Anheuser-Busch profit increases 1.8 percent

MILWAUKEE — Anheuser-Busch Cos. Inc. managed to turn a profit in the most recent quarter — despite fears that rising costs for ingredients and fuel would cut into The King Of Beers' bottom line.

But the St. Louis-based brewer, the nation's largest, said Wednesday that it has to raise prices to stay ahead of the higher costs. So drinkers of brews such as Budweiser and Bud Light will pay from 3 percent to 5 percent more beginning in September.

The increases will affect about 85 percent of the company's U.S. beer sales and average about 4 percent. It will be the first major price increase this year for Anheuser-Busch, which just last week agreed to sell itself to Belgian brewer InBev SA for $52 billion.

Even though consumers are grappling with rising prices for food and fuel, the company and analysts don't expect they'll cut back on the pricier beers.

"When you're in a recession, you cry in your beer anyway. It's the last thing you let go of," said Juli Niemann, an analyst for Smith Moore & Co. in St. Louis. "You don't turn out your lights. You don't let go of your beer."

She said the company will probably have to raise prices even more to maintain its margins.

Anheuser-Busch reported a 1.8 percent rise in second-quarter profit on higher sales of its main brands and the successful launch of Bud Light Lime. Net income rose to $689 million for the three months ending in June, from $677 million in the same period last year.

Revenue rose 4.1 percent to $5.3 billion. After excise taxes, net sales rose 4.6 percent to $4.7 billion.

Anheuser-Busch shares rose just 11 cents to close at $67.36 Wednesday. The sale to InBev, which the company said should close by the end of the year, is priced at $70 a share.

The price increase gives credence to the takeover, said Christopher Shanahan, an analyst with consulting firm Frost & Sullivan, since that combination aims to save money by operating on a larger scale.

He said smaller breweries have raised their prices by as much as 15 percent but revenue will still be at least flat, or go up, because people still need to eat and drink.

"They'll raise the price and consumers are still going to buy it," he said. "And that's kind of the whole story within the whole food industry."

The beer industry is under enormous cost pressures for key ingredients like hops, barley and fuel. But Anheuser-Busch Chief Financial Officer W. Randolph Baker told investors on a conference call the company expected revenue per barrel to increase 4 percent this year.

He said beer price hikes generally don't turn drinkers away and they won't have much effect on sales.

"This is relatively moderate versus the price increases that are current at the consumer level in food and beverage products," he said.

Little was mentioned on the call about the sale to InBev, the maker of Stella Artois, Beck's and Bass. There was no mention of potential cost-cutting strategies or the sale of certain assets, such as Anheuser-Busch's theme park division.

InBev is known as a quick cost-cutter after buying new companies. Chief Executive Carlos Brito said he wants to save $1.5 billion a year by 2011. But he's also said he doesn't want to touch Anheuser-Busch's marketing machine and he wants to make its beers into global powerhouses, like Coca-Cola.

In the most recent quarter, Anheuser-Busch's U.S. market share slipped to 48.8 percent from 48.9 percent in the same quarter last year.

U.S. beer shipments to wholesalers were up 0.5 percent, while sales to retailers rose 0.4 percent. International volume, which includes Anheuser-Busch brands brewed overseas and exports, rose 4.8 percent on increased volumes in China, Canada and Argentina. Worldwide volume, which includes domestic and international, gained 1.2 percent for the quarter.

Individually, Bud Light's brand volume was up 5 percent, driven by growth of drinks like Bud Light and Bud Light Lime. Baker said Bud Light Lime has gotten a 1.5 percent volume share in supermarkets in the last four weeks.

Other brands didn't fare so well. Budweiser's brand volume fell 4 percent, while the Michelob family volume dropped 5 percent.

Some consumers seem to be trading down, Baker said, though subpremium brands are still losing share to higher-priced ones. Sales of lower-priced brews in the Busch and Natural brand families were up 3 percent, he said, but imports were up double digits.