Financial Analysis Anheuser-Busch Company


Examination Thesis, 2007

29 Pages, Grade: 2,0


Excerpt

TABLE OF CONTENTS

I. Executive Summary

II. Anheuser-Busch Company
A. Company profile
B. Market area
i. United States beer operations
ii. International beer operations

III. Brewing industry background
A. Market Overview
B. Current Conditions
i. United States of America
ii. Germany
iii. Worldwide

IV. The financial situation of Anheuser-Busch

V. Ratio analysis of Anheuser-Busch

VI. Appendix

VII. References

I. EXECUTIVE SUMMARY

Anheuser-Busch is in financially stable situation. The company operates its business very efficient. Cash flow and earnings are high. But Anheuser-Busch has to be aware of its future. Margins in the traditional markets begin to shrink. Investors do not see much potential in the brewing giant. Anheuser-Busch needs to prepare itself for future growth. The company has to undertake an important strategy change, as it has to strengthen its activities in the growing markets abroad. Otherwise, today’s stable situation is going to be at risk.

Anheuser-Busch operates its business with a small equity base. But for future acquisitions in foreign countries, it is likely that investors want to see a higher equity. At the moment, the risk buffer of the brewery is too small. The management recognized the problem and started to repurchase stocks. Therewith Anheuser-Busch tried to strengthen its equity base in the past years. This procedure must continue if the company wants to be ready for entering new growth markets. The good income and cash flow situation of Anheuser-Busch should make it possible that this plan is going to work out. In the end, the brewery should be able to improve its debt situation. After the financing improvement and new acquisitions in foreign markets, investors attitude should be positive and Anheuser-Busch even more competitive.

The ratio analysis of Anheuser-Busch proofs that the company is able to operate its business with a small use of working capital. Moreover the brewery understands to use its assets efficiently. Remarkable are Anheuser-Busch’s abilities to operate its business with low equity, to keep the cost down and thereby holding a good price level. With the mentioned policy changes the company should experience an extremely positive effect.

II. ANHEUSER-BUSCH COMPANY

A. Company profile

Originally Anheuser-Busch started its business as a small brewery in St. Louis, Missouri. In 1860, the soap manufacturer Eberhard Anheuser bought the company and his son-in-law Adolphus Busch became his partner in 1869. In 1876, Busch introduced America’s first national brand: Budweiser (Wikipedia, 2007a).

Today Anheuser-Busch is still located in St. Louis. The company was the largest brewer in the world and the biggest beer producer in the United States as of the early 2000s (Alcoholic Beverages, 2007). Today Anheuser-Busch is the world’s third largest brewing company. Anheuser-Busch’s operations include four segments: domestic beer, international beer, packaging and entertainment, which contributed respectively 75.8 percent, 6.4 percent, 10.4 percent and 7.4 percent of the net sales in 2005 (Anheuser-Busch, 2007a). In its core business, the company produces more than 40 beer brands, including Budweiser, Busch, Bud Light, and Michelob. The company also produced the specialty brands ZiegenBock Amber, Red Wolf Lager, and the nonalcoholic brew, O'Doul's. Anheuser-Busch holds a 50 percent interest in Mexico's Grupo Modelo. The firm's outlook in China, where it established local production of Budweiser and invested some US$1.2 billion in the early 2000s, is favorable (Alcoholic Beverages, 2007). Main competitors are InBev, SAB Miller, Adolph Coors, and Heineken. Total revenues in 2005 topped US$15 billion (Alcoholic Beverages, 2007). The company employed more than 31,000 employees at the end of 2005 (Anheuser-Busch, 2007b). Today’s market capitalization is roughly $39 billion, while Anheuser-Busch reported sales of $15 billion (Nugent, 2007). The company’s Chief Executive Officer is August Busch; the chairman of the board is Keith Kasen (Anheuser-Busch, 2007a).

B. Market area

i. United States beer operations

The U.S. market is very mature. Therefore Anheuser-Busch tries to explore new avenues for growth besides the U.S. beer operations. Anheuser-Busch shipment growth improved, up 1.2 percent in 2006. U.S. beer segment profit growth was up 3.1 percent for the year (Anheuser-Busch, 2007c).

Anheuser-Busch’s revenue per barrel performance improved as well. At the beginning of 2006, the discount promotional environment over the important summer holidays was considered a challenge for the entire beer industry. Anheuser-Busch reduced discounts over Memorial Day, July 4 and Labor Day. For 2007 a more favorable situation is expected, due to the formation of Crown Imports, as well as continued solid growth from Modelo’s domestic operations. Moreover, China is the world’s largest and fastest-growing beer market. With Budweiser and Harbin operations, plus the strategic partnership with Tsingtao, Anheuser-Busch can participate from future growth. Volume and profits from the China brands increased at double-digit rates in 2006. Anheuser-Busch’s revenue per barrel improved 1.4 percent (Anheuser-Busch, 2007c).

ii. International beer operations

Overseas, Anheuser-Busch operates 15 breweries - 14 in China and one in the United Kingdom; In China, Anheuser-Busch operates Budweiser Wuhan International Brewing Company, Ltd. and Harbin Brewery Group Ltd which Anheuser-Busch fully acquired in 2004. Chinese production of Anheuser-Busch products started in Wuhan, after their purchase of a local brewery in 1997. In the United Kingdom, the Budweiser Stag Brewing Company Ltd. produces and packages Budweiser. Budweiser is also locally brewed in eight countries outside the United States. They are: Argentina, Canada, Ireland, Italy, Japan, Russia, South Korea and Spain. Anheuser-Busch strategic equity investments include 50 percent of Grupo Modelo in Mexico and 27 percent of Tsingtao Brewery Company Ltd. in China (Wikipedia, 2007a).

Anheuser-Busch’s international beer segment continues to make an increasingly important contribution to the company earnings growth. International net income has grown an average of 20 percent per year since 1999 and represented 32 percent of net income in 2006. Anheuser-Busch’s 50 percent equity investment in Grupo Modelo continues to represent the vast majority of the international profits. Grupo Modelo had another very strong year with Mexican volume up 5.2 percent and export volume up 15.7 percent. The market value of Anheuser-Busch’s Modelo stock is now worth nearly $12 billion. The brewery expects the equity income to increase (Anheuser-Busch, 2007c).

III. BREWING INDUSTRY BACKGROUND

A. Market Overview

Beer has a long tradition, starting almost from the beginning of civilization. Thereby the taste of beer varied enormously over time and different cultures. In the 18th century beer became the style that we know today (Craft Beer, 2007).

Today beer is a part of our western lifestyle. In the United States beer has become the most popular beverage behind water and tea (Malt Beverages, 2007). The worldwide beer production still increases – in the year 2004 about five percent up to 1.5 billion hectoliters (Balz, 2005). While sales in North America and Europe slow down, new markets have begun to grow in China, Russia, Latin America, Eastern Europe, Asia and Africa. Today’s world beer market has the following proportional allotment:

illustration not visible in this excerpt

Table 1 – Beer Consumption by Region in 2004 (Kirin Brewery, 2005b).

The biggest beer markets are China and the United States. Both countries make up more than 30 percent of the beer consumption worldwide. Germany is the most important country on the European beer market, as table two shows.

illustration not visible in this excerpt

Table 2 – Beer Consumption by Country in 2004 (Kirin Brewery, 2005a).

The brewing industry is a very concentrated market. The biggest ten companies account for nearly 60 percent of the world beer market. The concentration process still continues.

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Table 3 – The biggest breweries in 2005 (Bierclub Jessnitz, 2007).

Furthermore, there are differences in the sorts of beer. Different types of commercial beer are pilsner, lager, ale, stout, light, malt liquor, dry, ice–brewed, bottled draft, and non alcoholic. The market is further segmented by price and quality. The categories are super premium, premium, and popular–priced beer (Alcoholic Beverages, 2007).

B. Current Conditions

i. United States of America

For a long time, the United States had been the largest beer market worldwide. In 2002, China surpassed the U.S. by becoming the top producer and the largest market (Alcoholic Beverages, 2007).

After 1996, the United States beer market grew twice the number of sales in the early 1990s. In 2003, the production reached about 6.2 billion gallons. In the same year, the American beer consumption slowed down and grew only 0.7 percent at a slow pace (Alcoholic Beverages, 2007). Today the American beer market suffers from a small decline (Kirin Brewery, 2005a).

The United States beer sales totaled $206 million in 2004. In 1996, light beer became the largest segment in the beer American market (Malt Beverages, 2007). In 1999 light beer had a market share of 40.1 percent, premium beer of 25.9 percent and popular–priced beer accounted for the remainder (Craft Beer, 2007).

The American beer market is highly concentrated. The largest four companies – Anheuser–Busch, Coors Brewing, Stroh’s, and Miller – account for about 85 percent of the beer market (Craft Beer, 2007). Imports make up around 12 percent and domestic craft breweries roughly 3 percent (Malt beverages, 2007).

Throughout the 1990s and the early 2000s, microbreweries and brewpubs in the United States had annual double digit increases in sales. Craft beer became the fastest growing segment of the alcoholic beverage industry. In 1997 the number of breweries in the United States, 1,273, exceeded for the first time the number in Germany, 1,234. In 1983, only 43 American breweries existed (Alcoholic Beverages, 2007).

U.S. breweries continue to grow in foreign markets. The domestic beer industry exports to almost one hundred countries in the world. In 2003, most American beer was exported to Mexico, Hong Kong, China and Canada. The most beer was imported from Mexico, Netherlands, Canada and Ireland (Alcoholic Beverages, 2007).

[...]

Excerpt out of 29 pages

Details

Title
Financial Analysis Anheuser-Busch Company
College
University of West Florida
Grade
2,0
Author
Year
2007
Pages
29
Catalog Number
V167371
ISBN (eBook)
9783640839278
ISBN (Book)
9783640840014
File size
492 KB
Language
English
Tags
financial, analysis, anheuser-busch, company
Quote paper
Christian Schmitt (Author), 2007, Financial Analysis Anheuser-Busch Company, Munich, GRIN Verlag, https://www.grin.com/document/167371

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