E-Malt.com News article: USA: Anheuser-Busch reports Q2 and first six months 2005 financial results

Anheuser-Busch Cos. Inc. reported on July 27 that its consolidated net sales increased 0.2 % in the second quarter of 2005, while diluted earnings per share (excluding two one-time income tax gains) decreased 8.4 %. For the first six months, net sales increased 1.3 % and earnings per share (excluding one-time gains in both 2005 and 2004) declined 6.7 %.

“Anheuser-Busch had a challenging first six months in its domestic beer business,” said Patrick Stokes, president and chief executive officer of the company. “Both the company and the domestic beer industry experienced volume declines and higher cost pressures. Anheuser-Busch has implemented a number of initiatives to enhance beer volume and market share growth, including introduction of new products and packaging, increased investments in domestic marketing, stepped-up on-premise sales activities and tactical price promotions and we are encouraged by our sales improvement in June. During the second quarter, wholesaler inventories were reduced significantly and are now below last year. Although we are confident the company will restore its sales momentum and return to solid earnings growth in the future, we are currently forecasting 2005 earnings per share to be below 2004 results, excluding the one-time gains.”

During the second quarter of 2005, domestic beer sales-to-wholesalers decreased 3.7 percent compared with the second quarter 2004, and wholesaler sales-to-retailers declined 0.2 percent. Wholesaler inventories were reduced significantly during the quarter, from approximately 1.5 days higher than last year at the beginning of the quarter to over one day lower than 2004 at the end of the quarter. During the first six months of 2005, domestic beer sales-to-wholesalers declined 3.2 percent, while wholesaler sales-to-retailers declined 0.4 percent (on a comparable selling day adjusted basis). Wholesaler sales-to-retailer trends improved significantly in June. Bud family sales-to-retailers increased in the second quarter 2005 and first six months driven by the growth of Bud Light and the national introduction in late February of Budweiser Select.

The company’s estimated domestic market share (excluding exports) for the first six months of 2005 was 48.8 percent, compared to 2004 market share of 49.8 percent. Domestic market share is based on estimated U.S. beer industry shipment volume using information provided by the Beer Institute and the U.S. Department of Commerce. Anheuser-Busch market share performance based on shipments was primarily due to the company’s wholesaler inventory reduction. At the consumer level, Anheuser-Busch gained share in supermarkets and convenience stores combined for the first six months of 2005 vs. 2004, according to IRI data.

International volume, consisting of Anheuser-Busch brands produced overseas by company-owned breweries and under license and contract brewing agreements, plus exports from the company’s U.S. breweries to markets around the world, increased 116 percent for the second quarter and 123 percent for the first six months of 2005. These increases for the second quarter and year-to-date 2005 include 2.5 million and 5.1 million barrels, respectively, from the Harbin Brewery, which the company acquired and began consolidating in the third quarter 2004. Excluding Harbin shipments, international beer volume increased 3.5 percent and 1.2 percent, respectively, primarily due to increased volume in Canada, partially offset by lower sales volume in Ireland and the United Kingdom for both the second quarter and first six months of 2005 and lower Budweiser sales volume in China year-to-date. Budweiser volume in China was up 2 percent for the second quarter 2005.

Worldwide Anheuser-Busch brands volume, comprised of domestic volume and international volume, increased 5.4 percent and 6.0 percent, respectively, for the second quarter and first six months of 2005 to 31.2 million and 60.1 million barrels versus 2004.

Total brands volume, which combines worldwide Anheuser-Busch brand volume with international equity partner volume (representing the company’s share of its foreign equity partners’ volume on a one-month lag basis) was 38.0 million barrels in the second quarter 2005, up 3.2 million barrels, or 9.2 percent over second quarter 2004. Total brands volume was up 7.5 percent, to 71.2 million barrels for the first six months of 2005.

International equity partner brands volume grew 31.1 percent and 16.1 percent, respectively, for the second quarter and first six months of 2005 due to Modelo volume growth and the addition of Tsingtao equity volume beginning in May 2005, partially offset by the loss of volume from the sale of the company’s equity investment in Compañía Cervecerías Unidas S.A. (CCU) in the fourth quarter 2004.

Consistent with the company’s stated priorities to restore volume and market share momentum in 2005, the company plans to defer additional price increases throughout most of the nation until early 2006. A single phase price increase is being planned for early 2006. As always, future revenue enhancement initiatives will be tailored to specific markets, brands and packages.

The company also announced that the Board of Directors has elected to increase the common dividend rate 10.2 percent, to 27 cents from 24½ cents per share. This increase reflects Anheuser-Busch’s substantial cash flow and management’s confidence regarding the company’s long-term prospects.

A discussion of financial highlights for the second quarter 2005 follows:

Net sales increased 0.2 percent vs. the second quarter 2004, driven primarily by a 26 percent increase in international beer segment net sales due to the Harbin acquisition, a 9 percent increase in sales from the commodity-based packaging segment and a 3 percent revenue increase from entertainment operations.

Domestic beer segment sales declined 3.6 percent on lower beer sales volume partially offset by an increase in revenue per barrel. Domestic revenue per barrel 3/ grew 0.2 percent in the second quarter 2005 vs. the second quarter 2004.

Income before income taxes decreased 21 percent vs. the second quarter 2004, reflecting lower profits in domestic beer, higher interest expense and lower profits for the international beer, entertainment and packaging segments.

International beer pretax income decreased $5 million primarily due to lower profits in the United Kingdom and the adoption of equity accounting for the company’s investment in Tsingtao. Earnings in the United Kingdom were down due to lower sales volume. During the second quarter 2005, concurrent with its increased equity stake in Tsingtao from 9.9 percent to 27 percent, the company adopted equity accounting. Upon adoption of equity accounting the company began reporting its share of Tsingtao earnings in the equity income line, below pretax earnings. Prior to the increased stake, the company accounted for its investment on the cost basis and reported its Tsingtao dividend (declared in the second quarter) within pretax income. This change resulted in a decrease in International beer pretax income vs. second quarter 2004, offset by higher equity income.

Packaging segment pretax profits were down $8 million primarily due to higher materials costs for glass and can manufacturing operations.

Entertainment segment pretax results declined $4 million due to the impact of the Easter holiday falling in the first quarter of 2005 versus the second quarter in 2004, plus higher park operating expenses partially offset by increased admissions pricing and in-park spending.

Equity income increased $31 million in the second quarter 2005 vs. 2004, reflecting the benefit of Grupo Modelo volume growth, a lower Mexican income tax rate and the inclusion of Tsingtao earnings since May.

Net income decreased 9.9 percent compared to second quarter 2004, while reported diluted earnings per share declined 6.0 percent, to $.78. The effective income tax rate declined 260 basis points, to 36.2 percent in the second quarter 2005 primarily due to a $6.8 million favorable settlement with respect to Chilean taxes associated with the fourth quarter 2004 sale of the company’s equity stake in CCU and a $7.2 million reduction of deferred income taxes resulting from state income tax reform legislation enacted in Ohio, plus ongoing benefits received under the American Jobs Creation Act. Excluding the one-time CCU tax settlement and the Ohio deferred income tax benefit, the effective tax rate would have been 38.1 percent and net income and diluted earnings per share would have decreased 11.9 percent and 8.4 percent, respectively, for the second quarter.

A discussion of financial highlights for the first six months of 2005 follows:

Net sales increased 1.3 percent vs. the first six months of 2004, driven primarily by a 28 percent increase in international beer segment net sales due to the Harbin acquisition, an 11.5 percent increase in commodity-based sales from packaging operations and 6 percent higher entertainment segment sales.

Domestic beer segment sales decreased 2.5 percent primarily due to lower beer sales volume partially offset by higher revenue per barrel. Domestic revenue per barrel grew 0.9 percent in the first six months of 2005 vs. the first six months of 2004.

Income before income taxes decreased 18 percent vs. the first six months of 2004, primarily reflecting lower profits in domestic beer, higher interest expense and reduced earnings for the international beer and packaging segments.

Income before income taxes for the first six months of 2005 includes a $15.4 million pretax gain ($.024 per share) from the sale of the company’s 13 percent equity interest in the Port Aventura theme park in Spain. Other income for the first six months of 2004 includes a one-time pretax gain of $19.5 million ($.015 per share) from the sale of commodity hedges. The theme park and hedge sale gains are both included in other income for consolidated reporting and classified as corporate items for business segment reporting purposes.

International beer pretax income was down $6 million for the first six months primarily due to lower volume and profits in the United Kingdom and for Budweiser operations in China, partially offset by the Harbin acquisition.

Packaging segment pretax profits were down $9 million during the first half of 2005 primarily due to higher materials costs for can and glass manufacturing operations.

Entertainment segment pretax results improved $1 million year-to-date due to increased attendance, admissions pricing and in-park spending, partially offset by higher park operating expenses.

Equity income increased $48 million in the first six months of 2005 vs. 2004, primarily reflecting the benefit of Grupo Modelo volume growth and a lower Mexican income tax rate plus the impact of reporting Tsingtao equity income, partially offset by the reduction in equity income due to the sale of the company’s equity investment in CCU in the fourth quarter 2004.

Net income decreased 8.5 percent compared to the first six months of 2004. Reported diluted earnings per share were $1.43, a decrease of 4.7 percent, compared to the first six months of 2004. Earnings per share benefited from the company’s repurchase of nearly 12 million shares during the first six months of 2005. The effective income tax rate of 36.5 percent for the first six months was favorably impacted by the CCU income tax settlement, the Ohio deferred income tax benefit and the first quarter sale of the Spanish theme park investment.

Excluding the CCU settlement, the Ohio deferred income tax benefit and the gain on the sale of the Spanish theme park investment in 2005, and the gain on commodity hedges in 2004, net income and diluted earnings per share would have decreased by 10.3 percent and 6.7 percent, respectively, for the first six months of 2005.


30 July, 2005