This article first appeared in the St. Louis Beacon, March 5, 2009 - Anheuser-Busch InBev says it expects to save more money by cost-cutting that it had originally expected, adding that the expense reductions won't result in more layoffs.
Top executives on Thursday commented on early results of the Nov. 18 acquisition of Anheuser-Busch by InBev, saying that U.S. operations performed well -- gaining market share and raising revenue -- during a tough October-December quarter.
"While we continuously look for efficiencies, the U.S. right-sizing that we planned has already been announced and executed," a spokeswoman said Thursday.
In December, the company dismissed 1,400 U.S. salaried employees, many of whom were in St. Louis. The company also said 250 open jobs wouldn't be filled and 415 contractor positions would be cancelled.
The integration of the two companies "exceeded our expectations," CEO Carlos Brito told analysts during a telephone conference call in which Anheuser-Busch InBev issued fourth-quarter financial results.
The former InBev had promised it would extract $1.5 billion in annual cost savings within three years after acquiring the old Anheuser-Busch. On Thursday, the figure was raised to $2.25 billion -- including $250 million last year, $1 billion this year and $1 billion during 2010 and 2011.
The company said 60 percent of the savings this year would be achieved through zero-based budgeting, in which expenses for every unit in an organization must be justified for each new reporting period. Each new budget depends on upcoming needs, and it doesn't matter if it is higher or lower than the previous budget.
Other savings will be achieved through "manufacturing efficiencies," improvements in procurement and changes in operations in China and the United Kingdom.
Anheuser-Busch InBev didn't offer a prediction for 2009. However, worldwide results in 2008 missed targets, resulting in no bonuses for Brito and most top executives.
"This is a concrete example of the ownership culture that we believe in at Anheuser-Busch InBev - that management incentives must be totally aligned with shareholders' interests," the company said.
U.S.A. LEADS THE WAY
The old Anheuser-Busch provided momentum for the merged company during the fourth quarter thanks to marketing initiatives and price hikes that took place before the takeover was completed.
During the fourth quarter, Anheuser-Busch products' U.S. market share posted a 0.5-point gain in volume to 49.2 percent, a company spokeswoman said. The volume growth was aided by the introduction of Bud Light Lime. The market share figure excludes sales of Labatt USA, a unit that Anheuser-Busch InBev is divesting to meet conditions set by the U.S. Justice Department for approving the takeover.
Between the Nov. 18 takeover and the end of December, U.S. domestic beer shipment volume rose 4.9 percent versus the same period in 2007.
"The key region now is the US, where volume growth of 4.9% since [the] acquisition reinforces the stability of that beer market," says a Thursday report by the Collins Stewart investment banking firm. Otherwise, the fourth quarter "was indeed a weak period."
Calculating the fourth quarter and full-year data is complex, in part because the merged company's results were affected by one-time charges, including those related to the takeover.
If you remove the one-time events, the merged company's earnings per share of 0.35 euros topped the consensus view of 0.34 euros, according to Thomson Reuters.
If you include all one-time events, then fourth quarter earnings were 0.05 euros per share compared to 0.92 euros per share for the fourth quarter of 2007.
Revenue calculations are complex, too, because they include only the six weeks of the old Anheuser-Busch data from the completion of the takeover to the end of the quarter.
In its Thursday report, the company compares 2008 results to a pro forma accounting for 2007 -- pretending that results for the fourth quarter and full-year 2007 periods also included six weeks' worth of the old Anheuser-Busch data.
Fourth-quarter 2008 revenue of 5.25 billion euros beat the analysts' consensus forecast of 4.92 billion euros. For the fourth quarter of 2007, pro forma revenue was 5.03 billion euros.
The stock, which is traded on the Brussels exchange, rose 4.3 percent Thursday.
ASSET SALES COMING UP
The company also reaffirmed that it plans to sell $7 billion worth of "non-core" assets this year to help pay for the takeover. Brito declined to identify potential assets, repeating previous comments that he has a list of five or six.
" We have been approached by different players and it's amazing to see the interest," he said. "They tend to be non-core for us, pretty much self-contained and therefore causing very little disruption at the time they are disposed of."
Most analysts believe the Anheuser-Busch theme parks and packaging divisions are likely targets. The company didn't mention them Thursday's financial report.
In January, the company previously announced the sale for $667 million of a portion of its stake in the Chinese brewer Tsingtao to a Japanese company. In February, it said it would sell its Labatt USA unit to a private company. No price was given.
Brito reaffirmed that he won't rush to sell the assets, thanks in part to a January bond offering of $5 billion, including $3.5 billion used to pay half the loan securing the planned $7 billion in asset sales.
"The pressure is less than what it was a couple months ago" to complete the deals this year, Brito said. "We have progressed on several fronts. We are confident that with the quality of the assets that we are talking to some players that will have some news for this year for sure."
Since the takeover, the company has raised some $19 billion to help pay down debt. It also expects to reduce capital expenditures by $1 billion compared to 2008.
Robert W. Steyer is a freelance writer.