On Friday morning, top executives of Anheuser-Busch Cos. tried to impress Wall Street with a new cost-cutting plan and powerful earnings projections. Now, they are explaining how — and why — employees and retirees will have to bite the bullet.

More details are trickling out of Anheuser-Busch about the company's plan to cut $1 billion in costs by the end of 2010. It's part of an effort to fend off a takeover proposal by Belgian brewer InBev.

Executives say breaking with a slow-to-change culture is a raw necessity. But analysts wonder if the plan's goals are attainable.

In the past few days, executives fleshed out what that new philosophy means.

Salaried employees will see their lump sum payouts under the company's pension plan reduced by approximately 5 percent to 6 percent next year and approximately 15 percent by 2012, according to a memo obtained by the Post-Dispatch.

Salaried employees will also shoulder more of the cost of health care next year. Salaried employees may see increases bringing the employee contribution from approximately 21 percent today to 25 percent on average, depending on the plan and out-of-pocket expenses.

"The economic picture has been changing over the past months for all businesses, with sharp increases in costs," Tim Farrell, vice president of corporate human resources, wrote in the memo Friday to salaried employees. "For Anheuser-­Busch to remain competitive, we are introducing several initiatives" to cut costs and increase profits.

Anheuser-Busch retirees will have to share more of the cost of their health care next year. Salaried retirees will see their cost share increase to 40 percent on average, through changes such as higher premium contributions.

"We know that we need a smaller work force" to carry out the strategic plan, Farrell said in an interview. As Anheuser-Busch employees have left over the past 6 months, the company has left their positions unfilled as often as possible, he said.

The company plans to reduce its salaried work force by as many as 1,300 through voluntary retirement packages and attrition rather than through layoffs. The company estimates the early retirements will cause a charge of between $300 million and $400 million in the fourth quarter.

But B. Craig Hutson, a senior bond analyst at Gimme Credit, believes Anheuser-Busch will likely fall short of its goals.

Anheuser-Busch's renewed cost discipline "has largely been absent" for much of the decade, Hutson wrote Monday in a research note. The company's operating profit margin shrank to 17.3 percent last year from 22.6 percent in 2003.

Anheuser-Busch is being squeezed both by a merged SABMiller and Molson Coors in the U.S., as well as InBev on the prowl — a low-cost operator with a global reach. In response, Anheuser-Busch wants to cut costs, raise beer prices and jack up its earnings while increasing its U.S. market share. Analysts wonder whether Anheuser-Busch has the time or ability to pull off the ambitious plan.

Morale and focus are a concern. Farrell said Anheuser-Busch employees are staying focused and positive. But for chief executive August A. Busch IV, the distraction of a $47.5 billion takeover proposal has overturned hopes of kicking Miller and Coors if their merger stumbles.

"It's a shame that we're dealing with our own disruption," Busch told the Post-Dispatch on Friday.

Still, Busch said his company's management team "knows where the things that aren't value-added are, and knows how to get at those costs." He called the plan "aggressive" but "realistic."

Farrell pointed out that even after the changes to benefits, Anheuser-Busch will continue to offer retirement benefits above the 75th percentile of its corporate peers.

The company's health care cost sharing of 25 percent per employee will still compare "very favorably" with other employers, he said, citing statistics showing salaried staff of Fortune 200 companies on average pay more than 35 percent of their health care costs.

"These changes are difficult, but necessary," Farrell wrote. "We have considered a number of them for some time, although we have accelerated our actions to reflect what is happening in the marketplace."

A more aggressive cost-cutting and revenue-boosting plan has been in the works since before SABMiller and Molson Coors struck a deal last October to merge their U.S. operations, Anheuser-Busch executives said. The plan was put on a faster track more than a month ago, when InBev's plan to buy Anheuser-Busch was leaked to the Financial Times.

Analyst Mark Swartzberg of Stifel, Nicolaus interpreted Anheuser-Busch's strategic plan as "opera" meant to elicit a more generous bid from InBev.

But the plan for far-reaching cuts — using attrition and buyouts to shed between 10 percent and 15 percent of its salaried work force — "cannot be good for morale," Swartzberg wrote Monday in a note to investors. The plan is "difficult to view as not having unintended adverse consequences in terms of marketplace standing."

jmcwilliams@post-dispatch.com

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