U.S. and Brazilian drinkers are paying more for their beer and moving to expensive brands according to Anheuser-Busch InBev , the world's largest brewer.

The maker of Budweiser, Stella Artois and Beck's reported a better-than-expected 22 percent improvement of fourth-quarter core profit on Thursday as higher prices and cost cuts offset lower volumes in the U.S. and slowing growth in Brazil.

It saw a first quarter drag on volumes due to high U.S. unemployment and floods in Brazil that kept drinkers out of bars, but improvement thereafter.

It's (the second quarter) going to be better than the first quarter and the second half tends to be even better, Chief Financial Officer Felipe Dutra told a news conference.

The company, which sells about one in five of beers worldwide, revealed that volume growth in Brazil had slowed sharply due to price hikes, while it continued to sell less beer in the United States.

North America and northern Latin America brought in 70 percent of revenue and 80 percent of core profit last year.

Beer volumes in Brazil, where AB InBev has some 70 percent of the market, grew 3.4 percent in the fourth quarter, a sharp slowdown from the 14 percent of the first nine months of 2010.

However, the average selling cost per liter in Brazil and its near neighbors rose 9.9 percent, due to price hikes, trading up to brands such as Bohemia and Stella Artois and more direct distribution helping to swell margins.

AB InBev plans to launch Budweiser in Brazil late this year.

In the United States, where AB InBev's market share is almost 50 percent, it shipped 0.9 percent less beer. Raised prices and a shift of drinkers to higher priced beers meant its revenue per liter rose by 4.1 percent.

AB InBev said U.S. unemployment, particularly among young males, was continuing to affect volumes, but Dutra said the company was well-placed for a recovery.

It's more a matter of when than if it happens, he said, adding there were early signs of labor market improvement.

The U.S. jobless rate fell to 9 percent in January, its lowest level since Augusut 2009.

Core profit (EBITDA) grew by a like-for-like 22 percent to $3.9 billion compared with the $3.51 billion average in a Reuters poll of 17 brokers.

AB InBev more than doubled its dividend to 0.80 euro.

Its shares were up 3.1 percent at 0845 GMT, making them one of the strongest performers in the FTSEurofirst 300 index <.FTEU3> of leading European stocks.

Analysts said weak first-quarter volumes, partly due to rains capping consumption in Brazil, were already factored in.

There was some uncertainly already in the share price... Volumes may not be so good, but prices have risen by much more. This is an enormous positive, said ING analyst Gerard Rijk.

KBC raised its stance on AB InBev to accumulate from hold.

AB InBev extracted a further $170 million in savings from InBev's 2008 takeover of Anheuser-Busch in the fourth quarter. The company said it was likely to exceed its three-year savings target of $2.25 billion.

Investors were keen for comment on input costs, given rocketing raw materials prices. The futures price for malting barley has risen 37 percent since the launch of the contract in May last year.

AB InBev said its cost of sales per hectolitre would rise by a low single-digit percentage this year. That figure fell by 1.2 percent in 2010.

It added that revenue per hectolitre should grow ahead of inflation, although it would also up its marketing spend.

AB InBev is the last of the big four brewers to provide information on the final months of 2010.

World number two, SABMiller , with a strong presence in fast-growing African and Latin American markets, said lager volumes rose 3 percent in the fourth quarter.

World number three Heineken , the market leader in Europe, suffered volume decline, but raised profit by savings in Europe and from its large Mexican acquisition.

Fourth-placed Carlsberg warned investors of modest growth and squeezed margins in Russia.

(Editing by Andrew Callus and Hans Peters)

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