|
|
|
ONLINE FEATURES
Book Reviews
BW Video
Columnists
Interactive Gallery
Newsletters
Past Covers
Philanthropy
Podcasts
Special Reports
BLOGS
Auto Beat
Bangalore Tigers
Blogspotting
Brand New Day
Byte of the Apple
Economics Unbound
Eye on Asia
Fine On Media
Green Biz
Hot Property
Investing Insights
Management IQ
NEXT: Innovation
NussbaumOnDesign
Tech Beat
Working Parents
TECHNOLOGY
J.D. Power Ratings
Product Reviews
Tech Stats
Wildstrom: Tech Maven
AUTOS
Home Page
Auto Reviews
Classic Cars
Car Care & Safety
Hybrids
INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads |  |
NOVEMBER 10, 2003
Why Isn't There A Bigger Head On Busch? It had to happen: a stock tied to the growing popularity of low-carb, Atkins diets. But who figured on Anheuser-Busch (BUD )? In a land of dieters, the world's leading brewer has a hit on its hands with microcarb Michelob Ultra. Check it out by visiting lowcarbdietworld.com, scrolling past the bikini model, and clicking to low-carb menus and drinks. There stands Michelob Ultra and its 2.6 grams of carbohydrates per bottle, one-fourth as many as in a regular Budweiser. After just a year, Mich Ultra is taking 2.5% of U.S. supermarket beer sales. Some is coming out of other Busch labels, notably top-selling Bud Light. Yet Mich Ultra typically costs 18% more than Budweiser brews, so the trading-up is aiding Busch's profits: Earnings per share grew 12.8% in 2003's first nine months. Despite the healthy profit gains and a bullish change in Busch's dividend policy, the stock is about where it started in 2003, under $50 a share (charts). Sure, Michelob Ultra's second year on the market will prove tougher, if only because Miller Lite (3.2 grams) and other brews are counterattacking on the low-carb front. Just the same, investors seem to be bypassing Busch's low-risk returns in hopes of a tech or telecom pig-out. For example, both Busch and AT&T Wireless Services (AWE ) reported profits on Oct. 22. In the 48 hours around their announcements, AT&T Wireless drew 577 posts at the Yahoo! (YHOO ) finance message boards; Busch inspired just 26. YET WHAT BUSCH is saying about the future shouldn't be ignored. Last year it netted $1.9 billion, or $2.20 a share, on sales of $13.6 billion. This year earnings should reach $2.48 to $2.50 a share. A key reason is Busch's demonstrated ability to raise prices while still capturing market share. W. Randolph Baker, Busch's chief financial officer, says imports have raised such a high umbrella over prices -- Heineken typically sells at 65% more than Bud -- that consumers haven't flinched much at higher prices on domestic labels. Busch also has benefited greatly from a 50% stake in Mexico's dominant brewer, Grupo Modelo, which is its major source of income from outside investments. Last year, that amount jumped 38%, to $352 million. With a slack Mexican economy, Modelo's contribution to net this year is about flat. Yet Baker sees Mexico's younger and faster-growing population producing long-term average profit growth for Modelo of more than 12% a year. He also expects meaningful profits from sales in China of Budweiser, along with middle- and lower-end beers from Tsingtao Brewery, in which Busch has a 9.9% stake that it plans to build up to 27%. Overall, Busch figures it can deliver a minimum of 10% growth in per-share net each year. In addition, Busch is now boosting its annual dividend at a rate equivalent to each year's profit growth. For instance, in July it raised the payout to 88 cents a year, a 12.8% increase that's in line with 2003 profit growth. Next year, Busch expects earnings per share to increase 12%. Nothing goes in a straight line, naturally, but suppose Busch's earnings grew at the low end of its forecast, or 10% a year. Figure, too, that the market in Busch shares remains tepid, and so Busch's profit increases only translate into 8% annual average gains in the stock price. What do you wind up with in, say, five years? A $72 stock, plus aggregate dividends of $5.37, or a total return of 58%. Low-carb stocks: investing with less risk of post-pig-out self-loathing.  By Robert Barker
BW MALL
SPONSORED LINKS
Get BusinessWeek directly on your desktop with our RSS feeds.
Buy a link now! Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
 Copyright 2003, by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Policy |
Printer-Friendly Version
