In Focus

Unscrambling Anheuser Busch (NYSE: BUD)

Running Anheuser Busch through the Chicks' Dozen
by Chick Karin

Today I bought stock in one of my favorite companies, a beer company. I'm a Bud Light addict, especially on the weekends. Just who makes Bud Light? Anheuser Busch (BUD). Today two analysts downgraded the stock saying that they felt their earnings weren't going to be as great over the next few quarters due to this war on freedom. His reasoning was that BUD would be losing revenues at the stadiums as people won't be attending sporting events. The other analyst stated that beverage sales at hotels and vacations spots are also down. The stock plummeted 5%! This is the lowest it's been since January. Now having run Anheuser Busch through the Chicks Dozen many times for our club, I couldn't resist the sale. I spent the morning looking for some of my old posts and articles regarding Anheuser Busch and did the most recent numbers for the company. For today's Chicks Dozen, here's how the newest edition to my portfolio stands up to the Chicks Dozen. (Gulp!)

1. Buy What You Know  Wazzup? Bier, Cerveza, Barley and Hops, and an ice cold one. I know 'em all. You have to have seen all their commercials. The frogs, the lizards, and Bud Bowl ads during the NFL season and bowls. You have to have at least heard of it... Budweiser, The King of Beers. Check out their website for a ton of fun stuff happening with the King. By the way, they card you at the door.

2. Keep it Simple Sister  Beer and Theme Parks. Anheuser Busch also own Busch Entertainment, which hosted 21 million visitors last year. Busch Gardens, Sea World and Discovery Cove are all theirs, along with my Sunday afternoon favorites of  Bud, Bud Light, and O'Douls. They also own stake as of early this year in Chile's largest brewery, in addition to owning 11% of an Argentina based beer company and a 50% interest in Mexico's largest brewer which produces Corona. (You know, the kind you must have with a lemon... and order them by the bucket.)

3. Industry  BUD is in the Beverage/Brewer industry. They main source of revenue is in the production and distribution of beer. They also own their own packaging plant that makes cans and lids. As I said above, they also operate a chain of theme parks.

4. Leader in its Field  Anheuser Busch is the WORLDS LARGEST BREWER!! They cover 50% of the beer drinking market. Philip Morris is second with 20% of the market and Coors is 3rd with 11%. (I'm not running Coors through the Dozen, but their stock is worth a look... kicking butt over the last five years... but numbers don't quite make it... and it's not the WAZZUP leader. I've run Philip Morris through the Dozen a few times for our club too, but nobody liked that they also were in the tobacco industry.)

5. Repeat Profitability  No comment.

6. Gross Margin: 41%  It doesn't quite meet our Chick criteria of 40%, but it comes awfully dang close. (I call it close if it is within 10%). Our gross margin criterion is a difficult one to meet, so having 41% gross margins is a good thing. To make it simple, it means they are making 41 cents on every can of beer.

7. Net Margin: 15%  This is phenomenal. All the Chicks require is 8%, which would mean that the company is making eight cents on every dollar after expenses. BUD is making fifteen cents on every dollar! That's enough to make you tipsy.

8. Cash to Long Term Debt  Lots of warehouses, and I'm sure those Clydesdales ain't cheap to keep alive and looking pretty for those Christmas commercials. But seriously, I like to look at this one in context with what the company does. Beer manufacturing requires a lot of expensive buildings... like distilleries and canneries. (Is that the right word? Somehow it makes me think of tomatoes.) With each building you have heavy expenses such as mortgages, taxes etc. You can stop singing the Christmas commercials now.

9. Flow Ratio: 0.92!!!  What this means is that Budweiser (with their born on date to attest to the fact) gets their beer out the door faster than you can say "whaaaassup." They don't have cases and cases of beer on the wall for all of us to start counting. They also seem to be managing their accounts payable by kept their creditors at arm's length. They are paying their bills at the last possible second so they are able to keep as much cash in hand earning interest. I'll drink to that.

10. Increasing Growth: 4% year over year. This past year has been the slowest in recent times, and I agree with the analysts above. But I also know people aren't going to stop drinking. The year before this, BUD had a 6% increase in sales. Things have slowed down for the company as of late, but this is the same case for every company. On another note, CEO August Busch III likes it this way. He likes slow methodical growth, instead of a Busch Gardens roller coaster ride of progress. Very Chicky.

I decided to run their numbers over the past five quarters to see how steady the company is.

Can't get much more boring or predictable than that. As for me, boring and predictable in uncertain times, makes sense. (Especially with that sale.)

11. Management  Chick Susie lives near August Busch III, so I took off our message board what she said about him last May when we were debating whether or not to purchase the company. 

August Busch III is presently Chairman of the Board and President, and a Director of the Company and has served in such capacities since 1977, 1974, and 1963, respectively. Since 1979 he has also served as Chairman of the Board and Chief Executive Officer of the Company's subsidiary, Anheuser-Busch, Incorporated.

Much has been written about the Busch family and as in any family, there has been tragedy, failure, disappointments and sorrow. I recall reading Under the Influence: The Unauthorized Story of the Anheuser-Busch Dynasty by Peter Hernon and Terry Ganey about ten years ago. At the time, I wasn't being pestered by Chick Jana to write reviews of every book I read. I do recall that the book was filled with blatant innuendoes suggesting that the family was dysfunctional, opportunistic, and had uncontrollable power. There was the usual list of conflicts, sex scandals, and even a death and the son's (III) attempt to overthrow his father (Jr.) as the company's leader.

As a corporate leader, III is known to have a global perspective. Under his leadership the company's flagship brand, Budweiser is now brewed in 11 countries and available in about 80. He gave his approval in 1989 to the purchase of the Sea World theme parks, seeing the synergy and image-enhancement these properties brought forth to the company. He was at the helm when the company started the "Know When to Say When" consumer awareness - consciousness program.

Under August III the brewery sold the beloved St. Louis Cardinals baseball franchise to a local group of investors. This raised havoc in the local sports media, because it was his father "Gussie" who rode on the Clydesdale wagon in a red cowboy hat to open each Cardinal baseball season.

Eventually all of the personality quirks come down to whether or not he is an effective leader for the world's largest brewer. Based on comments from employees, who are also friends, yes, he is tough, but effective.

12. Buy on Sale
High: 49.87
Low: 32.60
Sale Price: 41.23
Current Price: 39.44!! This is what I bought it for! Wooo hooo!! Nothing like getting a beer on sale. Kinda makes you want to have two... not that I would ever.