Updated from 3:34 p.m. EDT

Stale third-quarter results at Anheuser-Busch ( BUD) led the No. 1 U.S. brewer to warn that profits for all of 2005 will come up short. The company expects to gain pricing power next year and start widening its profit margins.

After lowering prices in recent months to drive demand as consumers gravitated toward wine and liquor alternatives, Anheuser-Busch said it will raise prices and roll back discounts in 2006.

Amid cost pressures and volume declines, Anheuser-Busch reported a third-quarter profit of $518 million, or 66 cents a share, down from the $684 million, or 88 cents a share, it recorded in the same quarter last year. The latest quarter included a litigation charge of 12 cents a share related to a lawsuit brought by Maris Distributing, a company founded by baseball legend Roger Maris and his brother.

Analysts on Wall Street were expecting a precharge profit of 80 cents a share, according to consensus estimates reported by Thomson First Call. Shares of Anheuser-Busch closed down 95 cents, or 2.3%, to $40.80.

"Although we are confident the company will restore its sales and earnings growth momentum in the future, we now expect 2005 earnings per share excluding one-time items to be 10% to 11% below 2004 results," said the company. Excluding items, the company expects to earn $2.42 to $2.45 for 2005, compared with the Thomson First Call consensus estimate of $2.55 a share

On a conference call with analysts, the chief financial officer, W. Randolph Baker, described a series of advertising and marketing initiatives in order to "enhance the image of beer" to consumers that are increasingly gravitating instead towards wine and distilled liquor products for a social lubricant.

Baker said the company's profits were also dwindling in part because the beer industry was offering massive pricing discounts in order to attract consumers and stem volume declines.

"Next year, we expect to see the industry start to cut back on the discounting and raise prices, and we think customers will be ready for those increases," he said. "All the brewers and distributors are feeling margin pressures, and we're looking for opportunities to start alleviating those pressures."

Net sales at Anheuser-Busch rose 0.2% for the third quarter to $4.1 billion, boosted primarily by a 11% sales increase in its international segment and a 13% jump from its entertainment operations. Sales from its domestic beer segment dropped 2.7%.

Baker said hurricanes Katrina and Rita both had a big impact on sales volume, but the majority of the impacts were temporary except in New Orleans where many beer-sellers were permanently wiped out.

"Probably the most lasting impact from the hurricane will be the increases in gas and fuel costs and the effects that will have on our consumers' ability to spend," he said.