USA: Anheuser-Busch Cos. net sales increased 5.7% for the first six months of 2006

Anheuser-Busch Cos. Inc. (NYSE: BUD) reported July 26 that second quarter 2006 net sales increased 5.9 percent and diluted earnings per share (excluding one-time income tax related gains in both 2006 and 2005) increased 9.5 percent, PRNewswire released July 26. For the first six months of 2006, net sales increased 5.7 percent and diluted earnings per share (excluding one-time gains in both years) improved 7.4 percent.

"We are off to a good start this year," said Patrick Stokes, president and chief executive officer of the company, "with favorable performances by all of our business segments. Our domestic beer volume momentum continues to be positive into the key summer selling season. We had the largest sales-to- retailers volume in June of any month in the company's history. The domestic beer pricing environment is favorable, and our productivity improvement initiatives are helping mitigate continuing cost pressures. In addition, our international beer segment, led by Grupo Modelo, and our entertainment segment are having outstanding years. Based on these positive factors we are optimistic concerning our sales and earnings outlook for 2006."

Both domestic beer sales volume and revenue per barrel showed good balanced growth in the second quarter, with revenue per barrel growing 0.9 percent and domestic beer shipments-to-wholesalers increasing 2.2 percent versus the second quarter 2005.

Consistent with the pattern for 2006 pricing actions, the company expects to implement increases on the majority of its volume early next year, with a few selective increases in the fourth quarter 2006. As in the past, pricing initiatives will be tailored to selected markets, brands and packages.

The company also announced that the Board of Directors has elected to increase the common quarterly dividend rate 9.3 percent, to 29 1/2 cents from 27 cents per share. This increase reflects management's continued confidence regarding the company's long-term prospects. with the new Rolling Rock, Grolsch and Tiger brands contributing 0.4 points of growth to both shipments and sales-to-retailers.

Year-to-date, shipments-to-wholesalers increased 3.4 percent, and sales- to-retailers increased 1.8 percent (on a selling day adjusted basis) with Rolling Rock, Grolsch and Tiger contributing 0.2 points of growth to shipments and sales-to-retailers.

Sales-to-retailers increases were led by Bud Light, which grew approximately 6 percent for both the second quarter and year-to-date (selling day adjusted). The acquisition of the Rolling Rock brands, plus the new distribution agreements with the Grolsch, Tiger and Hansen's energy brands leverage the strength of the company's distribution system and provide opportunities for earnings enhancements for Anheuser-Busch and its wholesalers.

The company's estimated domestic market share (excluding exports) for the first six months of 2006 was 48.9 percent, an increase of 0.2 share points. Domestic market share is based on estimated U.S. beer industry shipment volume using information provided by the Beer Institute and the U.S. Department of Commerce.

International volume, consisting of Anheuser-Busch brands produced overseas by company-owned breweries and under license and contract brewing agreements, plus exports from the company's U.S. breweries to markets around the world, increased 18.5 percent for the second quarter and 14.2 percent for the first six months of 2006. These increases are primarily due to increased volume in China, Canada, Mexico and the United Kingdom.

Worldwide Anheuser-Busch brands volume, comprised of domestic volume and international volume, increased 5 percent for both the second quarter and first six months of 2006 versus 2005 to 33 million and 63 million barrels, respectively.

Total brands volume, which combines worldwide Anheuser-Busch brand volume with equity partner volume (representing the company's share of its equity partners' volume on a one-month lag basis) was 41 million barrels in the second quarter 2006, up 3 million barrels, or 8 percent. Total brands volume was up 10 percent, to 78 million barrels for the first six months of 2006.

Equity partner brands volume grew 25 percent and 34 percent, respectively, for the second quarter and first six months of 2006 due to Modelo volume growth and the addition of Tsingtao equity volume beginning in May 2005.

Effective in the first quarter 2006, Anheuser-Busch adopted FAS 123R, "Share-Based Payment." FAS 123R requires the recognition of stock compensation expense for stock options and other forms of equity compensation, based on the fair value of the instruments on the date of grant. In order to enhance the comparability of all periods presented and provide the fullest understanding of the impact that expensing stock compensation has on the company, Anheuser- Busch elected to apply the modified retrospective method of adopting FAS 123R. The company has therefore recast 2005 results to incorporate the impact of previously disclosed pro forma stock compensation expense. For financial reporting purposes, stock compensation expense is included in cost of sales and marketing, distribution and administrative expenses, depending on where the recipient's cash compensation is reported. Stock compensation expense is classified as a corporate item for segment reporting. Stock compensation expense was $.02 per share in the second quarters of 2006 and 2005 and was $.03 per share for the first six months of 2006 and 2005.

First six months 2006 financial results

Net sales increased 5.7 percent due to contributions from all of the company's business segments. Domestic beer net sales increased 4 percent due to 3.4 percent higher beer sales volume and 0.4 percent higher revenue per barrel. International beer segment net sales grew 10 percent due to sales volume increases, packaging segment sales increased 12 percent due to higher can and recycling revenues, and entertainment sales increased 9 percent from increased attendance.

Income before income taxes increased 4 percent excluding the $15.4 million gain in 2005 from the sale of the company's equity interest in its Spanish theme park investment, Port Aventura, and increased 2.8 percent on a reported basis. The increases are primarily due to higher profits in the domestic beer and entertainment segments.

Income before income taxes for domestic beer was up $22 million or 1.4 percent due to higher volume, increased revenue per barrel and favourable marketing costs, partially offset by higher beer production costs.

International beer pretax income increased $0.3 million primarily due to increased profits in Canada and Mexico offset by lower earnings in the United Kingdom and China.

Packaging segment pretax income increased $4 million or 5 percent primarily due to increased sales partially offset by higher costs from can and label manufacturing and recycling operations.

Entertainment segment pretax results improved $19 million or 27 percent due primarily to increased attendance partially offset by higher park operating expenses.

Equity income increased $50 million or 20 percent due to Grupo Modelo volume increases, pricing growth and a lower Mexican income tax rate.

Comparisons of net income, earnings per share and the effective tax rate are all impacted by the one-time income tax events discussed previously, as well as the 2005 gain on the sale of the Spanish theme park investment. Excluding these one-time items from both years, net income and diluted earnings per share would have increased 6.4 percent and 7.4 percent, respectively.(1) and the effective income tax rates were 39.4 percent in 2006 and 38.4 percent in 2005. On a reported basis net income increased 3.9 percent, diluted earnings per share were up 5 percent and the 2006 effective income tax rate was 38.8 percent.

Earnings per share benefited from the company's repurchase of nearly 11 million shares during the first six months of 2006.

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