Anheuser-Busch's troubles seemed to deepen yesterday (26 October) when the company reported a 24% fall in third quarter net profit.

The fall came despite a small rise of 0.2% in consolidated net sales in the quarter, compared to the same period last year. For the nine months of 2005, net sales increased 0.9%.

The St. Louis-based company saw profits reach US$518m, or 66 cents a share, for the quarter, down from US$684m or 85 cents in the year-earlier quarter. Excluding a one-time litigation settlement with a beer wholesaler, the company said profit would have declined 8.2% to US$623m or 78 cents a share.

"We are disappointed in our sales and earnings results, but we are encouraged by improvement in our market share performance at the consumer level," said Patrick Stokes, president and chief executive officer of the company. "Both the company and the domestic beer industry have experienced volume declines and significant cost pressures. Anheuser-Busch has undertaken a number of initiatives in 2005 to enhance beer volume and market share growth, and in the third quarter the company's market share increased in supermarkets, according to IRI data. Although we are confident the company will restore its sales and earnings growth momentum in the future, we now expect 2005 earnings per share excluding one-time items to be 10 to 11% below 2004 results."

In a note to clients, Legg Mason analyst Mark Swartzberg said: "We believe this (the poor results) was largely expected, but the underlying fundamental picture is poor, in our opinion."

Noting the company's recent policy of discounting, Swartzberg added: "If this is successful discounting, failure looks preferable."

Anheuser added that its domestic beer company is planning a price increase for early 2006.

"Discount reductions will likely comprise a larger portion of revenue enhancement initiatives in 2006 compared with recent years. As always, revenue enhancement initiatives will be tailored to specific markets, brands and packages," the company said.

During the third quarter of 2005, domestic beer sales-to-wholesalers decreased 1.4% compared with the third quarter 2004, while wholesaler sales-to-retailers declined 1.0%. Sales in late August and early September were negatively impacted by Hurricane Katrina, with sharp declines in the hurricane-affected areas.

Third quarter 2004 sales-to-retailers include the sales build-up in advance of the company's fourth quarter 2004 price increase.

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 US breweries to markets around the world, increased by 26% for the third quarter and by 70% for the nine months of 2005.

These increases were primarily due to increased volume in Canada, the UK and Mexico for both the third quarter and nine months of 2005, the impact of the Harbin Brewery acquisition in the third quarter of 2004, and higher Budweiser sales volume in China for the third quarter 2005.

International volume, excluding the Harbin acquisition, increased by 7.5% in the third quarter and was up by 3.4% through the nine months.