29 September 2007

BUD: Looking forward to 3Q results

Anheuser-Busch (BUD) will report third-quarter earnings on 25 October.

Our analysis after the company's second quarter yielded an Overall Gauge score of a weak 23 out of 100 points. While there were some encouraging Growth and Profitability signs, the double-weighted Value gauge dragged down the Overall score. We fretted about the Finished Goods/Inventory ratio increasing to 40.6 percent. We determined that neither the value of this ratio, nor the magnitude of the increase from the previous quarter, can be explained solely by seasonal factors, if history is a valid guide.

More optimistically, BUD announced last July that "it was on track for earnings to accelerate in the second half of the year, and maintained that 2007 earnings growth would be higher than its long-term target of 7 percent to 10 percent." A similar statement was made in early September, with the added tidbit that sales are accelerating.

Year-over-year Revenue growth has recently been a tepid 4 percent. Given the company's rosy statements, we've decided to look for third quarter revenue of $4.63 billion. This figure is 8 percent greater than the Revenue in the comparable year-earlier quarter, and it translates into year-over-year Revenue growth of 5 percent.

We're assuming the Gross Margin will be about 37 percent of Revenue because of the company's guidance. Thus, the Cost of Goods Sold (CGS) should be about 63 percent of $4.63 billion, or $2.92 billion.

Sales, General, and Administrative (SG&A) expenses have been around 17 percent of Revenue, which would work out to be $787 million in the third quarter.

These figures would result in Operating Income of $926 million in the quarter.

Given the optimistic guidance about Equity Income, we expect this value to be $188 million. This is 20 percent above the value in 2006's third quarter. If we assume a Net Interest expense of $110 million, pre-tax income will be $1004 million. (Strictly speaking, the equity income shouldn't be included in this figure since it is net-of-tax.)

With normal Income Tax Rates applying, we can assume $311 million in income tax. This would leave us with Net Income of $693 million ($0.91 per share).


Sept 2007
Sept 2006
Op expenses

CGS (2918)

SG&A (787)

Other 0
Operating Income
Other income

Equity income

Interest, etc.
Pretax income

Income tax

Net Income


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