In Focus

Anheuser Busch Ain't No Carnival Ride

NOTE: June was a month for buying. So for the whole month, we will be going into detail on the companies that we recently considered for our quarterly Chick "buy." We ended up purchasing stock in Medtronic (MDT) on June 3, 2001, but there were many, many great companies that didn't get our majority vote. We wanted to highlight them as it was a close call and they are still up for consideration for our next buy in September. For more on the companies that were considered, and what we'll be featuring all month, check out our summary.

When I was little, I used to host carnivals in my backyard. I know, sounds queer, but I was an entrepreneur at a young age. My sisters and I would turn our whole yard, front and back, including the driveway and garage, into our own carnival. There were magic acts, crystal ball readings, games of chance and rides. (So what if the rides were only down the slide into the baby pool, a ride is a ride.) We charged an entrance fee, then, being the resourceful and greedy entrepreneurs we were as young teenagers, we also supplied the refreshments. We sold overpriced pop, lemonade, hot dogs and chips. In the end, we would net a couple hundred of dollars. Because my mother wouldn't let us do the carnival unless it was for a good cause, we donated it all to the Ronald McDonald House. It was fun, and I got free pop the whole day.

My business plan was brilliant: Operate your own theme park and sell your own beverages. Double whammy for all who entered. Hmmm...  who does this sound like?

Whaaaassssssuuup? It's precisely part of the master plan behind Anheuser Busch (BUD). Anheuser Busch brews and distributes fourteen different kinds of beverages and sells them at their nine theme parks. Not only did the company steal my plan, they outwitted me and took it one step further: They also own the companies that make their cans and bottles. From conception to consumption... BUD has it covered.

Just who is this company, and is it a stock worthy of our Chickvesting checks?

The company began in St. Louis, Missouri in 1852. Yep, a hundred and fifty years ago. It was originally called Bavarian Brewery and was bought out in 1860 by Eberhard Anheuser. In 1861, Adolphus Busch, a German immigrant, marries Anheuser's daughter, Lilly. (Do you see where this is going?) Soon after, Adolphus begins working for his father-in-law at the brewery. In 1879 the name of the company is changed to Anheuser-Busch. Eberhard dies a year later, and Adolphus Busch becomes President. But during their tenure together, they introduced Budweiser beer. It changed the beer-drinking world (and the future of commercials) forever. Adolphus died in 1913, but not before he shared his dreams for the company with family members, who have continued to live out his legacy.

The company has kept that dream going and has been family-run up until this day. According to Forbes Magazine, the Busch's are the ninth wealthiest family in the United States, with an estimated worth of three billion. Today, Adolphus's grandson, August Busch III is their President and Chairman of the Board. Under his leadership, the company's best-selling brand, Budweiser, is now brewed in 11 countries and available in 80. August III was also at the helm when the company brewed its one-billionth barrel of beer in 1986. (Sing it with me, "A billion barrels of beer on the wall, a billion barrels of beer, take one down and pass it around, and make up the rest of the words from here." ) August III was also instrumental in the "Know When to Say When" consumer awareness/consciousness program.

Let's take a look at the three areas of the Busch carnival: first, their biggest moneymaker, the beverages. Besides its King of Beers, Budweiser, they brew Bud Light, Bud Ice, Busch, Busch Light, Doc Otis, Hurricane, Killarneys, King Cobra, Michelob, Natural Light, O'Doul's, and Tequiza. They also have a 50% interest in Modelo, a beer manufacturer in Mexico who makes Corona. Sad to say, I am not familiar with any of the Anheuser products. All right, quit laughing. I admit it, I love Bud Light. There is nothing better than sitting in my inner tube on the river with a cooler full of Bud Light in the tube next to me. Waaaassssuuuuup? Who needs a husband? Their newest addition to the beverage line up is 180°.  It's a lightly carbonated, orange citrus-flavored energy drink with vitamins B-6, B-12 and C (all at 100% RDI), and enhanced with the unique taste of natural guarana. (Whatever the heck guarana is.) The name "180" communicates the "turnaround" or "energetic lift" people look for in an energy drink. I'll stick with a Bud turnaround in my tube.

But, not only does this company make enough liquid to fill every tube from here to Wisconsin's Apple River, they own the theme parks in which to sell them!

Anheuser Busch owns and operates nine theme parks throughout the U.S., with its first being Busch Gardens in Tampa Bay and then another in Williamsburg. They also own Sea Worlds in Orlando, San Diego and San Antonio, Adventure World, Discover Cove, Water Country USA and Sesame Place. This gives them a place in which to feature their products, and I'm sure to do some test marketing of their own.

To take the carnival one step further they also have a division that produces their cans and bottles! These packaging companies make 60% of their cans and bottle caps. They are currently working on getting a glass plant up and running to produce the bottles for their Houston bottling plant.

With all that juggling going on, just how is Anheuser Busch as a company to invest in? Well, this Bud's for you. In the past five years, BUD has outperformed the S&P 500 by 50% and during the past year, it has outperformed the S&P by 20%.  If you had invested $1,000 in Anheuser Busch when the company went public twenty years ago, it would be worth $82,000 today. On average, they have returned 20% per year.

So how do their financials stack up?

Gross Margins are at 37%, Net Margins 13%, and their Flow Ratio is .87. All pretty Chicky!

So why didn't the Chicks buy them this last purchase? We were concerned about their cash. They only have .02 times the amount of cash as they do long-term-debt and their sales year over year only grew 6%. That being said, Bud Light grew double digits and their Corona division in Mexico grew 27% last year. Arriba! From what their balance sheet looks like, they don't mind their cash to debt ratio being where it is, as it's been in the same spot for two years.

According to August Busch III's annual letter to shareholders, he states:

1. We have achieved a commanding leadership position in the domestic beer industry.
2. We have a strong balance sheet and substantial cash flow.
3. We have a consistent track record of solid operating and financial results.
4. And we are confident in our ability to consistently achieve double-digit earnings per share growth while improving return on capital.