Anheuser-Busch Companies Q4 2006 Earnings Call Transcript

Feb. 1.07 | About: Anheuser-Busch Inbev (AHBIF)
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Anheuser-Busch Companies Inc. (NYSE:BUD)

Q4 2006 Earnings Call

February 1, 2007 4:00 pm ET

Executives

Dave Sauerhoff - VP, IR

W. Randolph Baker - VP and CFO

John Kelly - Controller

Analysts

Marc Greenberg - Deutsche Bank

Bryan Spillane - Banc of America

Mark Swartzberg - Stifel Nicolaus

Kaumil Gajrawala - UBS Investment Bank

Lauren Torres - HSBC

John Faucher - JP Morgan Securities

Christine Farkas - Merrill Lynch

Robert van Brugge - AllianceBernstein

Alex Patterson - RCM

Chris Growe - A.G. Edwards

Bonnie Herzog - Citigroup

Ann Gurkin - Davenport and Company

Matthew Reilly - Morningstar

Andrew Simon - Arabian Asset Management

Presentation

Operator

Good afternoon, ladies and gentlemen. We are ready to begin Anheuser-Busch Company's Fourth Quarter Investor Teleconference. Mr. Sauerhoff, you may proceed with your opening remarks.

Dave Sauerhoff

Good afternoon. I am Dave Sauerhoff, Vice President of Investor Relations at Anheuser-Busch. We issued our fourth quarter earnings release earlier today and is available on our corporate website. The release and this teleconference contain forward-looking statements, and actual results might differ materially from these projections.

Additional information on factors that could affect the Company's future, operations, earnings and prospect is included in the earnings release and the Company's most recent Form 10-K. The company disclaims any obligation to update or revise any of the guidance provided in this teleconference. Please note that our subsequent comments about the Company's financial result will be stated on a normalized basis excluding onetime items in 2005 and 2006.

A complete reconciliation of these onetime items is presented on page 9, of the earnings release. In addition, our result has been updated to include stock compensation expense in both years. The earnings release posted on our website contains the disclosure and reconciliation of all the non-GAAP measures we will be using in this teleconference.

Also please note, that our comparisons of domestic beer, wholesaler's sales to retailers require no selling day adjustments for the quarter and for the full year. For members of the medial listening today, please direct your enquires following the call Maureen Roth in the Anheuser-Busch Public Relations department.

Participating with me on the call today are Bill Kimmins, Anheuser-Busch's Treasurer; John Kelly, our Controller and today's speaker Vice President and Chief Financial Officer W. Randolph Baker. Randy?

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W. Randolph Baker

Thank you, Dave and good afternoon everyone. 2006 was a successful and important year for Anheuser-Busch. Our domestic beer company restored both volume and revenue per barrel growth, which was our key objective at the beginning of the year. And we restored profit growth despite substantial commodity cost pressures.

AB earnings per share increased 9% at the high-end of our 7% to 10% long-term growth objective. 2006 was also a year in which Anheuser-Busch announced a series of initiatives to enhance our product portfolio and our long-term growth. We established import alliances with Grolsch, Tiger and InBev, expanded our relationship with Kirin and earlier this year added an import alliance with Czechvar. We acquired the Rolling Rock brands and introduced a number of craft and specialty brand including organic beers, seasonal beers and local specialty beers. We significantly expanded our participation in the fast growing energy drink business with our distribution agreement with Hansen Natural including their Monster energy brands.

Our partner Modelo established a new important joint venture in the US, which should significantly increase Modelo's and Anheuser-Busch's participation in the US import profit pool. In December we announced a new more aggressive leverage target to further enhance shareholder value.

Our new cash flow to total debt target is 25% to 30% that will enable the company to further capitalize on its substantial cash flow and to use its balance sheet more efficiently to support existing operations, acquisitions, dividend growth and share repurchasing, while maintaining substantial financial flexibility. And on December 1, August A. Busch IV became CEO of Anheuser-Busch succeeding Pat Stokes, who became Chairman of the Board.

Overall 2006 was an important year of restored growth and change for Anheuser-Busch which positions us well as we enter 2007.

Briefly reviewing fourth quarter financial results; consolidated net sales increased 1.8%, consolidated cost of goods sold increased 2.7%. Cost of good sold per barrel for the domestic beer company increased 3.8%. This was a greater increase than in the first nine months, primarily reflecting higher per barrel fix cost due to lower shipments to achieve our wholesaler inventory reduction.

Consolidated pre-tax income increased 15.5%, international equity income was up 29%, consolidated net income increased 31% and earnings per share were $0.25, up 31.6%. For the full year consolidated net sales increased 4.5% with domestic beer net sales up 2.8%.

Marketing, distribution and administrative expenses were flat for the year off of a very high base in 2005. Net income increased 8.5% and earnings per share increased 9.1%.

Operating cash flow at $2.7 billion grew slightly including the impact of the accelerated $214 million pension contribution at the beginning of 2006 and a favorable working capital performance.

Capital expenditures were $813 million, a decrease of $324 million versus the prior year, and free cash flow increased 21%. Share repurchase spendings were $746 million and dividend per share increased 9.7%.

As reported in our January sales volume release, Anheuser-Busch's domestic beer sales to retailers increased 1.6% in the fourth quarter. The new Rolling Rock, Grolsch and Tiger beer brands contributed 70-basis points of growth. Sales to retailers in October and November were even with the prior year and STRs in December accelerated significantly exceeding expectations.

December STRs were up mid-single digits despite a difficult prior year comparison and reflected strong execution over the holiday season and favorable weather. Sales to retailers increased 1.1% for the full year. Rolling Rocks, Grolsch and Tiger brands contributed 50-basis points of growth.

Anheuser-Busch's domestic beer shipments to wholesalers increased 1.2% in 2006. Fourth quarter shipments declined 3.6% as we reduced wholesaler inventory significantly, with year-end inventories more than one and half days below 2005 year-end levels. We had previously announced our intention to reduce year-end inventories slightly below 2005. However since December STR results exceeded our expectations, the year-end inventory reduction also exceeded our plan.

Looking at sales to retailers results by brand family; BUD family volume increased slightly in the fourth quarter with a very good performance in December up nearly 4%. The brand family volume for the full year was even with the prior year.

But Light had a strong quarter and year with volume up 4% in both periods. Budweiser's rated decline slowed during the quarter with volume down 4%. Budweiser Select volume decreased high-teens in the fourth quarter in comparison with its strong introductory year performance in 2005.

According to IRI data, the brand achieved a 1.5 share in supermarkets for 2006. Michelob family volume results in the fourth quarter even with the prior year and declined to low single-digits for the full year. Michelob ULTRA Amber exceeded our expectations and Michelob ULTRA family sales ended the year up low single-digits. Also Amber achieved a three pence of a the share point in supermarkets in 2006 according to IRI data.

Busch and Natural families were up low single-digits in both the quarter and year 2006, as our sub premium brands continue to gain share of the declining sub premium segment. We have transitioned the majority of the Grolsch, Tiger and Rolling Rock volume to the Anheuser-Busch wholesaler network and are pleased with the progress in transitioning Hansen Natural brands to our wholesalers. Also we are now in the process of transitioning the new InBev and Czechvar brands.

2006 was a very strong year for industry beer volume. Based on domestic brewer data from the Beer Institute and import data from the Department of Commerce, industry volume was up approximately 1.9% in 2006, the greatest annual increase since 1990.

Industry sales in the fourth quarter were up only slightly including Anheuser-Busch's substantial wholesaler inventory reduction during the quarter. AB's 2006 domestic market share on a shipment basis was 48.4%, down three tens of a share point, reflecting in parts the adverse impact of our wholesaler inventory reduction.

Revenue per barrel increased 2% in the fourth quarter. Frontline price increases contributed 160 basis points of revenue per barrel growth. Portfolio mix was even with last year. Promotional price reduction had a positive impact of 40 basis points. The favorable impact of promotion reductions was significantly less than the benefit in the third quarter, due primarily to the impact of SPRs being substantially greater than shipments in the fourth quarter or being less than shipments in the third quarter.

Discount promotions occur on a sales-to-retailer's basis and represent a reduction to revenue. Quarter revenue per results are based on company shipment. For the full year revenue per barrel increased 1.4%. The outlook for the domestic beer pricing environment for 2007 is favorable.

We began the implementation of our 2007 price plan in the fourth quarter of 2006 in a few markets and have implemented pricing actions in a number of markets in January. The majority of the plans price increases and discount reductions will be implemented in early February. Pricing actions are occurring on approximately two thirds of our volume and the typical increase is in the 2% to 3% range. The marketplace reaction to our pricing actions implemented till date has been favorable.

Our international beer segment achieved strong growth in 2006 with net income up 19% in the fourth quarter and 15% for the full year.

Modelo had an outstanding year due to strong volume growth, price increases in Mexico taken earlier in the year and the continuing benefit from the reduction in Mexican corporate income tax rates. Modelo's fourth quarter volume on AB's reporting calendar reflecting Modelo's September through November results increased approximately 12% and full year volume was up over 9% on our reporting calendar. Modelo will report in the following weeks.

Modelo's new joint venture with consolations brands for the importation of Modelo's brands into the US became affective January 2nd, 2007. This joint venture should significantly enhance the profitability of Modelo's exports to the US. Results for our 27% stake in Tsingtao are also reported on a month lag.

Fourth quarter volume on AB's reporting calendar increased 14%, and our full year volume increased 11% on a pro forma basis.

International operation's volume increased 5% in the fourth quarter and was up over 9% in 2006. Profits however declined due primarily to weakness in the United Kingdom, also to increased sales and marketing expense in China to expand the distribution of Budweiser and Harbin premium brands.

Both volume and profits were up double-digits in 2006 for our China Budweiser and Harbin operations combined. Volume growth has been enhanced by the rollout of Harbin premium brands outside of Harbin's existing market using the Budweiser distribution system. Also in the fourth quarter, Bud family distribution was expanded into new markets and accounts. In addition, this year we are beginning the distribution of Corona in China, which adds the leading import to our China portfolio.

In Canada, volume increased high-single digits in both the fourth quarter and the full year. Budweiser, the leading brand in Canada and Bud Light continue to gain share. Profits increased low tens in the fourth quarter and were up low double-digits for the full year.

In the United Kingdom, volume was essentially flat in the fourth quarter but declined low-single digits for the full year. Profits declined in both periods due to unfavorable revenue mix from the ongoing shift from on-premise to off-premise consumption and increased price competition.

Pre-tax profits for our packaging group increased mid-single digits in the fourth quarter and increased low-single digits for the full year, due primarily to improved can manufacturing efficiency. Busch Entertainment had another record year with pre-tax results up 13% on increased attendance and higher in-park spending. The fourth quarter seasonal loss increased due to a higher park expenses and our marketing cost.

Turing now to our outlook for 2007 which now includes the InBev brands, we now expect revenue per barrel to increase 3% to 4% with the increase on our trademark brands being greater than in 2006. We expect cost of good sold per barrel to increase 4% to 5% with increases on our trademark brands being slightly less than last year.

Consolidated marketing, distribution and administrative expense should be up mid to high single-digits in 2007. We are significantly increasing our marketing investment behind our trademark brands as well as incremental marketing for our new import alliance portfolio and Rolling Rock.

Equity income should increase over 20% in 2007 including the step up in profits from Modelo's new US joint venture and continued strong performance from Modelo domestic and export businesses. We expect profits for our international beer operations to increase low single-digits.

Entertainment division should continue its strong profit growth momentum. The profit is expected to be up mid single-digits. Packaging segment profits are likely to be even with last year. Our effective tax rate for 2007 should be just under 41%. Operating and free cash flow are expected to grow in 2007, and capital spending this year should be around $900 million including carry-over spending from projects delayed in 2006. Given our new leverage policy and outlook for operating cash flow, we expect to spend about $2.5 billion in share repurchases in 2007.

Finally, although we are not furnishing specific volume and earnings per share guidance, it should be noted that in the first quarter we will face a very difficult shipment comparison, as first quarter shipments last year were up 4.6%. Also note that we will report only two months of results from Modelo's new import JV and our new InBev import alliance.

In summary, our domestic beer company restored both volume and revenue per barrel growth in 2006 and restored profit growth. Our international beer segment again made a substantial contribution to AB's earnings growth, which should accelerate in 2007, due to Modelo's new US import joint venture. We have significantly enhanced our product portfolio with new import alliances, the acquisition or Rolling Rock, the introduction of new high-end brands, and our distribution agreement with Hansen's. Our key priority in 2007 is execution, execution on these new initiatives and especially execution on our sales and marketing plans to grow our trademark brands.

That concludes my prepared remarks. I will now turn it back over to our operator, Anthony for our Q&A session.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question is coming from Marc Greenberg of Deutsche Bank.

Marc Greenberg - Deutsche Bank

Thanks. Good afternoon Randy. A little bit surprised at the revenue per barrel targeting of 3% to 4%, was hopeful that you could explain a little bit, how much of that is coming from mix and with that kind of revenue per barrel outlook is it AB's targeted goal to still achieve positive volume growth this year? That's the first part and the second is, on the cost per barrel, can you talk about some of the things that are causing that to be a little bit higher year-on-year as well? Thank you.

W. Randolph Baker

Mark, first on revenue per barrel, why we said in the prepared remarks that we have actions on approximately two-thirds of our volume, so that is a bit more of our volume than we had pricing actions in 2006. The typical increase is in the 2% to 3% range on that portion of our volume where we are doing a price increase rather than the discount reduction. And in our 2007 price plan, a greater portion of our actions are front increases, or lesser portion are discount reductions, given that as you know, discount reductions were a big future of 2006 plan. The biggest change of course is the addition of the InBev brands and Grolsch for that matter, and that is -- it gave a distortion on the year-over-year basis because we didn't have them last year at this time and these brands have very high revenue per barrel. So, that's the big ticker if you will, and our revenue per barrel numbers of being 3% to 4%, and again I did give you the benchmark that revenue per barrel on our trademark brands, our core brands, would be up -- will be regular than the increase in 2006. Our cost of goods sold per barrel will be just slightly less of an increase than our cost of goods sold per barrel increased in 2006. And again our InBev, and Grolsch, our new brands had a substantial impact on cost of goods sold per barrel increase for next year. Because just as we have a high revenue per barrel increment from those brands and cost of goods sold per barrel, we are reflecting the price that we are paying to InBev and Grolsch for the product, and so that will have substantial increase in cost of goods sold per barrel in 2007. Then when we go beyond that you won't have the same year-over-year distortion. But on benchmark to get back to the underline inflation that we are seeing in our regular portfolio will be just slightly less than the cost of goods sold per barrel increases that we had this year.

Operator

Thank you. Your next question is coming from Bryan Spillane from Banc of America.

Bryan Spillane - Banc of America

Hi, good afternoon Randy.

W. Randolph Baker

Hello, Bryan.

Bryan Spillane - Banc of America

Just a question on the transferring of brands into the Bud wholesaler system, I know you mentioned that you have made good progress on Rolling Rock and Tiger. If you could give us some indication of what percentage of that volume is now in your system and then on bringing the in-pour of the InBev brands in, what sort of timeframe have you set in terms of your expectations to get a majority of that into the Bud system? Is it one year or two year and what are some of the obstacles you see in having that, executing that?

W. Randolph Baker

Brian, we have transitioned a very high percentage of Grolsch and Tiger. Rolling Rock is a majority, just over 1.5 of the volume has been transitioned today. In InBev we are now basically just starting on that process and it will take time, it's a matter that we are working very carefully and I don't have a specific timeframe for you or when we would be able to transition the majority of the volume. It is certainly possible that it could be accomplished by the end of this year.

Operator

Thank you. Your next question is coming from Mark Swartzberg of Stifel Nicolaus.

Mark Swartzberg - Stifel Nicolaus

Thanks, good afternoon Randy.

W. Randolph Baker

Hi Mark.

Mark Swartzberg - Stifel Nicolaus

Also on InBev, I was wondering if you could strip out for us what you think the EPS or operating income impact clearly of that business will have on you in '07?

W. Randolph Baker

Mark, first of all the InBev increment as we mentioned will be a significant plus at the revenue per barrel line. It will be a significant increase in cost of goods sold per barrel. Gross profit per barrel will be a bit higher than our Bud family brands but gross margin on a percent basis will be less. Again when we get to marketing cost, the marketing cost per barrel for InBev are substantially higher than the marketing cost per barrel on Bud family and again the Bud family given the massive volume base is extraordinarily efficient. So, with the higher marketing cost and the marketing investment that we are pricing behind the InBev brands, a good portion of the gross profit will be spent on marketing. We do expect the InBev brands to contribute to AB earnings per share growth during the year, but again our focus is on growing the brands and we will be investing in the marketing behind those brands.

Operator

Thank you. Your next question is coming from Kaumil Gajrawala from UBS Investment Bank.

Kaumil Gajrawala - UBS Investment Bank

Thank you, could you talk a little bit about what your top three priorities are for future JV's or acquisitions, particularly outside of beer?

W. Randolph Baker

Hi Kaumil, the top priorities for AB in 2007 is execution on the JVs, the deals, the alliances, etcetera that we have in place. And we really added a lot to our portfolio. We added a lot to our wholesaler system in 2006 and our challenge this year as a company and as a system is to execute on those new brands, new alliances, new programs. Also to execute at the same time on our trade mark brands. And beyond that, we continue -- we have in China, we are expanding the footprint for our Budweiser, Budweiser is sold nationally, but China of course is a huge country and we are starting an expansion of Budweiser two additional cities in China. We are expanding significantly the distribution of the Harbin premium brands in China and so that is a focus and expansion of our efforts in that country. We continue to look for opportunities outside of the US to participate in high growth markets. We have some discussions that are taking place now on looking for opportunities, but it will be premature to comment on specifics at this time.

Operator

Thank you. Our next question is coming from Lauren Torres of HSBC.

Lauren Torres - HSBC

Good afternoon.

W. Randolph Baker

Hello Lauren.

Lauren Torres - HSBC

Just two quick clarifications from your fourth quarter results. Just first, domestic revenue per barrel in the quarter, was it up 2 or 3 and does not include domestic beer brands plus non-AB brands like energy drinks? And also too on the corporate expense line, it looks a little high in the quarter. I was wondering what this higher expense was attributed to, and what we should expect for this year?

W. Randolph Baker

The revenue per barrel in the fourth quarter was up 2%, 2.0% versus the prior year and that basically includes our brands. John do want to pick up on the expense, corporate expense.

John Kelly

Sure Lauren. The corporate expense in the fourth quarter as you know from our release, were favorable and there is really three main factors that caused the corporate expense to be favorable. And they are basically equally weighted. The first one is we have from debt structuring cost in the fourth quarter of 2005 that didn't recur in 2006. We also had lower stock option costs in the fourth quarter of '06 versus 2005. And the final factor is, we had some favorable employee benefit expenses in 2006 versus 2005, primarily related to employee healthcare costs.

Operator

Thank you. Your next question is coming from John Faucher from JP Morgan Securities.

John Faucher - JP Morgan Securities

Yes. A sort of a housekeeping question on the Q4 net revenue per barrel, and Randy, this may have something with the accounting issues you mentioned but, if we look at the shipment number versus the revenue number, it looks as though, if you try to look at where the shipments came out before the revenues came out, it seems like net revenue per barrel would have been up more. If there was some other number in there that can pack in the revenue that is not yet figured into the net revenue per barrel calculation?

W. Randolph Baker

John, hi. The vast majority of the difference between the 2.8% revenue per barrel that we achieved in the third quarter, the increase we achieved in the third quarter, and the 2.0% increase that we achieved in the fourth quarter relates to the distortions that we have been talking about on the major differentials between STRs and shipments in those quarters, and I went through that in the prepared remarks. The remainder of the difference in the fourth quarter versus the third quarter. Within the promotions there were some negative package mixed on fourth quarter versus third quarter, in other words, more of our volume was sold on the lower revenue per beer package mix. Approximately 5% of our promotions in December were at lower prices than in the third quarter, and that's where we had, we went to a deeper discount to match competitive activity. But 95% of the discount promotions that occurred in the fourth quarter and specifically over the important Thanksgiving, Christmas, and New Year holidays were at the same price levels that we had in the third quarter. Finally there is a little bit of a year-over-year factor John, on some promotion reductions that occurred in the fourth quarter of '05 that did not carry forward into any of the quarters in '06. But again, the vast majority John, of the difference between the fourth quarter and the third quarter related to the fact that in the fourth quarter the SPRs were substantially greater than shipments and we report discount reductions occur on SPR basis whereas in the third quarter the SPRs were less than shipments.

Operator

Thank you. Your next question is coming from Christine Farkas of Merrill Lynch.

Christine Farkas - Merrill Lynch

Thank you very much, good afternoon.

W. Randolph Baker

Hello Christine.

Christine Farkas - Merrill Lynch

A question for you on your international businesses, specifically Canada and the UK, can you comment about the actual industry trends in Canada in the quarter as well as the growth of value versus the premium, and then in the UK your fourth quarter volumes were flat which was better than full year trends. Is there anything we can read into that? Would we expect to see pricing go up in the UK ahead of the [break line] or any other color there, thank you?

W. Randolph Baker

Christine hi. In Canada the industry had a good year in Canada, it was up about 1.9% in the fourth quarter and the full year and Canada had among other things, reasonably favorable weather on a year-over-year basis. We did quite well in Canada with our volume up high single digits in the fourth quarter and in the full year and we did, we probably gained about one share point in Canada. In the United Kingdom, our volume performance was a bit better. It was essentially flat in the fourth quarter versus the declining low single digits for the full year. But our profits declined significantly in that as we've been talking, as is the ongoing unfavorable shift from on-premise to off-premise, that is particularly impacting us because our strength is in the premium package Lager on-premise. We believe the industry was down about 1.5% in the UK in 2006. In terms of pricing, most of the UK brewers including Anheuser-Busch have announced price increases for 2007, it primarily occurring in early February with some increases in January and a few increases in November.

Operator

Thank you. Our next question is coming from Robert van Brugge from AllianceBernstein.

Robert van Brugge - AllianceBernstein

Hi Randy.

W. Randolph Baker

Hello Robert.

Robert van Brugge - AllianceBernstein

Question about the cost of goods sold. You were saying that, we are going to have another year of high inflation, some of the slightly less than the 3.8%, that's how you experienced in 2006. Yet, you are only trying to go after say 2% to 3% pricing. Why aren't you trying to pass on the full increase of your cost of good sold?

W. Randolph Baker

Robert, hi. First of all the cost of goods sold per barrel increased in 2006 was 2.8%. The fourth quarter was 3.8% and again there we had the distortion of higher fixed cost per barrel because of the shipment decrease. But overall 2.8% for the year 2006 and for the year 2007 we said excluding the new import brands our cost of goods sold per barrel would be slightly less than that. We then said that we are increasing prices in the 2% to 3% range on about two-thirds of well -- we are taking pricing actions on about two-thirds of our volume and where we are doing price increases rather than discount reductions, which is the vast majority of that, we are increasing in the 2% to 3% range.

Operator

Thank you. Your next question is coming from Alex Patterson from [RCM.]

Alex Patterson - RCM

Andy two things, one the strong SPRs in December, probably on good weather but you mentioned of the difficult comps. I was wondering if you could speak to any read-on to consumption of that SPR. How well did consumption go through or was there just incremental shelf spaced, (inaudible) spaced, etcetera picked up with some incremental promotional work?

W. Randolph Baker

Alex, hi. In December, we had strong execution on features, and displays. This year and actually in 2006, and 2005 as well but 2006 in particular, we had a major push for the holidays with extensive holiday packaging displays etcetera in addition to the normal discount promotions. And we were very successful with this special holiday push in getting the features displace and the sell-through and promotions. We believe that the majority of this increase in SPRs also went through to consumers. Obviously you may have because of the successful holiday promotions, certainly likely some consumers have bought pot beer towards the end of December that were in essence or pantry loading and therefore will be a negative for January. But overall we believe the December SPRs were reasonably reflected at a consumer basis as well.

Operator

Thank you. Our next question is coming from Chris Growe of A.G. Edwards.

Chris Growe - A.G. Edwards

Good afternoon Randy.

W. Randolph Baker

Hello Chris.

Chris Growe - A.G. Edwards

Hi, I just have two questions for you, the first one is regarding inventory levels. Are these new low levels that are sustainable or should we anticipate some increase in inventory throughout 2007, perhaps even early in the year? And the second question relates to just to the SPR trend, in part a follow-on on Alex's question, but have we seen a continuation of that strong SPR trend in the January? Can you talk about the volumes perhaps early here in the year?

W. Randolph Baker

Chris the inventory reduction that we achieved at the end of the year which was more than 1.5 days below 2005, and if you may recall 2005 was over 2 days lower than 2004. But that inventory reduction that we achieved at the end of the year was greater than we had forecast, greater than we had planned. And that's simply because you plan brewing production in four to six weeks in advance of shipments and so we had planned for a lower amount of SPR's that occurred. But we are pleasantly surprised by the SPR's acceleration that occurred in December and therefore we overshot in terms of our inventory reduction. So, we will lead to increased inventories in 2007. For a year-end number you would expect to be somewhere between where we ended up and where we were the prior year. Generally Chris, we would like to operator with as low of inventories as we can while most importantly meeting our customer demands, our needs to supply our retailers and consumers and also the needs that we have in our breweries for operating efficiencies. With that regard, within the quarter, we will be increasing inventory levels as we always do because we build inventory in the January, February, March timeframe and then start depleting inventories as we move into the summer which is part of the normal seasonal curve if you will, for beer demand. January volumes, January SPRs to date are down somewhat versus last year, they are down to low single digits versus last year. For perspective then as I was discussing with Alex's question, our December SPR's were very strong and they reflected the solid execution on holiday displays and promos and reflected favorable weather. As I mentioned to Alex, at the consumer level there may have been a bit of pantry loading at the end of the year for consumers as they bought the beer for their holidays and had some left over in their pantries for the early part of January. In addition, there at the retailer level, we had a greater portion of price increases at the beginning of January, in 2007 than we had in 2006. And on that volume it is likely that we had some inventory build in late December, this would have benefited, at the retail level, which would have benefited December sales and then to the detriment of early January sales. The other factor is that we mentioned is, December had very, very favorable weather. January this year unfortunately has not been favorable, but it is in comparison to January of '06 which was the warmest January on record. So, we got a bit of a year-over-year unfavorable weather factor, and a final comment just for perspective, January is a very low volume month, it's less than three-fourth of the volume of a summer month. With all that having been said, the direct answer to your question is SPR to-date in January are down low single digits versus January SPRs last year, and by the January SPRs last year was strong.

Operator

Thank you. Our next question is coming from Bonnie Herzog from Citigroup.

Bonnie Herzog - Citigroup

Okay. Good afternoon. Hi, how are you?

W. Randolph Baker

Hi Bonnie.

Bonnie Herzog - Citigroup

Actually, obviously a lot of questions have already been asked, but may be we could circle back around to what you mentioned is one of your main priorities, which is execution this year, because I am very entreat regarding those and given the number of good products and partnership agreements that you have implemented. How are you going to work with your wholesalers to make sure that they prioritize what they should be and while balancing that with driving your core business? Do you have particular initiatives in mind, are you possibly considering changes to your distribution system. Can you talk a little bit more about that, please?

W. Randolph Baker

Bonnie, our clear priority for 2007 is execution, execution on the new brands that we brought into our portfolio, and therefore to our wholesalers portfolios and most importantly our trademark brands. We have a whole series of detailed sales and marketing initiatives to do that. But perhaps most importantly and the increase in marketing cost that we guided you to for the year, we are adding quite a few, Anheuser-Busch's field sales representatives, as you would call it “feet on the street”. We are adding some 300 additional field sales reps to work in the field with our wholesalers and with our retail customers. And this is a major increase for Anheuser-Busch, and it is largely in line with the question you asked, which is, how we work priorities, how we work the execution and again these are through a whole series of these type of initiatives. Another thing Bonnie that we have been doing and we'll facilitate and enable the system to handle multiple brands is some very important work we've done in information systems. Work that we have done in hand-held technologies that will enable our wholesalers, their selling people to have the information and the organization to prioritize. One of our big initiatives is to make sure that we are selling in the right brands to the right account. Obviously, some large format accounts will be getting almost all the brands, but many of the brands are more specialty in nature, so a lot of the work is in prioritizing where the effort should go with these brands to where they have the best tip with the consumer base.

Operator

Thank you. Our next question is coming from Ann Gurkin of Davenport and Company

Ann Gurkin - Davenport and Company

Good afternoon.

W. Randolph Baker

Hello Ann.

Ann Curtin - Davenport and Company

Just want to continue on a little bit on strategy, in terms of new cost innovation, is that going to be as important a part of your business over the next couple of years, are you going to focus more on joint ventures, integrating brands, that kind of thing? And then secondly, can you comment on your forecast for the domestic beer category growth in '07? And then lastly, how is the sell-run through Super Bowl going?

W. Randolph Baker

Ann our focus in terms of strategy is an execution in 2007. We do have new products that are in the pipeline but I would not expect anywhere near the level of new product alliances or new product introduction for Anheuser-Busch in 2007 that you saw in 2006. And we pretty well set our product portfolio and the priority is execution. But we are, we continue to focus on innovation and we selectively would like to expand the distribution of products comfortably through our distribution system and it will be a matter of staging and sequencing it. But again, to emphasize first priority, immediately is on execution for all that we've added on to the system this year. The domestic beer category growth, we don't have industry forecast for you for the year specifically. Our long-term forecast is 0.5% to 1%, which is basically being driven by demographics, by alcohol servings, trends and we are very comfortable with that as a long-term forecast. This year surprised us and I think surprised almost everyone for consumption of beer, sales of beer in the US to be up 1.9%. So, obviously, we're going to have some good year-over-year comps for 2007. But conversely the momentum for beer in the US is quite strong. The sell-in through the Super Bowl, clearly we are a major advertiser once again for the Super Bowl, we have lot of promotions around the Super Bowl, promotions at the retailer level, special promotions at the consumer level. We will doing promotions after the Super Bowl as well, and these are quite important and a number of very innovative things that we are doing in the digital media area relating to our commercials and to the Super Bowl as well. And including at the beginning just after Super Bowl we will deal with the launch of Bud TV. So, a lot of things going on there, we are excited about our line up of commercials for the Super Bowl and we look forward to it.

Operator

Thank you. (Operator Instructions). Our next question is coming from Matthew Reilly from Morningstar.

Matthew Reilly - Morningstar

Good afternoon. I have the question on the effectiveness of your marketing spend. With the fragmentation in media and your shifting advertising dollars, the cable TV and the internet and the away from network TV, what is the impact on your marketing scale advantage relative to your competitors and your overall ROI on marketing dollars?

W. Randolph Baker

Matthew as you well pointed out, there is substantial fragmentation that is going on in the marketplace and simply what we are doing in our advertising, in our media, is following our consumer. And as one of things that we did in 2006, we are doing in 2007, is increasing cable and decreasing network. More dramatically we have substantial increases in what we call digital media, internet related advertising, cell-phone related advertising, a whole series of programs on that. We continue to have a strong focus on sports on network and cable including local sports. And we have a step-up in entertainment on cable. We also have an increase in our Latino marketing for 2007. I guess arguably -- just one second, let me go on to this, arguably we don't, the most efficient from a scale advantage is when we are advertising broadly on a national TV. But you also still have scale advantages, Matthew, on our spendings on whatever media it is. And for that matter, feet on the street, because we have this scale over which these marketing investments are spread. And so we still have a cost per barrel advantage just because as an example 'feet on the street', those feet on the street are servicing a very large volume base, as we spend money on the internet or spend money in digital media. Again we still are spreading that over a large volume base. But what we are doing increasingly is targeting to be more efficient and effective in reaching key consumer groups.

Operator

Thank you. You next question is coming from Alec Patterson of RCM.

Alex Patterson - RCM

Hi Randy, a follow-up. You have gone over this a little bit, but the expansion of the field sales forces, the 300 people, first give me a context of they are relative too on your base level of sales force, 'feet on the street'? Also my impression is that a lot of this is supposed to be carrying that around, building up the high-end, sort of hand selling part of the portfolio, if you could sort of expand on that? And then lastly, is this step up and good sales force sort of positioning you for further additions to that portfolio, i.e. what is sort of scale potential is here on that?

W. Randolph Baker

Alex, the increase in field sales rep is -- in field sales personnel, the 300 people I mentioned is a 40% increase. Many of these 300 people have come from InBev, and we have indeed hired some very, very good experienced field sales personal from the former InBev sales force. A significant portion of the increase in field sales personnel are dedicated to urban markets. And in the urban markets of course the hand selling initiatives that you mentioned to handle our new import brands and our high-end brands as well as of course executing on our trademark brand as well. The increase in our field selling force, the 'feet on the street' is really to further or first of all we are capitalizing on our very powerful distribution system. We believe at this time that it is important to support our system with additional field sales personal to work with our wholesalers, to work with the retailers to interact with consumers, to call on our chain customers and to support our chain customers. Will this support future additions to the portfolio, yes I would think so. But again our focus is, I've mentioned several times in the remarks right now is on executing what we have and again we think that an important part of being able to achieve execution is the increase in our field sales personnel.

Operator

Thank you. Our next question is a follow-up from Christine Farkas of Merrill Lynch.

Christine Farkas - Merrill Lynch

Thank you very much, thanks for taking the question. I just wanted to clarify back on the revenue per barrel growth. You are quite clear with the difference between the third and fourth quarter and the shift that SPRs to SPWs. But in the third quarter, your 2.8% reported revenue per barrel growth, did that include any component from Grolsch and Rolling Rock?

W. Randolph Baker

The answer Christine is, yes, that it did, was very slight. But yes, it did but overall our mix in the third quarter was negative, 30 basis points negative and then in the fourth quarter our mix was flat or even with last year. The big surprise was the volume, the big impacts happen when we start selling the InBev brand through our portfolio, starting in February.

Operator

Thank you. Your next question is coming Chris Growe of A.G. Edward.

Chris Growe - A.G. Edwards

Randy, I have this similar question, but I think phrased a little bit different way and that is, if you look at domestic beer revenue in the fourth quarter it was down 0.7%, and volume was down 3.6%. I think what we were being calculating is the rest or all being 2.9%. I am trying to figure out how your reported revenue per barrel is 2% and we are showing 2.9. Could you answer the questions a little more clearly?

W. Randolph Baker

Chris I am not sure I followed you. Our revenue per barrel which is a simply Math is 2% increase versus the prior year and that's basically from our revenue and from barrels. And John do you have any -- can you help me out on, are there any distortions in the numbers or?

John Kelly

No Randy, there is no distortion of the numbers. I think you said it right.

W. Randolph Baker

And we've got, the shipments are down 3.6% and you can follow-up with Dave if, and we can get into more details on that but, those are the basics. And we have time for one more questions.

Operator

Sure, and our final question will be coming from [Andrew Simon] of [Arabian Asset Management.]

Andrew Simon - Arabian Asset Management

Thanks. So, on an apples-to-apples basis for this year, for the full year, can you just repeat what earnings per share as well one time items for this year versus last year, so I know what I have to get to?

W. Randolph Baker

Andrew for 2007, we have given you a whole series of guidances, but are not giving a specific earnings per share. The earning per share for 2006 increased 9% and that excluded a whole series of favorables in really both years. So on a apples-on-apples basis 2006 earrings per share increased 9% and we have given a whole series of guidances for 2007 but do not have a specific earnings per share guidance for you.

Operator

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.

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