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A-B lifts a glass to better than expected earnings

This article first appeared in the St. Louis Beacon: July 23, 2008 - Anheuser-Busch on Wednesday reported second-quarter earnings that beat Wall Street estimates. Higher profits from domestic and some foreign beer operations offset lower profits from non-beer businesses.

The March-June results are unaffected by the company's agreement on July 14 to be acquired by Belgian brewer InBev. That deal is expected to close by year-end. But until the initial agreement is approved by regulators and shareholders of both companies, Anheuser-Busch's results will reflect its independence.

The company also announced a 4-cent a share dividend increase. 

Anheuser-Busch earned $689.2 million, or 95 cents a share for the March-June period. Analysts polled by Thomson Reuters had expected a profit of $659.7 million, or 93 cents a share. For the same period last year, Anheuser-Busch earned $677 million, or 88 cents a share.

The company's net sales -- gross sales minus excise taxes -- of $4.72 billion was in line with Wall Street estimates. For the year-ago quarter, the company's net revenue was $4.52 billion.

The company is "optimistic concerning the outlook for the remaining summer selling season," said CEO August A. Busch IV, in a prepared statement. Marketing initiatives, an upcoming price increase for beer and accelerated cost-cutting "are all contributing to our very strong outlook for profit growth," he said.

Anheuser-Busch raised its regular dividend to 37 cents a share from 33 cents. The higher dividend is payable Sept. 9 for shareholders of record on Aug. 11. In recent years, the company has raised the dividend after announcing second-quarter results.

The higher payout is included in the initial agreement between Anheuser-Busch and InBev. According to a recent document filed with the Securities and Exchange Commission, Anheuser-Busch is prohibited from certain financial actions without written approval by InBev.

The goal is to avoid saddling InBev with extra debt, expenses or assets. The dividend increase was written into the contract. Based on the expected closing of the takeover, Anheuser-Busch shareholders will get two fiscal quarters of enhanced dividends.

InBev is offering $52 billion, or $70 a share, to buy Anheuser-Busch. 

In the slow-growing U.S. beer market, Anheuser-Busch reported second-quarter pre-tax profits of $809.2 million, up $17.5 million from the same period last year. Higher volume and price increases in late 2007 and early 2008 produced the gain.

Profits should advance during the second half of 2008 because the company will raise beer prices in September and October covering 85 percent of domestic volume. The increase was announced last month.

International beer operations produced a pre-tax profit of $48.1 million vs. $30 million for the year-ago quarter. This segment includes Anheuser-Busch products made at company-owned breweries, beer made under license and contract, and exports from the company's U.S. breweries.

However, equity income from investments in foreign beer companies dropped by $27.7 million to $194.7 million due to higher costs of materials and operations. Anheuser-Busch owns 50.2 percent of Mexico's Grupo Modelo, but it lacks operational control; and it owns 27 percent of China's Tsingtao. Both arrangements result in payment to Anheuser-Busch based on the local companies' results.

Anheuser-Busch said pre-tax income from its entertainment division fell by $7.5 million to $106.4 million vs. the second quarter of 2007. The company attributed the decline to Easter having occurred during the first quarter this year vs. the second quarter last year.

The packaging unit recorded pre-tax profit of $49.5 million, down $5.5 million from the year-ago quarter due to lower earnings from can recycling and can manufacturing.

Analysts predict InBev will try to sell and/or spin-off these non-beer segments to help pay for the takeover. InBev has talked about selling "non-core" assets of both companies, but it hasn't identified them.

Robert W. Steyer, a former Post-Dispatch business writer, is a freelance journalist in New York.

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