"Budweiser is by far the leading super-premium brand in China."
(Pause for laughter.)
Business in China is indeed good, and it's even better in Mexico. Here at home, industrywide beer-shipment volume is clocking in at about 2% annual growth, much like last year, and ahead of expectations. Sales rose last quarter -- not just at A-B, but also at rivals Boston Beer
Working off last year's $2.53-per-share profit, Bud seems committed to turn in at least $2.78 per share this year. Having already earned $2.49 through the first three quarters, the company should easily pull down the extra $0.29 it needs to hit the target.
So why, upon hearing the news, did Wall Street sell off the stock by more than 1%, on a generally up day for the market?
I see a few possible answers. For one thing, investors could doubt management's prediction, since Q4 has historically been A-B's weakest seasonal quarter; it's been two years since the last time A-B earned $0.29 in a fourth quarter. Or investors may buy management's promise but find it less filling than the number Wall Street promised them. Analysts predict $2.82 per share, and $2.78 barely matches the lowest estimate on record.
But I look at Baker's estimate that A-B will spend $2.7 billion buying back shares this year as a sort of "management put." If net earnings appear that they might come up short, A-B can always buy back enough shares to boost the per-share figure by a penny or three, and still make good on its promise.
The real reason
Ultimately, I think the real reason Bud sold off yesterday had little to do with this year's guidance. It had more to do with management's commitment -- foreshadowed in the press release, but made concrete only in a subsequent investor conference -- to increase advertising spending by double digits in 2008. Baker mentioned that consumers, knowing how commodity prices are rising, seem willing to pay a little more for A-B products to cover these costs. It remains to be seen, however, whether they'll pay even more to cover the cost of TV commercials.
All I can say is that the commercials had better be as entertaining as the crack about Budweiser being a super-premium brand.
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