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Anheuser-Busch Earnings Fall

Posted on: Wednesday, 27 July 2005, 18:00 CDT

ST. LOUIS - Anheuser-Busch Cos. Inc. earnings fell nearly 10 percent in the second quarter, its second consecutive quarterly decline after years of profit growth often reaching double digits. The nation's biggest brewer cited slumping U.S. beer sales and increased cost pressures, and its stock price fell nearly 4 percent to a three-year low.

But the maker of the nation's best-selling regular-calorie and light beers, Budweiser and Bud Light, offered some good news for beer drinkers - it will hold off on price increases in most of the U.S. until early 2006.

Anheuser-Busch earned $607 million, or 78 cents per share, in the quarter ended June 30, down from $674 million, or 83 cents per share, a year ago.

Gross sales remained flat at $4.6 billion, while net sales after excise taxes rose to $4.02 billion from $4.01 billion.

The earnings fell short of Wall Street projections of 81 cents per share on net sales of $4.1 billion. Its first-quarter earnings had fallen 6.7 percent from a year earlier.

Anheuser-Busch shares declined $1.78, or 3.9 percent, to close at $44.12 on the New York Stock Exchange, the lowest point since July 19, 2002, when the price was $44.

Eric Shepard, executive editor of Beer Marketer's Insights, said the earnings decline "was steeper than expected.

"It's not pretty," he said. "The beer industry is soft and it's going to hit the number one player with a 50 share harder than the other folks."

Tom Leritz of Argent Capital Management in suburban St. Louis said Anheuser-Busch's problem is two-fold: Increased competition, mostly from Britain's SAB Miller PLC, and a move by drinkers to other types of alcohol.

"The trend from drinking beer to drinking spirits is their major problem now," Leritz said.

For the first six months of 2005, Anheuser-Busch earned $1.12 billion, or $1.43 per share, down from $1.22 billion, or $1.50 per share, in the first six months of 2004. Six-month net sales rose 1.3 percent to $7.58 billion from $7.49 billion.

The company estimated its share of the domestic beer market dropped a full percentage point, to 48.8 percent from 49.8 percent a year ago.

"Anheuser-Busch had a challenging first six months in its domestic beer business," president and chief executive officer Patrick Stokes said. "Both the company and the domestic beer industry experienced volume declines and higher cost pressures."

Stokes said the company has begun several initiatives to improve beer volume and market share growth - new products and packaging, increased investment in marketing, increased on-premise sales efforts and targeted price promotions.

The company said that as part of its effort to restore volume and market share momentum, it will hold off on additional price increases in most of the U.S. until early 2006, when a single-phase increase is planned.

The decision to hold the line on prices surprised Shepard, who said an October price hike "has been sort of like clockwork.

"Certainly it wasn't a positive message for the street on pricing and I suspect earnings are acting accordingly."

Domestic beer volume declined 3.7 percent to 26.3 million barrels for the quarter, and declined 3.2 percent to 50.8 million barrels for the six months.

Domestic beer sales-to-wholesalers decreased 3.7 percent for the second quarter, and wholesaler sales-to-retailers declined 0.2 percent. The company said its Budweiser family sales-to-retailers increased in the second quarter and first six months on the growth of Bud Light and the national introduction in February of Budweiser Select.

International beer volume was up sharply - up 115.6 percent to 4.9 million for the quarter, and up 122.5 percent to 9.3 million barrels for the first half of the year.

Much of the increase resulted from Anheuser-Busch's acquisition of China's Harbin Brewery in the third quarter. Excluding Harbin shipments, international beer volume increased 3.5 percent for the quarter and 1.2 percent for the six months.

Anheuser-Busch also said it raised its regular quarterly dividend by 10.2 percent to 27 cents per share from 24.5 cents.

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On the Net:

Anheuser-Busch, http://www.anheuser-busch.com

Source: Associated Press/AP Online

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