DBRS Confirms Anheuser-Busch Companies at “A” and R-1 (low), Stable Trends

DBRS has confirmed the Senior Unsecured Debentures and Commercial Paper of Anheuser-Busch Companies, Inc. (Anheuser-Busch or the Company) at “A” and R-1 (low), respectively, both with Stable trends. The credit risk profile of Anheuser-Busch remains on track for the above-noted ratings. The ratings continue to be supported by the Company’s leading domestic market share of 49% and the strong growth of international beer sales (approximately 10% for the year to date). Anheuser-Busch’s operating performance seems to have stabilized since 2005 levels due to the more rational pricing environment in the United States beer market. The Company has improved its product mix with its November 30, 2006, agreement to become the exclusive United States importer of InBev Plc’s premium brands including Stella Artois, Beck’s and Bass. Anheuser-Busch experienced strong growth in income from investment in affiliates primarily reflecting volume growth of Grupo Modelo (makers of the Corona brand) and Tsingtao Brewery Company Ltd. However, operating margins were lower than the comparable period in 2006 due to rising input costs in both brewing and packaging materials.

DBRS downgraded Anheuser-Busch’s long-term rating to “A” from A (high) last January after the Company announced that it intended to increase financial leverage in order to return more cash to its shareholders. To date, the effects of this strategy on the financial profile have been less than expected due to strong free cash generation and as such, the financial profile is strong for the current rating. Cash flow from operations seems to have stabilized following significant decline in 2005. Free cash flow has remained strong and, along with approximately $650 million of debt, was used to fund the bulk of the $1.9 billion in share repurchases to date in 2007.

DBRS expects that Anheuser-Busch’s operating margins will decline slightly as cost increases are likely to continue. The earnings profile, however, is expected to remain stable as the Company will attempt to offset rising input costs with pricing increases and a more favourable product mix in the United States. The Company is expected to continue with its strategy of reduced discounting and a higher focus on premium brands within the intensely competitive environment. While the proportion of earnings from international operations (excluding equity partnerships) remains relatively small, DBRS expects Anheuser-Busch will increasingly rely on its international operations and investments for growth. The proposed United States joint venture between SABMiller plc and Molson Coors Brewing Company, the number two and number three players in the domestic beer market, could pose a greater threat to Anheuser-Busch going forward.

From a financial profile perspective, DBRS expects the Company will continue to use debt-financed share repurchases to reach its target cash flow-to-debt ratio in the 25% to 30% range. This target ratio will position Anheuser-Busch comfortably within the current rating category.

Note:
All figures are in U.S. dollars unless otherwise noted.