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Anheuser-Busch Companies Inc. (BUD)

Q1 2007 Earnings Call

April 25, 2007 4:00 pm ET

Executives

Dave Sauerhoff - VP, IR

W. Randolph Baker - VP and CFO

Analysts

Bill Pecoriello - Morgan Stanley

Marc Greenberg - Deutsche Bank

Lauren Torres - HSBC

Bryan Spillane - Banc of America Securities

Chris Growe - A.G. Edwards

Robert van Brugge - Sanford Bernstein

Christine Farkas - Merrill Lynch

Kaumil Gajrawala – UBS

John Faucher – JP Morgan

Marc Swartzberg – Stifel Nicholas

Judy Hong - Goldman Sachs

Bonnie Herzog – Citigroup

Matthew Riley - Morningstar

Presentation

Operator

Good afternoon, ladies and gentlemen. We are ready to begin the Anheuser-Busch Companies' first quarter investor teleconference. Mr. Sauerhoff, you may proceed with your opening remarks.

David Sauerhoff

Good afternoon. I am Dave Sauerhoff, Vice President of Investor Relations at Anheuser-Busch. We are placing today's call from Orlando, Florida where Anheuser-Busch's annual stockholders’ meeting was held this morning at our SeaWorld Park. We issued our first quarter earnings release earlier today and it's 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 prospects 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.

The earnings release posted on our website contains a disclosure and reconciliation of all the non-GAAP financial measures we will be using in this teleconference. Also please note that our comparisons of U.S. beer, wholesaler sales to retailers require no selling day adjustments for the quarter.

For members of the media listening today, please direct your enquires following the call to Kelly Powers 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.

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W. Randolph Baker

Thank you, Dave and good afternoon, everyone. At our annual stockholders meeting earlier today Anheuser-Busch reported 4.7% earnings per share growth for the first quarter of 2007. There were several important developments in the quarter that position the company well for growth this year. We have successfully implemented our 2007 pricing plan and the outlook for the pricing environment continues to be favorable.

Effective February the 1st, Anheuser-Busch became the U.S. importer for InBev European brands and the transition of distribution rights to AB wholesalers is progressing ahead of schedule with 60% of InBev volume now transitioned.

Also in the first quarter we announced new alliances in the import and craft segments involving the Checkbar, Portum, Old Dominion and Ray Hill’s brands and expanded our alliance with Hansen to include on-premise distribution. We have increased our field sales force by 40% to support our expanded portfolio, especially in urban areas and have increased marketing support for our trademark brands. Modello’s Crown import joint venture started operation at the beginning of the year and will significantly enhance Modello equity income growth.

Briefly reviewing first quarter financial results, consolidated net sales increased 2.7% consolidated cost of sales increased 2.4%. Cost of goods sold per barrel for the U.S. beer company were up 2.6% including the impact of the new import portfolio. The increase for core brands was less than expected and was significantly below last year’s increase, primarily due to lower energy costs. Consolidated gross profit increased 3.4% and our gross profit margin grew 30 basis points.

Marketing, distribution, and administrative expenses were up 8%, reflecting higher U.S. beer marketing spending to support out trademark brands as well as incremental marketing and selling expense for the new import portfolio. Equity income increased 30%. Consolidated net income grew 3.7% and earnings per share were $0.67, up 4.7%. Operating cash flow before changes in working capital increased 26%, benefiting from a lower pension contribution than last year. Net working capital was up $240 million primarily due to bonus payments paid this year but not last year, and due to higher receivables and inventory. Capital expenditures were $154 million, down 3% from the prior year. Share repurchase spendings were $477 million and we repurchased over 9 million shares.

Anheuser-Busch U.S. beer sales to retailer results were up 0.1% for the quarter. Our new import and Rolling Rock brands contributed 170 basis points of growth in the quarter. Sales to retailers in January and February were down low single-digits in part due to unfavorable year-over-year weather comparisons. January results also were impacted by year-over-year timing issues relating to the price increases and holiday promotions. March sales to retailers were up mid single-digits, benefiting from favorable weather and were led by a strong Bud Light performance.

Looking at sales to retailers results by brand family, Bud family volume declined low single-digits in the first quarter. Bud Light volume was up low single-digits in the quarter and up mid to high single-digits in March. Michelob family volume declined mid single-digits as ULTRA Amber began to lap the successful introduction last year. During the quarter Anheuser-Busch introduced new packaging for Michelob and Michelob Light, along with returning to the all malt recipe for the brands. The Busch and Natural brand families were up slightly in the quarter against difficult year-over-year comparisons.

We are making good progress in expanding our participation in the high end segment through our new import and craft alliances, the Rolling Rock acquisition and our new product introductions. Although there have been short-term disruptions associated with the transitions, we are encouraged about the outlook for these brands.

Anheuser-Busch’s first quarter U.S. beer shipments to wholesalers increased 0.5% with import and acquired brands contributing 120 basis points. Wholesaler inventories returned to more normal levels from unusually low levels at the end of 2006 and at the end of the first quarter were one half day lower than the same time last year.

Based on U.S. brewer data from the Beer Institute and import data from the Department of Commerce, industry sales are estimated to be up 1.9%. A good performance, despite a very difficult comparison with an unusually strong first quarter last year, when shipment increased 5%. Anheuser-Busch's U.S. market share for the first quarter decreased seven-tenths of the share point on a shipment basis.

Revenue per barrel increased 2.3% in the first quarter. Front line price increases contributed 170 basis points to revenue per barrel growth as we successfully implemented our 2007 pricing actions, which took place primarily in January and February. Promotional price adjustments negatively impacted revenue per barrel growth by 10 basis points. Portfolio mix was favorable by 70 basis points, including two months of mix benefits from brands.

As in the past, AB's price actions were tailored to specific markets, brands and packages, and covered approximately two-thirds of our volume with the typical price increase in the 2% to 3% range. The outlook for the beer pricing environment continues to be favorable including the outlook for promotional pricing during the important Memorial Day holiday.

Our International beer segment net income increased over 25%, driven by a strong performance by Grupo Modelo. First quarter equity income increased $37 million, primarily due to improved Grupo Modelo earnings from higher domestic volume and benefits from Modelo’s new Crown import joint venture in the U.S. Equity income included a $17 million benefit from the return of an advertising fund that was part of the prior import contract, partially offset by a timing change in the recognition of Modelo’s export sales to the U.S.

First quarter equity partner brand’s volume on AB’s reporting calendar reflecting December through February results increased 4% with volume increases from both Modelo and Tsingtao. Modelo and Tsingtao have not yet reported their first quarter results.

International operations volume for the first quarter increased 8.7%. Profits, however, declined due to continued weakness in the United Kingdom. Volume for our Budweiser and Harbin operations in China were up high single-digits in the first quarter. Profits were also up high single-digits despite increased marketing and distribution costs associated with the rollout of Budweiser and Harbin premium brands to new markets.

Earlier this month, Anheuser-Busch announced the construction of a new brewery in the Guangdong province city of Foshan to support the growth of our premium brands in China. Once construction is complete in 2008, AB will own and operate 15 breweries in China. In addition, during the first quarter, AB began distributing the Corona brand through our Budweiser China distribution system.

In Canada, volume and profits increased low double-digits in the first quarter. Budweiser, the leading brand in Canada and Bud Light continued to gain share. In the United Kingdom, volume decreased mid single-digits. The natural results decline due to lower volume, price competition and the unfavorable revenue mix from a continued shift from on-premise to off-premise consumption.

In February AB and Crown Beers of India announced an agreement to form a joint venture to brew, market and distribute Budweiser and other brands in India.

First quarter pre-tax profits for AB's packaging segment increased nearly $6 million versus last year, due to improved operating performance across all of its businesses.

Busch Entertainment's seasonal loss was essentially even with last year. Busch Entertainment typically reports a loss in the first and fourth quarters when our seasonal parks are closed, but profits for the year generated in the second and third quarters.

I will now review our outlook for the full year 2007 for our key performance drivers. We continue to expect revenue per barrel to increase 3% to 4% with the increase on our trademark brands being greater than in 2006. Full year cost of goods sold per barrel should be up in the 4% to 5% range with increases on our trademark brands being slightly less than last year.

Consolidated marketing, distribution and administrative expense is expect to increase mid to high single-digits this year reflecting the step up in marketing investment behind our trademark brands as well as incremental marketing and selling expense for our new import alliance portfolio and Rolling Rock. Equity income is expected to increase more than 20% in 2007 including profits from Modelo's new U.S. joint venture. We continue to expect profits from international beer operations to increase low single-digits. Profits from our entertainment division should be up mid single-digits. We now expect packaging division profits to be up slightly given better than expected profits in the first quarter.

Our effective tax rate for 2007 should be somewhat less than 41%. Operating cash flow is expected to increase in 2007. Capital expenditures this year are now expected to be around $950 million versus our prior guidance of $900 million, due primarily to our new China brewery project. Finally, our targeted spending for share repurchase this year is $2.5 billion.

In summary, we successfully implemented our price increase plan and the pricing environment is favorable. U.S. industry shipment growth was strong, continuing the positive trends from last year. AB sales to retailers were off to a slow start at the beginning of the year, but improved considerably in March. Our international beer segment again made a substantial contribution to AB's earnings growth, enhanced by Modelo's new U.S. joint venture. Our key priority for 2007 is execution on our sales and marketing plans to grow our trademark brands, and on transitioning and selling our new alliance brands.

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

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is coming from Bill Pecoriello - Morgan Stanley.

Bill Pecoriello - Morgan Stanley

Randy, could you give us some color on the first quarter and how the volume trended for the various channels, what you are seeing in channels like convenience stores and the casual dining channel? And then also comment, if you can, on April trends.

W. Randolph Baker

Bill, first of all, our volumes during the quarter, we had previously told you that January was down low single-digits, February was also down and February, in particular, had unfavorable year-over-year weather. When we got into March, we had favorable weather and our volume trends picked up; they were against the easy prior year comparisons and we were up mid single-digits and overall on a total basis we were essentially flat, up 0.1 for the quarter.

The channel performance -- again this will be for our core brands excluding the imports and Rolling Rock -- in on-premise we were down basically mid single-digits. We did have weakness in restaurants, the casual dining segment traffic is down and that is impacting us. We’re still doing well within casual dining, but overall we’re seeing a decline in traffic there.

Convenience stores were down just slightly. Supermarkets, grocery stores for us in the quarter were up 0.2% which is different than what you are seeing in reported Scanner data. So overall we were a bit better in off-premise than on-premise but it was not a good quarter for us.

In April, volume in the first week continued to be strong. Anheuser is benefiting really from the pre-Easter time period. Volume in the last two weeks in April has been bad. We have had very unfavorable weather in most of the U.S. in comparison to a very favorable weather factor in April of last year. So in April thus far we are down in the 3% range on STRs.

Operator

Our next question is coming from Marc Greenberg - Deutsche Bank.

Marc Greenberg - Deutsche Bank

I was hoping you might provide some insights specifically on how the InBev portfolio transition impacted the quarter. Specifically, did the system have any difficulty filling orders and how did this impact rev per barrel and volumes? What I am getting at is to get to your 3% to 4% rev per barrel guidance off a fairly low base here in Q1, I am trying to understand just how much of a contribution that portfolio is going to make in the coming quarters to move the rev per barrel numbers higher.

W. Randolph Baker

In the first quarter we transitioned more of the InBev volume than we had anticipated. In my prepared remarks I said we were ahead of schedule, and indeed we have now transitioned about 60% of the volume again with the changeover occurring on February 1. With the transitions come disruptions, sales disruptions and these occurred and had been reported in the trade press. There is some supply disruption and confusion as you go through a transition, the selling wholesaler in some markets didn’t place orders or sufficient orders for the product and the AB wholesaler taking over the brands, not quite sure what amount to order.

In addition, because we are dealing with obviously an imported product, the time for replenishing is much longer than our system is used to because as you well know, we have 12 breweries across the country. So we have had some supply disruptions. There have also been some disruptions at the retail level due to the wholesaler changeovers and we have had some low product, low SKU inventories at the retail level as well. But these are all very short-term and we are quite optimistic for the outlook for the InBev brands and for our import portfolio.

In the first quarter, recall we only have two months and the shipments in those two months were impacted by the sales disruptions. You will see a significantly greater impact from the InBev portfolio in the second quarter and going forward.

Operator

Our next question is coming from Lauren Torres - HSBC.

Lauren Torres - HSBC

Randy, I was hoping you could talk a little bit more about your push into the super premium beer category. It seems like your focus is shifting a bit to this category but I was just wondering, you continue to focus behind the premium beer category, maybe even more importantly, how do you keep wholesaler attention behind the AB brands?

W. Randolph Baker

Lauren, as you intimated in the call, we have added a lot of super premium high-end brands through our new import alliances, through our craft alliances, through our new brand introductions. At the same time, our priorities are execution on our marketing plans to grow our trademark brands in addition to the new alliance products.

One of the key things, and it is why our marketing distribution and administrative costs are up in the mid to high single-digits this year, is we have substantially increased our field marketing force. We have increased by 300 people or some 40% and the focus of our new field sales personnel concentration is in the urban markets and supporting with our wholesalers and retailers the sales ability of our entire portfolio.

In addition, we have increased advertising, marketing for our core brands, our trademark brands in addition to the new advertising, of course, for the acquired brands. It’s a matter of first of all, we are adding a lot of people to help with the challenge of execution on both; we have additional information systems to help our system manage this and of course there are going to be challenges, transitions as we go through the addition of the new products into our wholesalers, but in general it is going well.

Operator

Our next question is coming from Bryan Spillane - Banc of America Securities.

Bryan Spillane - Banc of America Securities

A question on your domestic beer profits in the first quarter in terms of the timing of the expenses related to hiring the incremental sales people and the costs associated with InBev. Is it correct to assume that those costs were incurred across the whole quarter and yet the revenues associated with InBev were only in two months and then were understated somewhat, because you had the supply disruption. So not necessarily matching the revenues with the costs in the first quarter.

W. Randolph Baker

Brian yes, that is fair. We record the cost of our addition field sales personnel as the occur, and they occur throughout the quarter. We record the benefit of sales from the InBev portfolio as they occur. They started in February and as you said, were a bit below what we would expect them to be as we go through the year for the reasons we just discussed.

Operator

Our next question is coming from Chris Growe - A.G. Edwards.

Chris Growe - A.G. Edwards

The gap between STWs and STRs was not as wide as I expected. It sounds like your inventory got back to what you would regard as a normal level and therefore there was some build in the first quarter from the end of Q4?

There was a comment about some cost saves coming through in the quarter, offset cost inflation. I wonder if you could quantify those or just give us some idea of what we should expect for the year?

W. Randolph Baker

On first the inventory question, we ended the quarter at one half day below last year and that’s back to what we would consider a normal level. As we discussed in the last teleconference, we ended last year at an abnormally low level because basically December STRs were a lot stronger than we had expected and we ended at too low of an inventory. We rebuilt inventories, we’re a half a day below last year and that’s within a normal range.

We had favorable costs in the first quarter. The biggest favorability on a year-over-year basis was in energy. Natural gas prices in the first quarter this year were lower than they were last year. We had some favorable purchase material cost timings during the quarter and the import sales were relatively low. So as we go through the remainder of the year, you will see a significantly greater impact from the sales of our imported brands.

In terms of the ongoing costs for our core brands, probably will not have the type of favorables that we enjoyed in the first quarter. But again, overall we are running favorable in our costs in the first quarter and we're quite comfortable with our guidance that we've given you for the year.

Operator

Our next question is coming from Robert van Brugge - Sanford Bernstein.

Robert van Brugge - Sanford Bernstein

I have a question on the core trademark brands. Prior to your import agreements you targeted market share gains for the core trademark brands, and you are still falling somewhat short of this goal. Now that you have these import agreements, are you still planning on gaining market share with your core brands or are you really relying more on the import brands now to meet your market share targets?

W. Randolph Baker

Our long-term objective is to gain share, and obviously in this quarter we did not. The industry growth continues to exceed our model. as we have told you, generally we expect industry growth to be in the 0.5% to 1% range. Last year it grew 2%, this year in the first quarter 1.9%. So it is growing considerably faster than what we have in our model and that’s a good thing.

Imports continue to lead the industry growth, and with our new import alliances we will be more fully participating in import growth. We’ve added, as I mentioned in the remarks in an earlier question, we’ve added a lot of field sales personnel to support both our trademark brands as well as the import brands, in addition to some additional marketing. We will be pushing to increase volume as we go through the year.

In terms of being able to gain market share for our, in essence, domestic portfolio that will depend upon if imports continue to grow at the rate that they are. Robert, that would be rather difficult for our domestic brands to keep up with that pace. Again, we will be more fully participating in the imports segment with the new import alliances that we have announced. We expect to grow our domestic portfolio as well. The degree to which we gain share there will really depend upon the overall industry growth.

Operator

Our next question is coming from Christine Farkas - Merrill Lynch.

Christine Farkas - Merrill Lynch

I am curious of your comments regarding two smaller areas. One is India. Given the start-up or the ramp-up with your joint venture, when do you expect this country to contribute to your volumes and your profits?

The second area on spirits, if you were to pick up spending on R&D or investments, where would have that actually fall in your P&L? Would that be a corporate area or would that be in your domestic business? Thank you.

W. Randolph Baker

Christine, the India venture is a very small venture. We are just starting up our brewery with our partner, Crown Beers of India. It's 500,000-hectoliter brewery. Budweiser is being brewed there now and we are contract brewing for other brewers. Right now the India beer market is small and this is a relatively small joint venture. We would view this as a good start for us in India, but as far as participating, seeing this come through in our P&L, it will be some period of time before it would have a noticeable sales and earnings impact on our company.

If we were doing R&D for spirits, that would be in the corporate segment.

Operator

Our next question is coming from Kaumil Gajrawala - UBS.

Kaumil Gajrawala – UBS

Could you help us with some of the specifics on the profitability of the acquired brands versus your core brands? What should we be modeling for margins going forward, given the difference in growth?

W. Randolph Baker

The import brands have a very high revenue per barrel. As you saw in the first quarter, the 70 basis points of favorable brand mix and that should be a higher number as we go through the following quarters, for reasons we’ve been discussing.

The cost of goods sold per barrel for the import brands are also quite high and that is because that is what we are paying for the beer. You have high gross profit per barrel on the import portfolio, higher than our system average; but you have a lower gross margin in a percent than our system average.

When we get to the marketing, distribution and administrative expense line, the cost per barrel for our import brands are significantly higher than for the Bud family, and we are investing in marketing to grow these brands. They do not have the volume base across which to spread marketing as efficiently as we do for the Bud family, so the import portfolio will have a negative impact on our margins at the operating income or selling profit line.

Operator

Your next question comes from John Faucher – JP Morgan.

John Faucher – JP Morgan

Randy, when you gave the April STR number, is that including the InBev brands or excluding the InBev brands?

W. Randolph Baker

That is total, including all brands.

Operator

Your next question comes from Marc Swartzberg – Stifel Nicholas.

Marc Swartzberg – Stifel Nicholas

As a follow up on an earlier question, domestic beer’s pre-tax margins, when you factor in InBev, at least that element of the impact is going to be adverse on the pretax margin, but when you think about what you are saying about MD&A for the total company between mid and high single digits, there is obviously a lot of range between a 4% increase and a 9% increase.

I am wondering if you could help a little bit, just share with us how you are thinking about achieving a certain level of margin for the domestic beer business as you seek to restore some of the lost profitability versus ’04 levels. Are you trying to get to ’06 levels of pretax margin? To the extent you are seeing GP above what you might expect, you can reinvest in MD&A at that high single-digit, you go out for MD&A levels at the high single-digit levels?

I hope that illustrates what I am trying to get at, but there is a fair amount of spread there. Are you going to reinvest GP upside or are you just saying, we are okay if our pretax margin goes down again this coming year, this calendar ’07 year?

W. Randolph Baker

On the guidance we’ve given you for revenue per barrel and cost of goods sold per barrel, with revenue per barrel up in the 3% to 4% range, cost of goods sold per barrel in the 4% to 5% range, both on a total basis including our import brands. With that, we would have a gross margin decline. Our costs are still going up higher than we would like, and as you well know, there are significant commodity cost pressures for our industry and for many any other industries as well.

That's also true on a core brand basis, although we had a very favorable cost performance in the first quarter. We still expect and we expect to have favorable costs on a core basis on a year-over-year basis. We still will not quite have revenue per barrel for our core growing faster than cost of goods sold per barrel this year.

Our marketing, distribution and administrative expense is an unusual increase and again, the biggest driver of that is the additional personnel. That is a one-time step up to handle our new portfolio, to help us in our focus on urban markets, et cetera. We would not expect to see those types of increases in the future as we move forward to step up this year.

Operator

Our next question is coming from Judy Hong - Goldman Sachs.

Judy Hong - Goldman Sachs

Just following up on that MD&A and thinking about setting aside the one-time step up in spending relating to adding more field personnel. Just broadly speaking, just thinking about the marketing spending that you are doing to really grow your trademark products and looking at some softness in the share performance that we're seeing in the first quarter, is your thinking that maybe the spending needs to go up even higher to really get the sales lift for your trademark brands or is it just really execution from this point on? Can you give us some perspective on that?

W. Randolph Baker

It is primarily execution from this point, but our guidance, as has been pointed out, gives some fairly significant flexibility in terms of spending for the year. Our plans will evolve as we go through the year. I stated the biggest factor in the increase is the field sales personnel, but we certainly have flexibility within the guidance that we’ve given you for further increases in the advertising, should that prove to be appropriate.

There’s a lot of changes that are going on in our media strategy last year and this year as the consumer is changing in terms of media habits. We are spending more in digital media, we are spending more in cable. We’re spending less in networks and we’re doing a lot of new things to try to reach our audience.

So it is a combination of both the amount of money we spend and how we spend it and developing the creative and the appropriate media to reach our consumer and again within the guidance we’ve given you, we have quite a bit of flexibility.

Operator

Our next question is coming from Bonnie Herzog - Citigroup.

Bonnie Herzog – Citigroup

Obviously there is a lot of talk about your core business and there is no doubt if this business does not do well overall, your company is going to feel some, I would argue, weakness. So I guess as you talk about execution risk, you are talking about increasing a lot in terms of sales people on your end. What are you doing with your wholesalers, which is a competitive advantage for you? In other words, is there a way that you can work them to possibly realign their incentives to get them focused on your core business while they are also selling some of these new brands that you are putting into the marketplace?

W. Randolph Baker

The short answer is yes, and that is what we are doing. We are working with our wholesalers, we have incentives in place, we have programs in place to focus on our core trademark brands. That is indeed our top priority. We are going through transitions in the new brands that we are adding, there are certainly some disruptions. Overall we are very well focused in our approach. We expect our trademark brands, our core brands performance to improve.

It is difficult as we look through the first four months, I am uncomfortable in saying it is only a weather story; but indeed, our sales performance has correlated very strongly with weather during the month of March. When weather was good, we had good performance. In the other months, we’ve generally had unfavorable and sometimes very significantly unfavorable weather on a year-over-year basis.

The summer is the key selling season and we are heading into Memorial Day. We are optimistic concerning the promotions that we have in the marketplace for Memorial Day. We expect to have a good sales performance as we go into the summer, but obviously that is yet to be seen.

Operator

Our next question is coming from Matthew Riley - Morningstar.

Matthew Riley – Morningstar

I was hoping to get a bit more background on the market share decline. Is it primarily due to high end craft beer growth in on-premise channels, or is there a more widespread phenomenon than that?

W. Randolph Baker

Matthew, the market share decline is just simply the math of our growth in shipments versus the 1.9% growth in domestic beer shipments in the quarter. Within that, brewer tax base shipments in the quarter grew at 0.3% and imports we estimate for the quarter grew in the 13% range. So again, what is happening is the vast majority of growth that is occurring in the US is coming from the import segment with a much smaller amount of growth coming from the domestic brewer tax base.

Operator

Our final question is a follow-up question coming from Marc Swartzberg – Stifel Nicholas.

Marc Swartzberg – Stifel Nicholas

Input costs, I know we are very early into '07, but of course you have multiyear plan, you are seeing this relief, if you will, in terms of cost pressure on your trademark brands in ’07. As you think about ’08, looking at the whole basket ranging from aluminum to the barley and other things, how do you feel about ’08 if you simply assume that ’08 costs are from a market basis where they are today?

W. Randolph Baker

Marc, it’s a bit early to give you guidance on ’08. Generally in our financial plan over the next five years we expect a moderation in input costs which will help us in our margin growth, but it is premature to give you specifics for 2008 at this time.

If that is the last question, I would like to thank all of you for participating in our teleconference today. As always, we appreciate your questions, your continuing interest in Anheuser-Busch.

Our second quarter teleconference will be held on July 25. We will also be webcasting our investor meeting on May 22. Again, thanks for joining us.

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