Anheuser-Busch
NYSE: BUD
Price Target: $52.00
Recommendation: HOLD
Report Date: August 10, 2007
Fund: OSU SIM Class (BUS FIN 824)
Fund Managers: Royce West, CFA
Chris Henneforth, CFA
Analyst: Robert Blake
Fisher College of Business
The Ohio State University
Columbus, Ohio
Contact: 614-657-5136
blake.176@osu.edu
Investment Thesis
Anheuser-Busch is the largest domestic producer of beer and one the largest
global producers of beer. Although the company has a dominant position in
the global beer market, its production and revenues are concentrated within the
domestic marketplace. The trends within the domestic marketplace are not
overly favorable to traditional brewers at this time for several reasons. First,
commodity prices have been rising and brewers have not been able to raise
prices quickly enough to offset costs. While the pricing environment is
improving, this cycle is expected to continue. Second, consumers have been
trading up to alcoholic beverages that are perceived to be higher quality than
Anheuser-Busch’s product line. This has shifted consumption patterns away
from the company’s products to import beers, craft beers, wine, and spirits.
Third, population growth within the domestic market is minimal making it
difficult for Anheuser-Busch to generate measurable growth.
The company has developed a strategy to counteract the current trends. The
strategy includes further international expansion and the
establishment of import and distribution agreements with
foreign beer producers, spirits producers, and nonalcoholic
beverage producers. While this strategy has promise, it
remains to be seen whether or not Anheuser-Busch will be
able to capitalize on the opportunities rapidly enough to
replace the sales declines in its core brands. To date, there
has been little information provide to gauge the success of
their initial foray into this strategy. In my opinion, there is
a great deal of uncertainty as to how well the company’s
new strategy will perform. As such, I feel the market is
attaching a penalty to the shares and will continue to do so
until it becomes clearer as to how well Anheuser-Busch
strategy will counteract its slowing domestic business.
Price Target
I have assigned a price target of $52.00 to the shares. The
target price is based on a DCF model with a 9.0% cost of
capital and a 3.5% terminal growth rate. The 9.0% cost of
capital factors in an additional risk premium that I believe
is currently influencing the share price due to uncertainty
about Anheuser-Busch’s growth prospects. I expect the
stock to be range bound in the near term and to underperform its peers and the broader market indexes.
Stock Details
Sector: Consumer Staples
Industry: Brewers
Price: $48.73
52 week low: $46.05
52 week high: $55.19
Beta: 0.35
Market Cap: $36,526MM
Shares Outstanding: 749MM
Average Volume: 5.9M
P/E (ttm): 18.61
EPS (ttm): 2.62
Dividend (Yield): 1.32 (2.7%)
TABLE OF CONTENTS
INVESTMENT THESIS
1
PRICE TARGET
1
COMPANY OVERVIEW
3
DOMESTIC BEER OPERATIONS
INTERNATIONAL BEER
PACKAGING
FAMILY ENTERTAINMENT
3
3
4
4
MACROECONOMIC ANALYSIS
5
CONSUMER SPENDING
Market Demographics
BREWER PROFITABILITY
5
5
6
SECTOR AND INDUSTRY ANALYSIS
7
SECTOR ANALYSIS
BREWING INDUSTRY ANALYSIS
ANHEUSER-BUSCH’S POSITION IN THE INDUSTRY
7
8
10
STRATEGIC ANALYSIS
11
GROWTH OPPORTUNITIES AND CATALYSTS
Domestic Opportunities
International Opportunities
Cost Control
Pricing Environment
RISKS
12
12
12
13
13
13
FINANCIAL ANALYSIS
14
DUPONT ANALYTICS
CASH CONVERSION CYCLE
14
16
VALUATION
16
EQUITY VALUATION: MULTIPLES
COMPARABLES ANALYSIS
EQUITY VALUATION: DCF
16
17
18
CONCLUSIONS
20
APPENDIX A – ANHEUSER BUSCH BALANCE SHEET
21
APPENDIX B – ANHEUSER BUSCH INCOME STATEMENT
22
APPENDIX C – ANHEUSER BUSCH CASH FLOW STATEMENT
22
APPENDIX D – INCOME STATEMENT PROJECTIONS
23
APPENDIX E – DISCOUNTED CASH FLOW ANALYSIS
24
2
Company Overview1
Anheuser-Busch Companies, Inc. was organized in 1979 as the holding company of Anheuser-Busch,
Incorporated (“ABI”), a Missouri corporation whose origins date back to 1875. In addition to ABI, which is the
nation’s leading brewer of beer, the Company also has subsidiaries that conduct various other business operations.
The company’s operations are comprised of the following principal business segments: domestic beer,
international beer, packaging, and entertainment.
Domestic Beer Operations
ABI has developed a system of twelve breweries, strategically located across the country, to economically serve
its distribution system. Ongoing modernization programs at the company’s breweries are part of ABI’s overall
strategic initiatives. During 2006, approximately 94% of the beer sold by ABI reached retail channels through
more than 600 independent wholesalers. By wholesaler use of controlled environment warehouses and stringent
inventory monitoring policies, the quality and freshness of the product are protected, thus providing ABI a
significant competitive advantage. ABI provides national and local media advertising, point-of-sale advertising,
and sales promotion programs to promote its brands, and complements national brand strategies with geographic
marketing teams focused on delivering relevant programming addressing local interests and opportunities. ABI’s
peak selling periods are the second and third quarters.
There are more than 100 companies engaged in the highly competitive brewing industry in the United States.
ABI’s domestic beers are distributed and sold in competition with other nationally distributed beers, with locally
and regionally distributed beers, and with imported beers. Although the methods of competition in the industry
vary widely, in part due to differences in applicable state laws, the principal methods of competition are product
quality, taste and freshness, packaging, price, advertising, point-of-sale materials, and service to retail customers.
ABI’s beers compete in different price categories. Major competitors in the United States brewing industry during
2006 included SABMiller, Molson Coors Brewing Company, Grupo Modelo, S.A.B. de C.V., and Heineken. In
addition to competing with the other brewers’ brands, the company’s beer brands must also compete in the
marketplace with other types of alcohol beverage choices available to consumers.
International Beer
Anheuser-Busch International, Inc. (“ABII”), a wholly-owned subsidiary of the company, oversees the marketing
and sale of Budweiser and other brands outside the U.S., operates breweries in the United Kingdom (U.K.) and
China, negotiates and administers license and contract brewing agreements on behalf of ABI with various foreign
brewers, and negotiates and manages equity investments in foreign brewing partners.
Through Anheuser-Busch Europe Limited (“ABEL”), an indirect, wholly-owned subsidiary of the company,
certain ABI beer brands are marketed, distributed, and sold in more than thirty countries. In China, the Company
has a 97% equity interest in the Budweiser Wuhan International Brewing Company Limited (BWIB), a joint
venture that owns and operates a brewery in Wuhan. The company also operates the Budweiser (China) Sales
Company, Ltd., an indirect wholly-owned subsidiary (“China Sales Co.”). BWIB and China Sales Co. are
responsible for the marketing and distribution of the company’s products in China.
The company owns 100% of Harbin Brewery Group Limited. Harbin Brewery Group has thirteen breweries in
northeast China. Harbin Brewery Group owns 100% of the entities operating nine of the breweries and a majority
interest in the remaining four breweries.
In Canada, Budweiser, Bud Light, Busch and Busch Light are brewed and sold through a license agreement with
Labatt Brewing Co. In Japan, Budweiser is brewed and sold through a license agreement with Kirin Brewery
Company, Limited. A licensing agreement allows Guinness Ireland Limited to brew and sell Budweiser in the
1
Adapted from Anheuser-Busch Companies 2006 10-K
3
Republic of Ireland and Northern Ireland and Bud Light in the Republic of Ireland. Budweiser is also brewed
under license and sold by brewers in Italy (Heineken Italia SpA), Spain (Sociedad Anonima Damm), Korea
(Oriental Brewery Co., Ltd.) and Russia (Heineken). The company owns a 7.9% stake in a subsidiary in
Argentina of Compañía Cervecerías Unidas S.A. (‘‘CCU’’), the leading Chilean brewer, that brews and
distributes Budweiser under license in Argentina and distributes Budweiser in Chile and Uruguay.
The company also sells in over 60 other countries by exporting various brands including Budweiser and Bud
Light from company breweries in the U.S., U.K. and China and from its license partners’ breweries in Argentina,
Italy and Spain.
The company has a strategic investment agreement with Tsingtao Brewery Company Limited, the second largest
brewer in China, and producer of the Tsingtao brand. The company has an economic stake in Tsingtao of 27%,
and a voting stake of 20%. The company owns a 35.12% direct interest in Grupo Modelo, S.A.B. de C.V.,
Mexico’s largest brewer, and a 23.25% direct interest in Diblo S.A. de C.V., Grupo Modelo’s operating
subsidiary, providing the company with, directly and indirectly, a 50.2% interest in Diblo. However, the company
does not have voting or other control of either Grupo Modelo or Diblo.
The company’s primary foreign markets for beer sales are China, the United Kingdom, Canada, Mexico and
Ireland. In each international market, the company competes against a mix of national, regional, local, and
imported beer brands. In China, competition is primarily from numerous national and regional brands. There is no
dominant competitor in China. In the United Kingdom, the top four competitors are Scottish & Newcastle,
Molson Coors Brewers, InBev UK, and Carlsberg UK. In Ireland, the market leader is the company’s license
brewing partner, Guinness Ireland. In Canada, the top two competitors, of similar size, are the Molson Coors
Brewing Company and the company’s license brewing partner, Labatt Brewing.
Packaging
The company’s packaging operations are handled through the following wholly-owned subsidiaries of the
company: Metal Container Corporation (MCC), which manufactures beverage cans and beverage can lids for sale
to ABI and U.S. soft drink; Anheuser-Busch Recycling Corporation, which buys and sells used aluminum
beverage containers and recycles aluminum and plastic containers; Precision Printing and Packaging, Inc., which
manufactures pressure sensitive, metalized, plastic and paper labels; and Eagle Packaging, Inc., which
manufactures crown and closure liner materials for ABI.
Through a wholly-owned limited partnership, Longhorn Glass Manufacturing, L.P., the company owns and
operates a glass manufacturing plant, which manufactures glass bottles for the company’s Houston brewery.
The packaging industry is highly competitive. MCC’s competitors include Ball Corporation, Rexam Corporation,
and Crown Holdings. In addition, the can industry faces competition from other beverage containers, such as glass
and plastic bottles.
Family Entertainment
The company is active in the family entertainment industry, primarily through its wholly-owned subsidiary,
Busch Entertainment Corporation (“BEC”), which currently owns, directly and through subsidiaries, nine theme
parks. Due to the seasonality of the theme park business, BEC experiences higher revenues in the second and
third quarters than in the first and fourth quarters.
The company is the fourth largest theme park operator in the United States. It faces competition in the family
entertainment industry from other theme and amusement parks, public zoos, public parks, and other family
entertainment events and attractions. Major competitors in the theme park industry during 2006 include Walt
Disney Co., Six Flags Parks, Cedar Fair Parks, and Universal Studios Theme Parks.
4
Macroeconomic Analysis
Although demand for beer is relatively stable in a variety of economic conditions, there are a number of economic
factors influencing the profitability and growth of the brewing industry. These factors include: the types of
products being purchased by consumers, market demographics, production costs, and the ability to raise prices.
Each of the factors influencing the industry is briefly explored below.
Consumer Spending
Consumer spending on alcoholic beverages is influenced not only by the growth of the economy (GDP) but also
by the amount of disposable income they have for purchasing goods. While neither of these factors has a
significant influence on consumer demanded they do influence the price points the consumers is willing to
consider when making a purchase decision. During times of economic expansion when consumers typically have
more disposable income, they are more apt to trade up to premium products at higher price points. The evidence
of consumers changing preferences can be seen today as they shift their purchasing dollars to craft beers and
imported brands, as well as spirits and wine which tend to be associated with more expensive lifestyles. Leaner
economic periods see consumers shifting to lower priced valued brands.
Figure 1: Year over Year %Change in Disposable Income
Standard and Poor’s is currently projecting real GDP growth will slow in 2007 to 2.2% which reflects around a
1% drop from historical readings taken in 2005 and 2006. The drop in GDP represents a general softening in
consumer spending; however, Standard and Poor’s is projecting the consumer’s real disposable income will grow
at 3.3% through 2007 and 2008, which is slightly above the historical mean of 3.2% (refer to Figure 1) and the
1.2% and 2.6% increases in 2005 and 2006 respectively. I believe Standard and Poor’s predictions indicate
consumers will be spending less, although they will continue to focus on higher end merchandise when spending
their money. The net result is traditional domestic brewers, like Anheuser-Busch, will continue to lose sales as
consumers trade-up to products that are perceived to be higher quality such as craft beer, import beer, wine, and
spirits.
Market Demographics
Young adults in the 21-27 age range tend to be the largest consumers of alcoholic beverages. Between 1990 and
2000, this segment of the population in the United States declined, (refer to Figure 2) putting pressure on the sales
of domestic beer producers. The 21-27 age group began increasing in size during 2000 and just recently reached
levels seen before the decline. The segment is projected to grow 16% between 2004 and 2010.2 The growth of
the industry’s target audience is positive for the industry, but traditional brewers such as Anheuser-Busch may
have difficulty translating the growth to profits due the current trend towards craft and import beers discussed
above.
2
Here’s To Beer – Beer Industry Overview 4th Quarter 2006
5
Figure 2: Population Trend of Key Beer Drinking Segment
The population growth in the United States has been rather limited
as shown in Figure 3.3 Producers who are heavily reliant on the
domestic market for growth have extremely limited prospects in
the near future. Longer term trends do not look any better as the
birth rate within the US continues to decline and the demographics
continue the skew towards an older population.
Figure 3: US Population Growth
There is hope for domestic based brewers however. A population
explosion is occurring in developing countries. Almost all of the
world’s future growth is expected to occur in Asia, Africa, and
Latin America.4 In an effort to take advantage of the overseas
population growth, brewers have begun to shift from a regional
focus to a global focus. The industry’s globalization is explored
further in the Industry Analysis portion of this report.
Brewer Profitability
Brewer profitability is impacted by these three factors: the costs required to produce their product, the price at
which they are able to sell their products, and the volume they are able to achieve at a given price. I have already
explored some of the factors influencing sales volumes, so in this section I will concentrate on examining factors
that influence the cost and pricing environment for brewers.
Beer production requires a number of agricultural inputs such as barley, wheat, corn, rice, and hops. The price of
these products, like any farm commodity product, fluctuates based on the quantity planted, success of the growing
season, and market demand. Because there are no substitutes for these products, brewers are highly exposed to
price fluctuations in these farm goods. Containers are also needed to package the finish product. Aluminum cans
are one of the primary packages used in the beer industry, and therefore, brewers are exposed to fluctuations in
aluminum prices. Energy, both electricity and fuel, are key inputs required to convert the raw input materials into
beer and deliver it to wholesalers or retailers. Each of these inputs has experienced a dramatic run-up in price in
recent years although, it appears aluminum costs may now be moderating somewhat.
The Producer Price Index (PPI) can be used as a gauge to understand how raw material prices, such as the ones
needed by the brewing industry, may impact a brewers cost of goods sold. In recent years the index has shown
significant price increases across the board for input materials. Standard and Poor’s projects a moderation of
commodity prices in general over the next couple of years. However, farm goods, which are key inputs for
brewers, are predicted to rise dramatically in 2007. It is believed that an increased production of corn to meet the
3
4
US Census Projections
Standard & Poor’s Industry Survey Alcohol and Tobacco, June 21, 2007
6
needs of ethanol producers will lead to reductions in other crops and therefore higher prices.5 Fuel costs are likely
to be an ongoing issue for producers as well.
On the demand side, the pricing environment has been favorable for brewers. Anheuser-Busch has put in place
price increases this year and plans to implement another round of price increases next year. In general though,
traditional brewers do not have a significant amount of pricing power and price increases are largely relegated to
increases that are inline with Consumer Price Index (CPI) for all items. Standards and Poor’s is currently
projecting that CPI will moderate in 2007 and 2008 with growth of 2.2% and 1.7% respectively.6 These
predictions are below the historical average (refer to Figure 4) increase of 2.5%. With opportunities for price
increases moderating and input costs rising brewers may have a difficulty time generating profit growth in the
coming years.
Figure 4: Year over Year %Change in CPI
Sector and Industry Analysis
Sector Analysis
The Consumer Staples Sector is made up of the following types of companies: manufacturers and distributors of
food, beverages and tobacco producers, and producers of non-durable household goods and personal products. It
also includes food & drug retailing companies, as well as hypermarkets and consumer super centers. Companies
within this sector are generally household names, as branding is extremely important, and many have long
histories in the industry. Demand for products produced by this sector is relatively inelastic. Companies within
the sector normally have solid cash flow, which enables them to pay above average dividends. Investments
within the sector are usually seen as defensive because the sector’s returns are only very loosely correlated with
the broader market as implied by their low betas. This means in market downturns the sector typically
outperforms market benchmarks whereas in good market conditions the sector usually lags the broader indexes.
Figure 5: Consumer Staples Price Performance
5
6
Standard & Poor’s Industry Survey Alcohol and Tobacco, June 21, 2007
Standard & Poor’s Industry Survey Alcohol and Tobacco, June 21, 2007
7
Valuation multiples and historical pricing for the sector provide a mixed view as to its value. Figure 5 shows the
10-year price performance of the sector. The sector currently appears to be overvalued when comparing its
current price of $48.67 to its historical mean of $40. Figure 6 contains valuation multiples on both an absolute
basis and relative to the S&P500. On an absolute basis, the sector appears to be undervalued. The relative
measures provide yet another view that indicates the sector is fairly valued by all accounts except Price/Forward
EPS, which indicates the sector is slightly overvalued, and Price/Book, which indicates the sector is undervalued.
I believe the relative measures are the best predictor, because they should help to counteract any “bubbles” in the
market. Furthermore, I believe Price/Forward EPS is the best indicator for this sector and therefore conclude that
the sector is slightly overvalued.
Figure 6: 10-year Consumer Staples Valuation Metrics
Brewing Industry Analysis
The brewing industry is responsible for the production and distribution of beer and other malt beverages. The
demand for beer, like other products within the Consumer Staples sector, is highly inelastic. While adverse
conditions may slow consumer spending on alcoholic beverages, consumers tend to continue buying them even in
the worst of times. This trend is in sharp contrast to discretionary items like cars, appliances, and luxury items.
Production of beer has roots dating back hundreds of years and many companies currently in the industry,
especially in Europe, have histories dating back more than 100 years. Anheuser-Busch, the largest domestic
producer, has participated in the industry since 1875. Given the brewing industry’s extensive history, classifying
it as a mature industry is reasonable. Domestically and globally, the industry has evolved in a similar manner.
Because beer purchases are largely driven by taste preferences, brewers initially established their scope,
reputation, and branding based on the tastes of consumers in the market they served. This led to an industry
structure where there were a number of regional players that served the needs of a select group of people. Over
time, a few producers expanded to cover entire countries, even multiple countries, while many simply continued
to serve their original region. In the last few decades, a wave of mergers, acquisition, and investment has taken
place within the industry as brewers tried to achieve larger footprints and achieve greater economies of scale.
Even with the flurry of mergers and acquisition in recent years, no one player has developed a commanding lead
over the competition. At the close of 2006, Anheuser-Busch held the highest market share at 10.3%, followed
closely by InBev with a share of 9.8%, and SABMiller with a share of 9.0%7. The key point is that the industry
structure is evolving as a few large players are actively building a stable of diverse brands and then leveraging
their distribution networks to introduce the brands throughout the world.
Consumption trends are also impacting the industry. In North America for instance, consumers have increased
their consumption of wine and spirits as shown in Figure 7 at the expense of beer producers. Between 1994 and
2006, beer consumption has decreased approximately 2.5%. Increased health consciousness has also led
consumers to limit their intake of alcoholic beverages. Finally, there has been a growing trend for the consumer
7
DataMonitor Global Brewers Industry Profile, March 2007
8
to become more focused quality and uniqueness. This trend has led consumers to shift their purchasing dollars
from traditional domestic brand names to imports and craft beers/microbrews.
100.00%
90.00%
80.00%
e
Consum
Percent
70.00%
60.00%
50.00%
Beer
40.00%
Wine
30.00%
Spirits
20.00%
10.00%
0.00%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Year
Figure 7: Alcoholic Beverage Consumption Trends
Large domestic brewers faced with declining demand are searching for growth opportunities in the global
marketplace. Global growth has historically increased in the low to mid single digits on an annual basis, as shown
in Figure 8. In recent years, regions such as Latin America, Africa, and Asia have offered above average growth
opportunities. These regions are the same areas that are predicted to have explosive population growth in the
coming years based on census data. The opportunity for growth in these markets has drawn established brewers
to invest in these areas.
Figure 8: Global Demand by Region
The changing global demographics and consumption trends are resulting in projected declines in volume growth.
The graph in Figure 9 indicates that annual growth is predicted to slow from 2.8% in 2006 to 2.3% in 2011.8
While 0.5% decrease in growth does not appear substantial, if beer volume growth is assumed to grow on average
3% annually, the reduction amounts to a 16.7% decline in growth. Declining global growth may indicate that the
rapid growth recently seen in Africa, Asia, and Latin America is not sustainable in the long term.
Figure 9: Projected World Beer Volumes
8
DataMonitor Global Brewers Industry Profile, March 2007
9
Slow growth within the industry has created an environment that fosters vigorous competition among brewers.
Brand image, price, and quality are three of the key areas in which brewers compete. Creating and maintaining
brand image requires a significant investment in marketing. However, brewers typically invest heavily in this
area, because it is essential for generating and maintaining sales. Price wars are not uncommon within the
industry. Price wars are especially seen in the domestic market where demographic trends are working against the
brewers and market share is a key metric investors use to judge the health of the company. Because maintaining
market share is important and regaining lost market share in a stagnant market is difficult, brewers are apt to
discount their products in order to maintain their position within the market.9
As was previously mentioned, brewers are huge consumers of commodities. The brewing process utilizes a
number of agricultural inputs, such as wheat, corn, rice, and barley. The distribution process requires large
amounts of gasoline to move the finished product to wholesalers and retailers. The packaging process is a huge
consumer of aluminum, since the aluminum can is still one of the most widely used forms of packaging. Finally,
the production process relies on electricity. Unfortunately, brewers cannot substitute lower cost inputs when
making their product, so they are highly exposed to fluctuations in commodity prices. Certainly, many brewers
attempt to smooth out the fluctuations through the use of long term contracts and hedges, but some volatility is
inevitable. Even in favorable pricing environments where brewers can raise prices, they often cannot raise prices
fast enough to cope with the large swings in commodity prices. This inability to react quickly to price
fluctuations can have a major impact on a brewer’s profits in the short term.
A discussion on the brewing industry would not be complete without at least mentioning industry regulation.
Domestically, the industry is highly regulated. Brewers must pay excise taxes at both the national and state level.
In addition to excise taxes, brewers must cope with a myriad of regulations specified at the national, state, and the
local level. Global brewers experience even more complexity as each country has their own way of regulating
alcoholic beverages.
Brewers currently have to deal with a number of challenges. Industry consolidation is changing the dynamics of
the business. Increasing commodity prices are putting a damper on corporate profits. Changing consumer tastes
are resulting in decreased beer consumption. This change in consumer trends has led to extremely stiff
competition as brewers try to maintain their market share and revenue streams. The result for brewers is lower
revenues, as they compete on price and incur increased raw material, marketing, and research and development
costs. Clearly, the brewing industry is experiencing some daunting challenges, which is likely to put a damper on
brewers’ earnings and as a result, the returns on their stocks.
Anheuser-Busch’s Position in the Industry
Anheuser-Busch is the largest domestic producer of beer with 48.8% share of the market.10 The next closest
competitor, SABMiller, has less than a 20% market share domestically. Anheuser- Busch’s market dominance
allows it to achieve economies of scale across its 12 domestic breweries, giving it a level of efficiency few of its
competitors can match. As a result of the company’s operational efficiency, Anheuser-Busch is able to generate
above average profits.
While the company’s market dominance domestically is clearly a positive, the domestic brewing industry is
currently faced with a number of challenges, as I discussed above. If Anheuser-Busch were a well diversified
global brewer, its market dominance in the domestic market would not be a big concern. However, as depicted in
Figure 10, the company’s revenues are primarily derived from the domestic market. Given the current and
projected weakness in the domestic market, Anheuser-Busch is likely to have trouble growing its business. Even
more disturbing is the fact that between 2006 and 2007 revenues from the international segment only increased
0.3%. With sizeable distribution contracts already in place in some of the fastest growing areas of the world, it
appears Anheuser-Busch is not able to capitalize on the growing international markets.
9
Standard & Poor’s Industry Survey Alcohol and Tobacco, June 21, 2007
Anheuser-Busch, Second Quarter 10-Q
10
10
Figure 10: Anheuser-Busch First Half Revenues by Segment
The company’s revenue distribution indicates significant exposure to fluctuations within the domestic market with
minimal diversification into other markets that might insulate Anheuser-Busch from the current trends in the
domestic market. Therefore, I have to conclude that the company’s dominance within the domestic market and its
high percentage of revenues derived from the region is actually a negative at this point in time. The current trends
within the domestic market serve to effectively cap Anheuser-Busch’s opportunities for organic growth of its core
brands, which puts a damper on any corporate growth, and thus, limits the upside to the stock. Without any
proven growth opportunities in the company’s funnel, I believe the market is viewing Anheuser-Busch’s lack of
diversification as an additional risk and discounting the stock appropriately.
Figure 11: Anheuser-Busch First Half Net Income by Segment
In all fairness to Anheuser-Busch, the company is making a concerted effort to decrease its reliance on growth
from its core brands domestically, counteract trends towards imports and beer alternatives in the domestic market,
and take advantage of international growth opportunities. One step the company is taking is overseas
investments. The company has acquired equity stakes in breweries located in Japan, China, and Latin America.
This move has helped Anheuser-Busch capture growth within these regions without having to manage the
associated operations. It has also created channels for Anheuser-Busch to sell their product in their partner’s
region and the opportunity to import their partner’s products into the domestic market. These investments have
also generated income that applies directly to the bottom line, and this income helps to further diversify the
company. The distribution of net income across segments is presented in Figure 11. This distribution indicates
Anheuser-Busch has greater diversification than the company’s revenues indicate. International growth is also
greater, indicating Anheuser-Busch’s equity investments are responsible for most of the company’s international
growth. While this development is positive, it signals the company has had little success in generating organic
growth domestically or abroad. Future acquisitions and investments will be needed in order to continue
generating growth internationally. Due to the consolidation within the industry, prices are already high and
Anheuser-Busch may be forced to pay a premium for growth opportunities.
Strategic Analysis
Faced with increasing competition and limited prospects for growth in the domestic beer market, Anheuser-Busch
has begun implementing a strategy to diversify its revenue streams domestically and increase its international
exposure. It has also launched a concerted effort to compete directly in the craft brew segment, where industry
11
growth has far outpaced the growth of traditional domestic brewers. The company’s strategy also seeks to reduce
the overall cost structure of the company, thereby allowing more of its revenues to reach the bottom-line.
Growth Opportunities and Catalysts
Domestic Opportunities
Anheuser-Busch’s dominance in the domestic beer market makes it difficult for the company to achieve any long
term sustainable growth. In fact, the company has to work extremely hard just to maintain its existing share.
Losing market share is a big concern for the company, and the likelihood of the company losing ground is much
greater than them establishing an even more dominant position in the market. Anheuser-Busch fully recognizes
the precarious position they are in, and the company is taking steps to remedy the situation. However, I do not
believe these changes will have any material impact on earnings until 2009 at the earliest.
Anheuser-Busch’s distribution network provides a competitive advantage for the company, as few competitors in
the beer market or any other market for that matter can match its scale. Recognizing the value of its network,
Anheuser-Busch has begun to distribute beverages produced by other companies. The company has begun to
forge relationships with overseas beer producers, energy drink manufacturers, spirit producers, and bottled water
manufacturers, forming partnerships whereby Anheuser-Busch has rights to import, if necessary, and distribute
the partner’s products within Anheuser-Busch’s domestic market.
The company’s strategy to leverage its distribution network helps the company in two ways. First, it further
diversifies its domestic revenue streams, making it less dependent on growth in the company’s core beer markets
to drive its profit growth. Second, the products it is starting to distribute are to a large degree the same products
that are chipping away at the company’s domestic market. This strategy allows the company to participate in
sales transactions that in the past would have been written off as lost business. The net result is the company
begins to replace at least a percentage of the revenues it was losing as consumers switched to import beer, craft
beer, and spirits. Although I have not seen any details on the margins associated with its distribution agreements,
I am inclined to believe they compare favorably with the margins the company receives on its core products,
because the margins associated with the products the company is distributing are generally higher.
Anheuser-Busch is also taking steps to get more exposure directly in the craft brew market. It recently purchased
Latrobe Brewing Company, which owns the Rolling Rock brand. Additionally, the company has equity stakes in
Widmer Brothers Brewing Company and Redhook Ale Brewery, Inc. All of these brands are perceived to be
more unique and higher quality than the product line produced by Anheuser-Busch. Besides investing in smaller
breweries, the company has been developing a variety of specialty and seasonal beers that it restricts to certain
regional markets. By limiting the distribution and creating brands names that are not readily associated with the
company’s core brands, the beers are more likely to appeal to the consumer seeking a craft beer. These
investments and new products give Anheuser-Busch direct access to the craft beer segment of the market, which
has recently been growing at a double digit pace.
Finally, the company is constantly working on developing new products in order to tap into new markets. The
company recently released a series of fruit infused beers that should appeal to females and upscale beer drinkers.
It has also developed a malt beverage product called Spykes that should appeal to those who enjoy energy drinks
mixed with alcohol. An Anheuser-Busch subsidiary, Long Tail Libations Inc., is currently test marketing a new
liqueur product that is providing promising results.
International Opportunities
The company is no stranger to the international beer business. It began investing in Grupo Modelo, the largest
beer producer in Mexico, in 1993 and has since increased its investment to 50.2%. The company also has a stake
in Tsingtao, one of the largest beer producers in China. Both of these investments have provided Anheuser-Busch
with exposure to the international markets and have contributed significantly to its profits in recent years.
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Additionally, the company has several overseas breweries and distribution companies that it owns directly as well
as a number of licensees who manufacture and distribute the company’s core products. However, as I previously
noted, international revenues only account for 6% of the company’s total revenues, and international net income
only accounts for 26% of the company’s total net income. Fortunately, the company is already well positioned
for international growth; it is a matter of execution at this point.
Anheuser-Busch has recently announced some actions that should help spur its international growth. First,
leveraging its acquisition of the Chinese brand Harbin, the company announced it will distribute the beer in 33
new markets within China. The company also announced plans to double it distribution of Budweiser in China
within the next 5 years. To accommodate the growth, Anheuser-Busch is building a greenfield brewery in
Foshan.11 Additionally, Anheuser-Busch’s import company, China Sales Co., is starting to import Grupo
Modelo’s Corona brand this year. China has experienced double digit volume growth the last 3 years and is the
fastest growing beer market in the world.
India is another area Anheuser-Busch is targeting for growth.12 Currently, the Indian beer market is in its infancy,
although it has had a compound annual growth rate of 8% over the last 5 years. Anheuser-Busch believes that it
is a good time to begin cultivating this market and recently opened a new brewery in partnership with Crown
Beers to begin serving this market. The Indian economy is extremely strong with a growing middle class.
Approximately 60% of the population is 30 and under. These demographics fit well within Anheuser-Busch’s
target audience.
Cost Control
Anheuser-Busch’s size is beneficial from the perspective of controlling costs. As one of the most dominant
brewers in the world, it can wield significant power over its suppliers and distribution partners. The company’s
size also helps in maximizing the utilization of its facilities, lending to lower operating costs. Finally, the
company funds an annual manual maintenance plan that is used to keep its facilities up to date. By continually
maintaining its facilities, the company is able to streamline plant operations, reduce energy costs as newer
equipment comes available, and get higher utilization out of its plants by minimizing downtime.
Pricing Environment
The company’s strong brand and current economic conditions are supportive of pricing increases. The company
successfully rolled out pricing increases earlier during the first half of this year and intends to roll out another
round of price increases beginning the end of this year and into 2008. With the recent run-up in commodity
prices, pricing increases will help the company minimize the impact of increased raw material costs on its bottom
line.
Risks
Anheuser-Busch faces a number of risks both domestically and internationally that could impact the company’s
profits and therefore its stock price. Potential risks include:
ƒ Lack of organic domestic and international growth. The company has been experiencing weakness in its core
brands domestically and market trends suggest this will continue. International growth of the company’s core
brands has been minimal even with a long established group of distributors and licensed producers.
ƒ Commodity costs are likely to continue to rise, especially in the farm goods area. There are no readily
available low cost substitutes that Anheuser-Busch can switch to in order to offset price increases. If the
company is unsuccessful in hedging this risk, raw materials may adversely impact the bottom line until prices
can be increased to offset the rise in raw materials.
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Anheuser-Busch Press Release April 3, 2007
Anheuser-Busch Press Release February 22, 2007
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The inability to increase prices in the future. The company has had success with price increases so far this
year. However, with CPI growth projected to slow over the next few years Anheuser-Busch may have
difficulty raising prices in the future, and profits would be impacted.
The possibility of a price war, especially as the market traditional brewers serve continues to decline. If a
price war were to erupt, it is almost inevitable the Anheuser-Busch would cut prices in order to maintain its
market share.
The company’s Grupo Modelo investment has been contributing heavily to the growth of the company in
recent quarters. Should there be a slowdown in demand for Grupo Modelo products domestically or in
Mexico, Anheuser-Busch’s profits would be adversely affected.
Anheuser-Busch’s latest strategy for growth in the domestic markets has been to establish import and
distribution agreements with spirits manufacturers, non-alcoholic drink manufacturers, and international beer
producers. If the company is unable to rationalize the new product lines within its distribution system, its
growth targets will not be met. There also exists the possibility that the partner will be unable to supply the
necessary quantities in order to meet market demand. This type of supply shortage happened recently as the
company was trying to integrate InBev’s products into its distribution system.
Changing consumer trends could negatively affect Anheuser-Busch. The company has been investing a great
deal of time to integrate import and craft beers into its portfolio. Consumers can be quite fickle and what is
popular today is no longer popular tomorrow. It certainly is not inconceivable that the growth trend and/or
the ability to achieve high margins within these segments will dissipate before Anheuser-Busch has been able
to benefit from its distribution agreements.
Accumulated inventory in distribution network could dictate a decline in future sales. In the most recent
quarter, Anheuser-Busch reported that sales to wholesalers had increased while sales to retailers were flat.
This indicates sales may be down in the next quarter, if wholesalers are not able to clear the inventory that
was built up last quarter.
Rising acquisition costs could impact the business. The industry has gone through a great deal of
consolidation in recent years. Should Anheuser-Busch find the need to acquire another brewer in order to tap
into a target market, it may be forced to pay a premium.
Potential lawsuits affect the company’s earning and marketing. In today’s litigious environment, there always
exists the possibility of a lawsuit. Some of the products Anheuser-Busch has been developing have already
been accused of appealing to minors. A lawsuit of this nature could be detrimental to the company’s earnings
as well as its ability to successfully develop and market new products.
Financial Analysis
Anheuser-Busch’s financial statements (Refer to Appendix A-C) are a very transparent, although I would like to
see more information provided on the performance of their investments and distribution partnerships. A brief
evaluation of the balance sheet indicates the company has kept its cash relatively constant, approximately $200M,
in the years evaluated. Inventories and receivables have risen, but the rise is expected as the company is
continuing to grow, albeit slowly. The Income Statement indicates that while sales have been increasing, cost
have been rising at the same pace and sometimes exceeding the rise in sales (e.g. 2005). The company’s equity
investments have performed very well and have helped sustain and grow Anheuser-Busch’s net income. Earnings
per share have been growing, thanks to the company’s stock repurchase program. Examining the cash flow
statement, it becomes clear Anheuser-Busch’s operations generate a lot of cash. The company does periodically
borrow, but this behavior typically occurs during periods where it is making investments in other companies. It is
also evident by the size of its annual capital expenditures that the company invests heavily in maintaining and
growing its facilities. From my assessment, I would conclude the company is a well run business that is currently
experiencing some dramatic changes in the market place which are posing a challenge to its financial health.
Management aggressively pursuing new growth opportunities but it will take time for results to materialize. Time
will tell if its strategy to adapt will permit the company to return to a path of sustainable growth.
DuPont Analytics
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DuPont analysis allows for a quick evaluation of how well the firm is performing in regards to operations
management, asset management, and capital structure management. The statistics for Anheuser-Busch are
provided for the last 5 years of operation in Figure 12.
Figure 12: DuPont Ratio Analysis
Evaluating the company’s profit margin is an easy way to ascertain how well management is doing maintaining
the firms operations. Profit margin indicates the percentage of each dollar of sales that translates into operating
profit. Anheuser-Busch’s profit margin has been declining for the last 3 years and is down 5.5% from its peak in
2003. This decline is a troubling trend but not unexpected given the increasing cost of raw materials and the
market conditions the company has been facing. I expect that profit margins will improve this year and in 2008 as
the company implements price increases, which should allow for more of each dollar of sales to trickle to the
bottom line.
Asset turnover is an indication of how well the firm is performing in managing its assets. It is a measure of
annual sales generated by each dollar of investment. This ratio has remained relatively steady over the period
being analyzed, but like other ratios within this data set, there was a decline in 2005 and 2006. I would
characterize these as “blips” due to the rough market Anheuser-Busch encountered in 2005 and 2006. In 2005,
the company’s sales were flat in comparison to 2004, while the company continued to invest in property, plant,
and equipment, as well as making equity investments in other brewers. Hence, the ratio was driven lower. I
expect the ratio to improve in coming years as the company begins to benefit from its distribution agreements and
increased international exposure.
Return on investment measures how well the firm translates its assets into earnings. In the case of AnheuserBusch, ROI has declined in the last couple of years. This can be attributed to the factors influencing lower profit
margins and asset turnover mentioned above.
The leverage multiplier provides insight into the capital structure of the firm. The larger the leverage multiplier
the more debt the firm has in its capital structure. Anheuser-Busch’s leverage factor has fluctuated quite a bit in
the years evaluated above. This fluctuation is not surprising considering Anheuser-Busch is a mature company
with strong cash flow. By adding leverage to its capital structure, it is able to take advantage of the tax benefits
associated with interest payments on debt. The company has also been actively investing in and purchasing other
brewers. Purchases of this nature are typically funded with at least some percentage of debt. The company
recently announced that it will be increasing its leverage, so I expect this measure to increase over time.
Return on equity is a measure of the return the company is able to achieve on the investment made by the firm’s
owners. Anheuser-Busch’s return on equity has been quite respectable. Discounting the exceptional high returns
generated in 2003 and 2004 due to a large boost in leverage, the company has generated an average ROE of
69.94%. Once again the return in 2006 was lower than the norm. This resulted from a reduction in leverage.
With the company’s announcement that it will increase leverage, I expect that ROE will return something closer
to the historical average.
In summary, Anheuser-Busch has generated solid consistent returns for its equity investors. There have certainly
been bumps in the road as the company adjusts to changing markets conditions. I expect that the company will
continue to generate strong consistent returns especially as it gets further along in implementing its strategy to
leverage its distribution network.
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Cash Conversion Cycle
The cash conversion cycle or operating cycle offers insight into how quickly the company’s operations turn
invested capital into cash. The operating cycle is computed by adding days in accounts receivable and days in
inventory and subtracting days in accounts payable. The figures for Anheuser-Busch last 5 years of operation are
shown in Figure 13. Examining the figures, a few things jump out. The company keeps remarkably low
inventory, and it has maintained this trend for a minimum of the last 5 years. This makes sense, because beer is a
perishable item and excess inventory would eventually spoil. Furthermore, the company established a “Born on
Dating” program a number of years ago. This system allows consumers to determine the date when their beer was
made. Keeping inventory turns high is essential for the born on dating program to be an effective marketing tool.
The company’s receivables are also remarkably low. The company has been lengthening the time period in which
it settles accounts payable. This change is a positive as long as the company is not having cash flow issue which
Anheuser-Busch is not. By delaying payment, the company is able to use the cash in its operations rather than
having to try down cash from other sources.
Figure 13: Cash Conversion Analysis
The operating cycle numbers in Figure 13 indicate that Anheuser-Busch is very effective in converting their
investments in operations into cash. In fact, they turn inventory and collectible receivables faster than they have
to pay cash out to their suppliers. Furthermore, the trend has been improving over time. The company is currently
collecting cash almost 10 days in advance of having to pay for the raw materials used in making their products.
This situation is enviable and is a sign of the quality management and financial controls within the organization.
Valuation
Several different valuation techniques were used to assess the value of Anheuser-Busch. A description of each
technique and the resulting analysis is provided below.
Equity Valuation: Multiples
One technique I used to assess the value of Anheuser-Busch was multiples analysis. To begin with, I compared
Anheuser-Busch’s valuation multiples to several benchmarks in the market. First, I compared the performance of
Anheuser-Busch to the S&P500 (Refer to Figure 14). Based on this comparison, Anheuser-Busch priced above it
historical value in relation to the S&P500.
Figure 14: Anheuser-Busch Relative to the S&P500
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Next, I compared Anheuser-Busch to the consumer staples sectors and the alcoholic beverages industry within the
consumer staples sectors (Refer to Figure 15). My comparison of Anheuser-Busch to the consumer staples sector
indicated that the stock is fairly valued with the exception of Price/Book. Finally, I compared Anheuser-Busch
with the alcoholic beverages industry as defined by StockVal. This comparison provided some surprising results.
According to 3 of the measures, Anheuser-Busch was undervalued, in some cases significantly (e.g. Price/Sales).
In other cases, the company was significantly overvalued (e.g. Price/Book). Examining the companies StockVal
includes in the alcoholic beverage industry sheds some light on the results. Many of the companies included are
wine producers, spirits producers, foreign beer producers, or craft beer producers. These are the same producers
who have been performing well based on their position in the industry and their growth prospects. Therefore, I
would conclude it is only natural that Anheuser-Busch would be undervalued in comparison because its multiple
growth has not kept pace with its peers in the alcoholic beverage index.
Figure 15: Anheuser-Busch Relative to Sector and Industry Valuations
Having gotten a feel for how Anheuser-Busch’s prices compared to several benchmarks, I selected target
multiples for each of the valuation measures. This allowed me to compute target prices based on each measure.
The results of this analysis are presented in Figure 16. While I assumed Price/Book, Price/EBITDA, and
Price/Cash Flow would revert to the mean, I felt as if Price/Forward EPS and Price/Sales would not reach their
mean value again. I came to this conclusion based my outlook for market conditions and the recent performance
of the multiple in regards to whether or not it was trending towards its historical mean. For Price/Forward EPS
and Price/Sales there did not appear to be a trend toward reverting to the mean in the last few years. Therefore, I
assumed that, given market and industry shifts, the recent past was a more relevant predictor of the future. I then
selected a target multiple based on what was roughly the 3 year mean for the measures in question. Based on the
target multiples selected for each measure, I computed prices ranging from $48.42 to $56.89 a share. I do not put
a great deal of weight on any of these estimates as the tend carry a number of embedded assumptions that only
allow for a rough approximation of the intrinsic value of a stock. However, they do give credence that my DCF
valuations are in a reasonable range. With that being said, if forced to choose the most appropriate measure, I
believe Price/Forward EPS is the best approximation of the intrinsic value of companies in this sector.
Figure 16: Anheuser-Busch Target Multiples and Valuation
Comparables Analysis
I performed a more granular valuation comparison by examining valuation measures of some of AnheuserBusch’s peers (Refer to Figure 17). With the exception of Price/Cash Flow and Price/Forward EPS, AnheuserBusch has higher multiples than it peers. In terms of Price/Cash Flow, the company lagged both SABMiller and
Heineken. Price/Forward EPS information was not available for SABMiller so it is unknown how AnheuserBusch compares to it but Anheuser-Busch did trail Heineken in this category.
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Figure 17: Comparable Analysis
Next, I took an arithmetic average of each
multiple and using same target multiple from the
previous valuation exercise I computed an
additional set of price targets for AnheuserBusch. The results are presented in Figure 18.
Admittedly, an arithmetic average is to simplistic
as it fails to account for market weights but once
again I am just looking for rough confirmation
the pricing generated via my DCF model is in the
correct range.
Figure 18: Comparables Valuation
Equity Valuation: DCF
I believe that a Discounted Cash Flow (DCF) model yields the best target price for Anheuser-Busch. It leaves a
great deal of room for error since the analyst is making a number of assumptions but it has the benefit that all
assumptions are known and understood. This is not the case when using multiples for valuation purpose.
Multiples have a number of implied assumptions. Unless the analysts studies and understands the makeup of the
multiple, it can easily provide them with a price that does not make sense in the situation being evaluated.
The model I developed is presented in Appendix E. The model yields an intrinsic value of $52.35 for AnheuserBusch. This is within the range of prices generated using multiples analysis in the sections above. Below, I
outline the assumptions I made when defining the model.
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Incomes Statement Assumptions
o Net sales growth was predicted to be 5.0% and 5.25% in 2007 and 2008 respectively. Beginning in
2009, the growth was projected to slowly return to long term historical average. The spike in 2007
and 2008 was intended to capture growth from new import and distribution agreements as well as the
company’s expansions in India and China.
o Operating margins were predicted to decline to 16.0% in 2009 as pressure from commodities prices
increases and higher marketing expenses weigh on the company. Long term, these pressures are
expected to moderate and operate margins were projected to return to their historical norm.
o Interest expenses were predicted to remain flat year-over-year which is inline with historical trends.
o The company’s tax rate was projected to be 39.5%.
o Equity Income from the company’s investments is projected to peak at 5.25% of sales in 2010 and
then trend down to a long term rate of 4.75% of sales.
Balance Sheet Assumptions
o Given Anheuser-Busch excellent control of Accounts Payable, Accounts Receivable, and Inventories
growth projections for these categories were based on historical norms.
o Depreciation was projected to follow historical trends.
Cash Flow Statement Assumptions
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Near term capital expenditure estimates were made based on company statements about planned
expenditures. Longer term estimates were set to equal depreciation expenses.
The discount rate was assumed to be 9.0%. A CAPM model would have predicted a discount rate of 8.0% to
8.5%. I felt that a higher discount rate was warranted given the company’s concentration in the domestic
markets and the current trends within this market. With little in the way of material growth and an unproven
strategy, the company is riskier than it has been historically in my opinion.
The terminal growth rate was assumed to be 3.5% which about 1% below the long term historical growth rate
of the company.
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Figure 19 outlines the differences between my model and consensus estimates for revenues and earning per share.
From a revenue perspective, my model diverges from consensus by 2.8%. The difference stems from my belief
that Anheuser-Busch’s strategy to leverage its distribution channels will result in above average growth over the
next few years. However, I believe the company will experience higher costs which will offset much of their
growth. Therefore, my EPS estimates lag the consensus.
Figure 19: Comparison of Model Estimates versus Consensus
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Conclusions
I am rating Anheuser-Busch a HOLD with a price target of $52.
Anheuser-Busch is a solid company with excellent financial strength. Unfortunately, the company derives most
of its business from the domestic market and it lacks the necessary diversification to shield it from the
unfavorable trends that currently exist in the market today. To management’s credit, it is aggressively pursuing
opportunities to generate additional international growth. With domestic population growth flat and changing
consumer buying patterns, international presence is key to re-vitalizing growth of the company’s core brands.
Additionally, the company is forming relationships with other alcoholic and non-alcoholic beverage producers.
The company intends utilize these relationships to leverage its massive distribution in order to capitalize on the
changing domestic consumption trends. It will take time for these strategies to be fully deployed and the affects
to be realized in the company’s financials.
I believe the market is skeptical about the results the company’s strategy will be able to produce and it has good
reason to be skeptical. The company has had substantial investments overseas for almost 20 years. Even so,
judging by it lack of organic revenue growth internationally, it does not appear that Anheuser-Busch has been
able to fully capitalize on the tremendous growth that has occurred in the last decade. I think it is valid to ask
what is different today and why the company will be successful now. One key difference lies in management.
August Busch IV assumed the CEO role at the end of last year. From the accounts I have seen, he appears to be
more aggressive than his predecessors were in finding and attacking strategic opportunities. In my opinion, there
is not enough data at this point to draw any real conclusions about how the company’s new strategy will play out.
Doing so would be pure speculation on my part. I think that this is the very problem with this stock. The market
is uncertain about its fate and therefore is assigning an additional risk premium to the shares. If the company’s
strategy succeeds in restarting its stalled domestic business and generates international growth, the shares could
easily reach $60/share. Until the market sees signs of growth, I believe the shares will be range bound in the high
$40’s to low $50’s as the market searches for a reason to drive the shares higher or lower.
Based on the results of my DCF model, which accounts for the additional market penalty I perceive, I have a
target price of $52 on the shares. Given the current upside potential of 6.7%, this warrants a HOLD. The price
target and rating should be re-evaluated following any material developments related to: international expansion,
domestic distribution agreements, dramatic changes in domestic sales, or changes in Grupo Modelo’s sales.
The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but the Fisher College of Business makes
no representation as to their timeliness, accuracy or completeness or for their fitness for any particular purpose. This report is not an offer to sell or a
solicitation of an offer to buy any security. The information and material presented in this report are for general information only and do not specifically
address individual investment objectives, financial situations or the particular needs of any specific person who may receive this report. Investing in any
security or investment strategies discussed may not be suitable for you and it is recommended that you consult an independent investment advisor. Nothing
in this report constitutes individual investment, legal or tax advice.
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Appendix A – Anheuser Busch Balance Sheet
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Appendix B – Anheuser Busch Income Statement
Appendix C – Anheuser Busch Cash Flow Statement
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Appendix D – Income Statement Projections13
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Adapted from Anheuser-Busch’s 2004, 2005, and 2006 Annual Reports
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Appendix E – Discounted Cash Flow Analysis
DCF Sensitivity Analysis
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