Beer sales up, but Anheuser-Busch sees 3Q profit drop

Thursday, November 6, 2008 | 7:00 p.m. CST

MILWAUKEE — Anheuser-Busch Cos Inc. saw its third-quarter profit drop nearly 6 percent because of charges related to its pending sale to InBev, but revenue rose as it raised prices on the majority of its brands and gained market share.

The brewer, like its rivals including Molson Coors Brewing Co., is seeing sales slump in some foreign countries such as Britain. But in the U.S., the taste for beer is growing.

Anheuser-Busch chief financial officer W. Randolph Baker told investors Thursday the company is noticing a rise in the beer business. Beer growth exceeded both liquor and wine sales in supermarkets during the quarter for the first time in a long time, he said, citing data from Information Resources Inc.

Baker said industry data shows liquor sales are slowing and beer is outselling wine in supermarkets, even though wine's shipment growth will still probably exceed beer growth this year.

"You are seeing beer, relative to wine and spirits, improve," he said.

In the U.S., the volume of beer shipped rose 2.3 percent in the quarter, and domestic sales rose 6.6 percent. Revenue rose too as the nation's largest brewer raised prices on the majority of its U.S. products starting in September. It's looking to offset the rising costs for aluminum and other commodities that are weighing on all brewers including InBev, the Belgian-based maker of Stella Artois and Beck's.

Stifel Nicolaus & Co. analyst Mark Swartzberg wrote in a note that Anheuser-Busch's U.S. beer pretax profits were up 12.3 percent from last year, representing the largest year-over-year increase of the decade.

He said growth was driven by a 3.6 percent boost in sales to retailers and a 3.7 percent jump in revenue per barrel, which is due to both price increases and favorable brand mix. That means more people were buying higher-priced brews.

"The essentially in-line result masks a major improvement in U.S. beer, the business of foremost appeal to InBev and representing the majority of A-B profits, in our opinion," he wrote.

Results narrowly beat analyst expectations.

The maker of Bud Light and Budweiser said it earned $666.1 million, or 90 cents a share in the three-month period ending Sept. 30. That compares with profit of $706.7 million, or 95 cents a share, a year earlier.

St. Louis-based Anheuser-Busch said its earnings include pretax charges of $166.2 million associated with its sale to InBev and a retirement program, and gains of $15.3 million from the sale of distribution rights for Grolsch.

When those are stripped out, the company earned $1.05 a share, beating analyst estimates by a penny, according to Thomson Reuters. Analysts generally exclude one-time items.

Net sales rose to $4.92 billion from $4.62 billion last year, ahead of analyst estimates of $4.88 billion.

Swartzberg said he continued to recommend the company's shares and believed the sale to InBev would be complete by the end of the year.

Both Baker and InBev, which also released results Thursday, said the $52 billion deal would close on time. InBev said it would not reduce or change its $70-a-share offer, even though Anheuser-Busch's share price has dropped amid larger market turmoil.

Shares of Anheuser-Busch rose 95 cents, or 1.5 percent, to $64.58 on Thursday.

Baker did not make any comment about the value of the deal or the company's stock. Anheuser-Busch shareholders will vote on the deal Wednesday. InBev shareholders have already approved the deal.

InBev posted a nearly 14 percent drop in third-quarter profit as the cost of beer ingredients such as grain malt and aluminum for packaging rose 12 percent from last year.

Anheuser-Busch saw rising costs too, but its 5 percent rise was smaller, Frost & Sullivan analyst Christopher Shanahan said, adding that this year's high costs are likely to taper off by the last quarter of the year and into next year.

But the company's price increases — now across more than 85 percent of its U.S. products — will help offset the higher costs, which could expand profit margins further.

Baker said more price increases are to come early next year, and Anheuser-Busch expects revenue per barrel to grow 4 percent this year and next.

The company saw growth across much of its portfolio, driven by the introduction of Bud Light Lime, as well as by the Bud Light and Michelob brand families. According to data from Information Resources, its market share increased by 0.9 percentage point in the quarter. For the first nine months of the year, Anheuser-Busch's market share was 49.2 percent, slightly ahead of its 49 percent share at the same point last year.

The company saw some weakness overseas, even though international sales rose 19 percent on a 6 percent rise in volume, higher prices and brand mix. Anheuser-Busch sold more beer in China, Mexico, Canada and Argentina, while volume slumped in Ireland and Britain. Britain's beer sales have been tumbling because of economic weakness and a smoking ban.

Worldwide beer volume rose 3 percent in the quarter.

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