Anheuser-Busch execs say growth will return

Modern Brewery Age, May 30, 2005

Anheuser-Busch Cos. reaffirmed its 2005 earnings outlook at a meeting in St. Louis this week, saying it is confident in restoring growth despite a continued decline in U.S. beer sales. "With our new product, packaging and marketing programs, we are confident we will be successful in restoring our volume momentum," Patrick Stokes, president and chief executive said in a statement. "Facing challenges is nothing new to Anheuser-Busch and, time after time, we have emerged more profitable with a stronger foundation for future growth. We expect significant improvement in domestic beer sales and profit performance in the second half of this year and continue to target double-digit earnings per share growth over the long-term."

Anheuser has recently launched a new version of its Budweiser beer--Budweiser Select--and said it is undertaking a major promotional campaign to boost sales. Anheuser-Busch said domestic sales-to-wholesalers and earnings per share will decline in the second quarter, but predicted that sales and earnings growth will resume in the second half of the year as marketing initiatives take hold.

"To stimulate growth, we have identified four critical marketing priorities," said company president August Busch IV. "First, while beer is America's favorite beverage with 58 percent of overall alcohol servings, we must continue to improve the image and desirability of beer. Second, we must keep beer fun and social. Third, we must grow beer occasions and, fourth, we must continue to improve our retail execution."

Busch IV pointed to the introduction of Budweiser Select, citing IRI scanner data that shows the brand achieving a 1.9 percent share in supermarkets. Busch said that Budweiser Select has been key to the improving trends at retail.

In their comments at the meeting, company executives admitted that A-B has increased tactical price promotions this year on a specific market, brand and package basis to reduce price premiums versus competition, but said that the company's long-term pricing strategy continues to "target increases at or slightly below the consumer price index."

Stephen J. Burrows, CEO and president of Anheuser- Busch International, highlighted the importance of the international beer segment in contributing to the company's earnings growth. Since 1999, the international segment has contributed 28 percent of Anheuser-Busch's consolidated earnings growth, which he said has been driven by the company's 50 percent investment in Grupo Modelo in Mexico.

Burrows said Anheuser-Busch has built an excellent platform for growth in China, the world's largest and fastest growing beer market. A-B and its partners now account for 45 million barrels of beer volume in China and together have a 19 percent share of the market.

The strategies of Anheuser-Busch's successful packaging and entertainment businesses, which complement the company's beer operations and combined totaled over $330 million in pre-tax profits in 2004, were also discussed at the meeting.

Anheuser-Busch said it continues to expect year-end profit of $2.78 to $2.86 per share, or $2.76 to $2.84 per share excluding a gain from the sale of a Spanish amusement park. Analysts expect slightly lower adjusted profit of $2.75 per share, according to a Thomson Financial poll. In 2004, Anheuser-Busch earned $2.77 per share, or $2.73 after adjustments.

In April, the maker of Budweiser and Bud Light beers reported that its first-quarter profit fell 7 percent on higher costs and lower U.S. beer sales.

"Our earnings outlook for 2005 has not changed," said W. Randolph Baker, vice president and CFO. "We expect earnings per share to grow in the low-single digit percent range this year, excluding one-time gains. We expect domestic sales-to-wholesalers and earnings per share to decline in the second quarter but forecast sales and earnings growth to resume in the second half of the year as our marketing initiatives gain traction with consumers and year over year comparisons ease. Over the long-term, we expect to achieve our double-digit earnings per share growth objective."