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Associated Press Story July 21, 2006 ===== ICBM.PK ==== On the right path ==========


NEW YORK (AP) - As companies begin to report second-quarter earnings, category pricing in the beer industry is up. Imported and regional, or craft, beer sales are strong, while domestic beer sales are lagging.
Higher aluminum costs are weighing on the sector somewhat.
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According to a report by Merrill Lynch analyst Christine Farkas, in June, No. 1 U.S. brewer Anheuser-Busch Companies Inc. volume fell 1.9 percent, brewer SABMiller plc volume fell 5.7 percent, and fifth-largest brewer Molson Coors Brewing Co. edged down 0.3 percent.
The segment gaining the most volume is Micro or Craft beers, or beers that are locally produced. Volume grew 12.5 percent in June.
Some of the largest brewers, like Anheuser-Busch, which reports July 26, have been working out ways to develop new products. A-B made waves in May by signing an agreement for distribution rights for drinks and juice maker Hansen Natural Corp.'s Monster, Lost and Rumba energy drinks -- plus another energy drink to be named later. The gives Anheuser-Busch more access to the energy-drinks market.
Category pricing is also helping Anheuser-Busch.
"Taking a new look at A-B's margin erosion in 2005, we find that an emerging improvement in the U.S. pricing environment is more important than previously believed," said Stifel Nicolaus analyst Mark Swartzberg. "Relatedly, while we are sensitive to marketplace jitters (e.g., "How will Miller respond to months of share loss?"), we expect A-B to meet success raising prices again this fall."
Another big deal -- highlighting the importance of imports in the sector -- is a distribution agreement announced in July involving Constellation Brands Inc. The company, which owns about 200 brands of beer, wine and spirits, in July agreed to create a joint venture with Grupo Modelo to import and distribute beers from the maker of Corona Extra and Negra Modelo. Anheuser-Busch has a 50 percent stake in Grupo Modelo, but will not be involved in distribution.
Separately, Molson Coors Brewing Co. reports Aug. 1. Bank of America analyst Bryan Spillane said the La Crosse, Wis.-based maker of Molson, Coors and Keystone brands of beers, said positives for the company include a new brewery opening and capital spending decreasing. However, "more volatility over the next three quarters keeps us neutral at this time," he wrote in a note to clients.
Boston Beer Co., maker of Samuel Adams beer, also reports in early August. The company is part of the fastest growing beer segment -- craft beer -- and it shows: volume is up 12.3 percent for the 12 weeks ending June 17. However, the Boston-based beermaker faces some challenges, including the termination of a contract-brewing arrangement with SAB Miller at the end of 2007. Spillane expects an update on what the company proposes to do about the contract when it reports earnings.
"The company has previously stated that it expects a new brewery to cost between $70 million and $90 million over two years (the company has $59.2 million of cash at the end of the first quarter)," he added.
© 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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