Knockout Capital Partners Activist Fund I, LP Announces its First Target: Beer!

So, the past week I've been checking out a few of the companies that I expected would do well in a recessionary (real or imagined) environment.  I tried to take into consideration companies that would (slash did) see real improvement, as well as those into which I expected to see a cyclical movement as investors and portfolio managers rebalanced their positions/weights.  Obviously, I started at the usual defensive plays: Healthcare, consumer staples, discount retail, and especially vice (namely alcohol, tobacco, gambling, defense, and sex - although some sort of nonsensical social "norms" prevent us from capturing most returns from the latter through public equities).  Sparing the details of my far-from-exhaustive analysis (and the focus on vice), I came upon a company whose products I both know, and love: Anheuser Busch (NYSE: BUD).  Below, you'll see the chart for the stock, going back to April, 2001.

That trendline is right about $48, and its clear that the stock is essentially flat since the beginning of 2002, short-term fluctuations not-withstanding.  Without getting into company-specific issues (of which there are at least a handful, see the last 10-k/MD&A if you're feeling ambitious), this is a company which pays a stable dividend, with decent-to-good financial performance (increasing EPS, manageable debt, blah blah), that makes beer.  BEER.  What is bad about Beer?  Even Benjamin Franklin, who would know such things, agreed when he said (something to the effect of) "Beer is proof that God loves us and wants us to be happy!" (attr).

See, the only real problem I see with BUD is right there on the 1st page of Part I, Item I of the last 10-k.

Approximately 93% of the Company's net sales and 74% of net income is generated in the United States.

Without getting too technical here, this tells us two very important things:

1. BUD is not very geographically diversified.  They get the vast majority of their revenue from domestic operations.
2. Their relatively-insignificant international sales are significantly more profitable than are their domestic sales.

Flipping to pages 2 and 3, we find that the Moose from St. Louis (as its known) has also been 'experimenting' with new things, for example:

Michelob ULTRA Lime Cactus, Michelob ULTRA Tuscan Orange Grapefruit, and Michelob ULTRA Pomegranate Raspberry, Michelob Pale Ale and Michelob Porter, Michelob Marzen, Michelob Bavarian-Style Wheat, Michelob Honey Lager, and Michelob Golden Draft and Michelob Golden Draft Light, O’Doul’s and O’Doul’s Amber (ed: who the hell drinks non-alcoholic beer???), BACARDI Silver Watermelon, BACARDI Silver Strawberry, BACARDI Silver Raz, BACARDI Silver Mojito BACARDI Silver Mojito Pomegranate and Tilt, BACARDI Silver O³ and Tequiza, BACARDI Silver Peach, Tilt Green, Intensitea Lemon, Intensitea Raspberry and Intensitea Peach and Wild Blue.

Believe it or not, this is a CONDENSED list.  Seriously, I'm not making any of that up.  We (I) have been known to enjoy our libations, in many different states (no pun intended), but never when wandering the aisles of our Nation's liquor stores have we laid eyes on at least 1/2 of these products, let alone actually seen a real, living, human being consume them. 

Now, just to get this out of the way, BUD is pretty conservative company.  Financially, operationally, and just generally.  Sure, they've had a few strike-outs, such as, oh, I dunno, Michelob Ultra Tuscan Orange Grapefruit, but these are mere hiccups in the grand scheme of things.  Now, I'm not suggesting a Barbarians at the Gates, Gordon Gekko, liquidate the thing approach here.  No, I'd just merely like to point out a few things any 21-year old college kid who's passed a Business & Industry Analysis class should know. 

Knockout Capital Partners, therefore, suggests the following:

1. Expand International operations.  Cut the crap with these multi-billion stock buybacks. 
2. Eliminate ancilary brands.

Our sophisticated financial models suggest that taking our advice will increase EPS roughly 'alot' over the next fiscal year, and 'even more' in further periods.

We will be filing our 13d in the coming days/weeks/etc, but in the meantime, you might want to hop on that, ya know, hint hint, wink wink...

Disclosure: This is not investment advice.  Knockout Capital Partners, Anal_yst, their representatives and the like do not (currently) own shares of BUD (although they may contribute substantially to the Company's sales).

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[Stupid Equity Guy]

Dude... Toss me a cold one...

~SEG