Anheuser-Busch Cos Inc. (BUD), the largest U.S. brewer, said Wednesday quarterly profit fell a greater-than-expected 9.9 percent as volume dropped in its home market and costs rose.

The company, with brands including Bud Light (search) and Michelob, said it expected profit would continue to fall for the rest of the year. The beer industry has suffered in recent years as consumer tastes have shifted toward cocktails and wine.

The company's stock fell 3.3 percent to a new 12-month low following the release of the results.

"Anheuser-Busch had a challenging first six months in its domestic beer business," President said Chief Executive Patrick Stokes. "Both the company and the domestic beer industry experienced volume declines and higher cost pressures."

Stokes made similar comments when the company released its first-quarter profit report in April.

The brewer, which has been offering multiple discounts in a bid to raise volume, said it would hold off on raising prices until 2006.

But the price-cutting did not have the intended effect, said Mark Swartzberg, analyst at Legg Mason.

"The rollback of price increases was greater than anticipated and the volume benefit was less than anticipated," Swartzberg said.

Swartzberg, who said it was important for Anheuser-Busch to maintain their level of marketing spending to drum up volume, has a "sell" rating on shares of Anheuser-Busch.

The company reported a second quarter profit of $607 million, or 78 cents a share. This compares to $674 million, or 83 cents a share, in the same quarter last year.

Analysts, on average, were expecting earnings per share of 81 cents, according to Reuters Estimates.

Second-quarter gross sales were $4.597 billion, flat with last year. Net sales, which exclude the impact of excise taxes, rose slightly to $4.018 billion from $4.010 billion.

Anheuser-Busch also said it was raising its quarterly dividend by 10.2 percent to 27 cents a share.

U.S. beer sales volume fell 3.7 percent to 26.3 million barrels in the second quarter, the company said in a statement. Anheuser-Busch held a 48.8 percent share of the U.S. market during the first six months of 2005, down from 49.8 percent in the comparable period of 2004.

International volume rose due to acquisitions in China and Canada.

But higher costs for glass and can manufacturing also cut into the company's bottom line, offsetting overseas growth. Marketing costs also rose to $697 million from $654 million during the quarter.

The company said it expected earnings per share in 2005 would fall below 2004, excluding one-time gains. Its previous outlook was for earnings per share growth in the low single-digit percent range.

Shares of Anheuser-Busch fell $1.78 to close at $44.12 on the New York Stock Exchange (search).