Brewers reap Rewards despite less Drinking

Reuters

 

Anheuser-Busch InBev NV and smaller rival Molson Coors Brewing Co reaped higher third-quarter profits from the U.S. beer market they dominate, even as consumers drank less beer.

Price increases, cost savings and sales of premium brands were the key in North America for AB InBev, the world's largest brewer, and MillerCoors, the combined U.S. operations of world No. 2 brewer SABMiller Plc and No. 6 Molson Coors.

AB InBev -- maker of Budweiser, Stella Artois and Beck's with almost half the U.S. beer market -- said overall core profit rose 9.1 percent, slightly short of expectations, with a 9.6 percent improvement in North America and a 6.4 percent drop in Europe.

Molson, whose brands include Coors Light, Blue Moon and Molson Canadian, reported third-quarter earnings higher than market expectations, driven by profit improvements in its key markets of Canada, the United States and Britain.

AB InBev shares fell 3.2 percent in Brussels, while Molson shares rose 4.3 percent in New York.

AB InBev sold 4.1 percent more beer globally in the July-September period than a year earlier, driven by a 12 percent surge in key market Brazil, but suffered declining volumes in North America and Europe.

Molson, which lacks large businesses in emerging markets, saw overall volume decline 4 percent in the quarter.

"You're not going to get growth in developed markets," said Morningstar analyst Philip Gorham. "These major brewers that want to grow their top line have to be in emerging markets ... Emerging markets are driving growth in almost every consumer staples industry."

Gorham said that a key driver for Molson's surprising profit performance was cost cuts related to the 2008 formation of MillerCoors, which is expected to achieve $750 million of cost savings by the end of 2012. The total stood at $564 million by the end of September.

AB InBev, formed in November 2008 from InBev's takeover of Anheuser-Busch, has set a target of $2.25 billion of cost savings by the end of 2011.

Chief Financial Officer Felipe Dutra said AB InBev is likely to exceed its $500 million target for this year but has no plans to raise the overall target.

U.S. REMAINS TOUGH

U.S. consumers broadly embraced lower-priced beers during the recession, but have recently been trading up, executives from both companies said on Wednesday.

Dutra said AB InBev's top-end beers were even winning over some wine and spirits drinkers, although stubbornly high unemployment had led to lower overall volumes.

In the key 21-27 age group, the jobless rate, at 18 percent, was almost double the U.S. national average, something the company was watching closely, Dutra said.

"The overhang on our category continues to be unemployment of our key beer drinker," said MillerCoors Chief Executive Leo Kiely. "That's got to turn around before we see the whole category become more buoyant."

Still Kiely said he is encouraged by sales trends of the company's "premium light" beers, such as Coors Light and Miller Light.

Earlier this year, Molson bought a stake in a joint venture with a Chinese brewer and entered Vietnam and Russia.

Chief Executive Peter Swinburn said Molson is learning from these moves and should now be able to make new forays at a faster clip.

"We're in a position, both from a knowledge base and a financial base, that we can now accelerate to a much greater extent our market entries," Swinburn said in an interview.

"But are we going to spend $4 billion or $5 billion on buying a business in India? Absolutely not, because we don't have that expertise yet and I think it would be too risky a use of shareholder money."

Molson raised its 2010 free cash flow target to $900 million from $760 million, due to timing issues.

It also said that during the first month of the current fourth quarter, sales to retailers rose at a low-single-digit rate in Canada and slightly in the United States. Sales fell at a mid-single-digit rate in Britain.

AB InBev sounded an upbeat note on the months ahead, with core profit growth set to be "materially" better than in the third quarter because it spent heavily at the end of last year on U.S. product launches, a cost it would not be repeating.

Bud to Strike Note of Pragmatism

As posted by: Wall Street Journal

One of the country's most irreverent advertisers, Anheuser-Busch InBev, is expected to serve up some Super Bowl ads this year that hit a different note, drilling home the quality of its beer.

Anheuser's Bud Light brand, whose ads are known for their slapstick humor, is adopting a more pragmatic approach in its ad lineup for the Feb. 1 big game. That mirrors shifts many other advertisers are making as they adapt to a hostile economy.

"For this Super Bowl, a lot of advertisers will stick with the hard-sell approach," says John Greening, an associate professor of advertising at Northwestern University, who used to work on Anheuser ads.

Anheuser-Busch's trademark Clydesdales are expected to appear in three different Super Bowl ads this year.

One Bud Light spot, which will use the brand's "drinkability" slogan, features two young men at a ski resort talking about how Bud Light is "easy to drink because it goes down smooth." But Anheuser won't give up entirely on trying to tickle viewers' funny bones. One of the men attempts to illustrate competing brands' alleged lack of smoothness by throwing painful obstacles in front a skier.

Another Bud Light spot features late-night talk-show host Conan O'Brien agreeing to do a commercial that ostensibly will be aired only in Sweden. In the ad, he dons a disco-themed ensemble with a plunging neckline that reveals his chest hair.

Other Super Bowl advertisers are trotting out some humor as well. They include Pedigree, a dog-food brand owned by Mars, and E*Trade Financial. A new E*Trade ad will feature the company's talking baby.

The stakes are always high for Super Bowl advertisers because of the game's huge audience -- more than 90 million -- and the high price of ad time. But the troubled economy has ratcheted up the pressure to deliver this year. Marketers have shelled out as much as $3 million to run 30-seconds spots at the same time many companies are on cost-cutting binges.

Anheuser, the game's biggest advertiser, with 4½ minutes of ad time, is paying roughly $2 million per 30 seconds, says a person familiar with the matter. Anheuser is still formalizing its ad plans, and its lineup could change.

Branding experts say Bud's advertising will be put under the microscope this year. Anheuser recently completed a merger with InBev of Belgium, and consumers are expected to watch closely to see what effect, if any, the company's new ownership will have on its ads.

Those ads will work hard to remind consumers of Anheuser's heritage. For the first time, the company will air three ads that star the iconic Clydesdales that pull its vintage beer wagon.

In one spot, a Clydesdale is struck by Cupid's arrow, and in another one of the big horses plays a game of fetch. Yet another spot, which is still being crafted, show how the Clydesdales made their way to America and found their niche.

The Clydesdale image "reinforces our brand values and reinforces that we are not changing, and we are the same company," says Bob Lachky, Anheuser's chief creative officer.

Takeover Costs Rise With Dollar

Foreign Companies Bought U.S. Firms Freely When Greenback Fell

Two pressure points on the market have eased up markedly in recent days. The price of crude oil is falling, while the dollar is strengthening.

Life, theoretically, should be good. But a strengthening dollar, should it continue, could cast a shadow on one of the few bright spots for Wall Street investment banks: international bids for U.S. companies. That is because the weak dollar emboldened many foreign acquirers to make offers they might have been sitting on for years.

Consider InBev NV's $52 billion bid for Anheuser-Busch Cos. -- and the Belgian brewer's jump to $70 a share from the initial per-share offer of $65. It was spurred partly by the falling value of the dollar. When the bid was made, the currency was at 62 cents to the euro, valuing the offer at about €43 a share. With the dollar now at 67 cents, the per-share price has increased to €46.97.

Many have bemoaned the sale of U.S. companies to foreign rivals. Still, for investors in U.S. companies, a takeover offer has been a quick way to realize value for their shares in a tough market, often after years of holding on.

It is possible that many potential foreign acquirers will rush to make bids for U.S. assets now. Offers are likely to be less generous than they would have seemed if the dollar were stuck in its downward spiral.

By: Heidi Moore
Wall Street Journal; August 12, 2008