Anheuser-Busch management reviewed the company’s strategies to accelerate U.S. beer sales and profitability, and reaffirmed the company’s 7 to 10 percent long-term earnings growth objective, in a presentation given at the Consumer Analyst Group of New York Conference on February 21.
"Over the past year, we have broadened our portfolio to enhance our participation in faster-growing high-end categories and initiated a major transformation of our selling system to better position our company for long-term growth. Our top priority in 2008 is to accelerate core beer sales and profitability," August A. Busch IV, president and chief executive officer of the company, said to the investors and analysts.
There has been an acceleration in consumer demand for beer over the past two years and the company aims to capitalize on the improved growth of the U.S. beer industry. Based on an extensive consumer research effort, the company has fine-tuned its marketing messages, and redirected and enhanced its marketing and media resources to meet the demands of a changing marketplace. The company plans to increase total media spending by 10 percent in 2008 and will focus its national media spending on fewer brands, emphasizing those like Budweiser and Bud Light that benefit the most from large scale media exposure. This strategy includes more frequent updates of ad creative and increased media weight, especially over the key summer selling months.
The company’s consumer research efforts have also identified promising opportunities for innovative new products, such as Bud and Bud Light Chelada, and Landshark Lager, which have been rolled out nationally in the first quarter, and Bud Light Lime, which will be launched nationally on May 5th. The company is confident it will achieve improved performance for Anheuser-Busch produced brands in 2008. Through mid-February, the company’s total wholesalers’ sales-to-retailers increased 1.9 percent, with Anheuser-Busch produced brands up 0.6 percent.
In addition to volume, effective revenue and cost management are also key to accelerating U.S. beer company profit growth. Management views the U.S. beer pricing environment as favorable and the company’s price increase plans for 2008 have now been largely implemented. A strong revenue per barrel performance is expected in 2008, with the increase on core brands greater than in 2007. Cost pressures continue, however, particularly for brewing materials. Anheuser-Busch has a strong track record of consistently generating significant annual productivity improvement savings. Productivity improvement and supply chain savings to mitigate commodity cost pressures are a very high priority for the company this year. The company has expanded its "Blue Ocean" brewery cost reduction initiative to drive additional cost savings and process improvements across all areas of the company.
Busch also provided highlights of the company’s international beer business, which is a significant contributor to Anheuser-Busch’s consolidated earnings growth. The majority of international beer profits are driven by the company’s 50 percent investment in Grupo Modelo, the leading brewer in Mexico and the brewer of Corona, the leading U.S. import brand. The company is also well established in China, the largest and fastest growing beer market in the world, and particularly well-positioned in the country’s most profitable beer segments. Budweiser is by far the leading super-premium brand in China and will be the official international beer sponsor of the 2008 Summer Olympics in Beijing. Anheuser-Busch also has a 27 percent equity stake in Tsingtao, China’s leading premium brewer.
W. Randolph Baker, vice president and chief financial officer highlighted the company’s 2007 financial performance, utilization of cash flow and long-term earnings growth outlook. Anheuser-Busch achieved double-digits earnings per share growth in 2007, with a substantial increase in operating cash flow and a 100 basis point improvement in return on capital. Under the company’s new more aggressive leverage target, Anheuser-Busch also significantly increased cash payments to shareholders in 2007. Last year, the company increased its quarterly dividend by 11.9 percent and repurchased $2.7 billion of its stock. Management continues to expect to spend $2 billion on share repurchasing this year, subject as always to potential acquisition opportunities. Baker also reviewed the company’s long-term growth model, which continues to target earnings per share growth in the 7 to 10 percent range.
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