BUD: Financial Analysis through September 2007 (Update)

We previously posted an analysis of Anheuser-Busch's (BUD) preliminary report on the September 2007 quarter. The company's initial report was, for our purposes, reasonably complete. The only missing data was the breakout of Inventory into its Raw Materials, Work in Process, and Finished Goods components. We obtained the Inventory breakout figures when BUD filed a complete quarterly report in a 10-Q with the SEC.

Our evaluation, adjusted to account for Inventory information, is reported in this post. The additional data did not change the gauge scores.

Separate from the Inventory situation, the gauges increased because we previously overlooked the degree to which BUD had reduced the number of its shares outstanding. BUD repurchased 16.1 million shares during the third quarter. As a result of these and earlier transactions, the average diluted number of common shares dropped from 775.9 million in the third quarter of 2006 to 745.4 million in the third quarter of 2007. Fewer shares increases Earnings per Share (EPS) and decreases the company's Market Value. In this case, it increased the Value gauge from 2 to 3 points, and it increased the Overall gauge from 25 to 27 points.

With respect to the Inventory data, Finished Goods/Inventory is the metric of interest. The ratio, which contributes to our Cash Management gauge, was 39.4 percent on 30 September 2007, a rather substantial increase from 28.6 percent in December 2006. In general, we do not like to see unusual increases in the Finished Goods ratio because the rise could be an early warning sign that sales were below expectations. Our concern is somewhat mitigated by the drop in Inventory/CGS from 24.2 to 22.7 days.