and through non-alcoholic offerings, further highlights long-term growth opportunities, making Ambev a compelling consideration for discerning investors.