Bud Stays at the Top

In many respects, cracking open the books on Anheuser-Busch (NYSE: BUD  ) is no different than popping the top on an ice-cold bottle of the St. Louis brewer's flagship Budweiser beer -- either way, you know what to expect. That consistency was reflected in yesterday's third-quarter financials, which were highlighted by a double-digit increase in earnings per share... for the 23rd consecutive quarter.

Many of the virtues extolled in Selena Maranjian's in-depth discussion of Anheuser-Busch -- margin expansion, dividend increases, and pricing power -- have all come into play recently. Through the first six months, gross margins have risen 30 basis points to 41.2%, and operating margins have increased modestly to 25.5%. Management also announced an 11.4% boost in dividend payments -- the 28th consecutive year that the firm's dividend has been raised -- to 24.5 cents per share, for an approximate 1.87% yield.

Finally, and most importantly, price increases have taken hold, and another moderate round of hikes is on tap later this quarter for select brands and markets.

As Chris Mallon noted back in April, volume increases have only half the impact on margins as corresponding price increases. Over the previous two quarters, domestic revenue per barrel increased 2.8%, thanks in part to a shifting consumer preference in favor of the pricier Michelob family. Shipments of Michelob brands to retailers grew in the mid-teens, driven largely by the low-carb Michelob Ultra.

Anheuser-Busch's 1.9% volume bounce (to 27.3 million barrels) lags the 4.3% posted earlier this week by Boston Beer (NYSE: SAM  ) but compares favorably with Coors Brewing's (NYSE: RKY  ) 5.2% decline, especially considering the domestic market in general has ground to a halt. Volume and price increases combined to lift gross sales of domestic beer 4.6% higher to $3.55 billion.

Other business segments showed even more improvement. Pre-tax income grew 20% in the international beer division on an 18% increase in gross sales to $237.5 million. Higher admission prices and busier turnstiles at the firm's theme parks helped drive pre-tax income in the entertainment segment 24% higher for the quarter (56% year to date) on gross sales of $312.5 million. Overall, earnings rose 10.7% to $0.83, in line with estimates, on a 6.3% increase in net sales (which exclude excise taxes) to $4 billion.

Despite a proposed merger in the works with Molson that will vault Coors to top-five status in the global beer market, Anheuser-Busch's domestic No. 1 position seems unassailable at this point. The company still markets five of the top 10 best sellers, and half of all beer consumed in this country is brewed by Anheuser-Busch.

With a greater presence in the fragmented Chinese market and a stronger pricing environment ahead, don't expect to coronate a new king anytime soon.

Fool contributor Nathan Slaughter recommends a tour of Anheuser-Busch's St. Louis operations to anyone who has the opportunity. He owns none of the companies mentioned.


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