– Record Third-Quarter Performance for Company’s Spirits & Wine
Segment Tempers Impact of Housing Downturn
— Home Products Brands Continue to Outperform Challenging Market
— Results Comfortably Achieve Company’s Third-Quarter Earnings
Target
Fortune Brands, Inc. (NYSE: FO), the company behind leading consumer brands including Jim Beam, Moen
and Titleist, today reported results for the third quarter of 2007. Profit growth for the company’s spirits and wine brands tempered the impact of the downturn in the United States housing market on the company’s home products brands. Reported earnings were $1.33 per diluted share, an increase of 36%. Net income comparisons benefited from lower charges from one-time items in the current-year period. Excluding one-time items in both the current and prior-year periods, diluted EPS before charges/gains increased 4% to $1.35.
“On the strength of powerful consumer brands like Jim Beam, Maker’s Mark, Titleist, FootJoy, Moen and Master Lock, Fortune Brands delivered solid third-quarter results that comfortably achieved our earnings target range,” said Norm Wesley, chairman and chief executive officer of Fortune Brands. “The quarter once again demonstrated the benefits of Fortune Brands’ unique breadth and balance, as profit growth for our spirits and wine brands helped offset the impact of the U.S. housing correction. We’re particularly pleased with our margin performance in the quarter, as operating margins expanded in Spirits & Wine and we limited margin erosion in Home & Hardware to just 50 basis points in a challenging market.”
Accelerating Investment Behind Spirits Brands
“Our spirits and wine brands delivered record third-quarter operating income even with a strong double-digit increase in
brand-building investment. We’re benefiting from higher pricing on certain premium spirits brands, the favorable trend of consumers
trading up to higher end brands, and further synergies from our acquisition of the Allied Domecq brands,” Wesley continued.
“We’re pleased that despite the challenges presented by the housing downturn in the U.S., we’re continuing to significantly
outperform the home products market. We limited our sales decline in Home & Hardware to just 4%, which underscores how we’re gaining share in a home products market that is down double digits. That outperformance reflects the success of innovative new products, growth with key customers, extension into adjacent product categories and expansion in international markets.
“With successful new products and double-digit sales increases in golf balls and golf footwear, our golf brands set a third quarter
revenue record and gained share in key product categories,” Wesley added.
For the third quarter of 2007:
– Net income was $209 million, or $1.33 per diluted share, up 36%
from $0.98 in the year-ago quarter.
– Comparisons were impacted by a net charge ($0.02 per share) in
the current-year quarter related to supply-chain initiatives,
and a net charge ($0.32 per share) in the prior-year quarter
principally related to required accounting for a minority
interest.
– Excluding one-time items in both the current and prior-year
periods, diluted EPS before charges/gains was $1.35, up 4% from
$1.30 in the year-ago quarter.
– Results reflected a 4-cents-per-share benefit from a reduction
in the company’s year-to-date effective tax rate.
– These results were within the company’s previously announced
target range.
– Net sales were $2.20 billion, down 1%.
– On a comparable basis, excluding excise taxes and foreign
exchange, the company estimates total net sales for Fortune
Brands would have been down 2%.
– Operating income was $376 million, down 1%.
– Return on equity before charges/gains was 16%.
– Return on invested capital before charges/gains was 9%.
Outlook for Fourth Quarter and Full Year
“For the remainder of the year, we expect Fortune Brands to continue benefiting from global growth of our premium and
super-premium spirits brands plus sustained share gains in the challenging home products market,” said Wesley. “We believe Fortune Brands is on track to deliver solid fourth-quarter performance as well as full-year results within the target range we established at the beginning of the year. For the fourth quarter, we’re targeting diluted EPS before charges/gains to be in the range of up low-single digits to down mid-single digits against the $1.42 we delivered in the fourth quarter of 2006. With three quarters now behind us, we’re in a position to further refine our target range for the year. For 2007, we currently expect diluted EPS before charges/gains to be down in the range of low-to-mid-single digits, and that’s against $5.33 in 2006.”
The company also estimates that free cash flow for 2007 will be in the range of $500-550 million after dividends and capital
expenditures.
About Fortune Brands
Fortune Brands, Inc. is a leading consumer brands company with annual sales exceeding $8 billion. Its operating companies have
premier brands and leading market positions in spirits and wine, home and hardware products, and golf equipment. Beam Global Spirits & Wine, Inc. is the company’s spirits and wine business. Major spirits and wine brands include Jim Beam and Maker’s Mark bourbons, Sauza tequila, Canadian Club whisky, Courvoisier cognac, DeKuyper cordials, Starbucks(TM) liqueurs, Laphroaig single malt Scotch and Clos du Bois and Geyser Peak wines. Home and hardware brands include Moen faucets, Aristokraft, Omega, Diamond and Kitchen Craft cabinetry, Therma-Tru door systems, Simonton windows, Master Lock padlocks and Waterloo tool
storage sold by units of Fortune Brands Home & Hardware LLC. Acushnet Company’s golf brands include Titleist, Cobra and FootJoy. Fortune Brands, headquartered in Deerfield, Illinois, is traded on the New York Stock Exchange under the ticker symbol FO and is included in the S&P 500 Index, the MSCI World Index and the Ocean Tomo 300(TM) Patent Index.
FORTUNE BRANDS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
(Unaudited)
--------------------------------
Three Months Ended September 30,
--------------------------------
2007 2006 % Change
--------------------------------
--------------------------------
Net Sales $2,198.2 $2,218.5 (0.9)
--------------------------------
Cost of goods sold 1,173.9 1,198.4 (2.0)
Excise taxes on spirits and
wine 113.0 111.6 1.3
Advertising, selling, general
and administrative expenses 519.9 513.3 1.3
Amortization of intangibles 12.0 12.4 (3.2)
Restructuring
and restructuring-related
items 3.5 3.3 -
--------------------------------
Operating Income 375.9 379.5 (0.9)
--------------------------------
Interest expense 80.1 85.6 (6.4)
Other (income) expense, net (16.1) (9.8) 64.3
Income before income taxes
--------------------------------
and minority interests 311.9 303.7 2.7
--------------------------------
Income taxes 96.8 99.0 (2.2)
Minority interests 6.2 53.4 (88.4)
--------------------------------
Net Income $208.9 $151.3 38.1
--------------------------------
Earnings Per Common Share
--------------------------------
Basic $1.36 $1.00 36.0
Diluted $1.33 $0.98 35.7
--------------------------------
Avg. Common Shares Outstanding
--------------------------------
Basic 153.3 150.9 1.6
Diluted 156.8 154.5 1.5
--------------------------------
FORTUNE BRANDS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
(Unaudited)
--------------------------------
Nine Months Ended September 30,
--------------------------------
2007 2006 % Change
--------------------------------
--------------------------------
Net Sales $6,501.8 $6,492.4 0.1
--------------------------------
Cost of goods sold 3,502.3 3,462.7 1.1
Excise taxes on spirits and
wine 332.6 336.0 (1.0)
Advertising, selling, general
and administrative expenses 1,542.9 1,526.7 1.1
Amortization of intangibles 36.3 31.5 15.2
Restructuring
and restructuring-related
items 23.7 15.5 -
--------------------------------
Operating Income 1,064.0 1,120.0 (5.0)
--------------------------------
Interest expense 243.3 247.9 (1.9)
Other (income) expense, net (33.2) (29.9) 11.0
Income before income taxes
--------------------------------
and minority interests 853.9 902.0 (5.3)
--------------------------------
Income taxes 274.6 267.3 2.7
Minority interests 18.2 62.2 (70.7)
--------------------------------
Net Income $561.1 $572.5 (2.0)
--------------------------------
Earnings Per Common Share
--------------------------------
Basic $3.67 $3.86 (4.9)
Diluted $3.59 $3.76 (4.5)
--------------------------------
Avg. Common Shares Outstanding
--------------------------------
Basic 152.8 148.3 3.0
Diluted 156.4 152.1 2.8
--------------------------------
Actual Common Shares Outstanding
--------------------------------
Basic 153.6 151.2 1.6
Diluted 157.0 155.0 1.3
--------------------------------
FORTUNE BRANDS, INC.
(In millions, except per share amounts)
(Unaudited)
NET SALES AND OPERATING INCOME
-------------------------------------
--------------------------------
Three Months Ended September 30,
--------------------------------
2007 2006 % Change
--------------------------------
Net Sales
--------------------------------
Spirits and Wine $664.9 $655.0 1.5
Home and Hardware 1,214.7 1,265.7 (4.0)
Golf 318.6 297.8 7.0
--------------------------------
Total $2,198.2 $2,218.5 (0.9)
--------------------------------
Operating Income
--------------------------------
Spirits and Wine $179.3 $170.6 5.1
Home and Hardware 183.9 197.5 (6.9)
Golf 30.0 30.3 (1.0)
Corporate expenses (17.3) (18.9) 8.5
---------------------------------
Total $375.9 $379.5 (0.9)
---------------------------------
Operating Income Before Charges (a)
---------------------------------
Spirits and Wine $179.3 $170.6 5.1
Home and Hardware 187.2 200.8 (6.8)
Golf 30.2 30.3 (0.3)
Less:
Corporate expenses (17.3) (18.9) 8.5
Restructuring
and restructuring-related
items (3.5) (3.3) -
--------------------------------
Operating Income $375.9 $379.5 (0.9)
--------------------------------
--------------------------------
Nine Months Ended September 30,
--------------------------------
2007 2006 % Change
--------------------------------
Net Sales
--------------------------------
Spirits and Wine $1,902.1 $1,904.7 (0.1)
Home and Hardware 3,439.4 3,491.9 (1.5)
Golf 1,160.3 1,095.8 5.9
--------------------------------
Total $6,501.8 $6,492.4 0.1
--------------------------------
Operating Income
--------------------------------
Spirits and Wine $500.5 $456.1 9.7
Home and Hardware 440.2 547.2 (19.6)
Golf 172.2 170.8 0.8
Corporate expenses (48.9) (54.1) 9.6
--------------------------------
Total $1,064.0 $1,120.0 (5.0)
--------------------------------
Operating Income Before Charges (a)
--------------------------------
Spirits and Wine $503.6 $459.1 9.7
Home and Hardware 460.6 559.7 (17.7)
Golf 172.4 170.8 0.9
Less:
Corporate expenses (48.9) (54.1) 9.6
Restructuring
and restructuring-related
items (23.7) (15.5) -
--------------------------------
Operating Income $1,064.0 $1,120.0 (5.0)
--------------------------------
(a) Operating Income Before Charges is Operating Income derived in
accordance with GAAP excluding restructuring and restructuring-related
items. Operating Income Before Charges is a measure not derived in
accordance with GAAP. Management uses this measure to determine the
returns generated by our operating segments and to evaluate and
identify cost reduction initiatives. Management believes this measure
provides investors with helpful supplemental information regarding the
underlying performance of the company from year-to-year. This measure
may be inconsistent with similar measures presented by other
companies.
FREE CASH FLOW
---------------------------------------
-------------------
Three Months Ended
September 30,
-------------------
2007 2006
-------------------
-------------------
Free Cash Flow (b) $307.8 $331.0
Add:
Net Capital Expenditures (1.4) 1.9
Dividends Paid 64.6 58.9
-------------------
Cash Flow From Operations $371.0 $391.8
-------------------
------------------------------
Nine Months Ended 2007 Full
September 30, Year
------------------------------
Targeted
2007 2006 Range
------------------------------
------------------------------
Free Cash Flow (b) $226.2 $349.4 $500 - 550
Add:
Net Capital Expenditures 92.9 89.4 150 - 175
Dividends Paid 183.9 164.7 250(i)
------------------------------
Cash Flow From Operations $503.0 $603.5 $900 - 975
------------------------------
(b) Free Cash Flow is Cash Flow from Operations less capital
expenditures net of proceeds from asset sales and dividends paid to
stockholders. Free Cash Flow is a measure not derived in accordance
with GAAP. Management believes that Free Cash Flow provides investors
with helpful supplemental information about the company's ability to
fund internal growth, make acquisitions, repay debt and repurchase
common stock. This measure may be inconsistent with similar measures
presented by other companies.
(i) Assumes current dividend rate and basic shares outstanding on
September 30, 2007.
EPS BEFORE CHARGES/GAINS
EPS Before Charges/Gains is Net Income calculated on a per-share
basis excluding restructuring, restructuring-related and one-time
items.
For the third quarter of 2007, EPS Before Charges/Gains is Net
Income calculated on a per-share basis excluding $3.5 million ($2.2
million after tax) of restructuring and restructuring-related items.
For the nine-month period ended September 30, 2007, EPS Before
Charges/Gains excludes $23.7 million ($14.9 million after tax) of
restructuring and restructuring-related items.
For the third quarter of 2006, EPS Before Charges/Gains is Net
Income calculated on a per share basis excluding $3.3 million ($2.1
million after tax) of restructuring and restructuring-related items
and a $47.8 million ($47.8 million after tax) non-cash charge
associated with the required accounting for an increase in the value
of V&S Group's minority interest in our Beam Global Spirits & Wines
business. For the nine-month period ended September 30, 2006, EPS
Before Charges/Gains excludes $15.5 million ($9.8 million after tax)
of restructuring and restructuring-related items, the $47.8 million
minority interest true-up expense, currency mark-to-market expense of
$2.8 million and $38.2 million of tax-related credits principally
associated with the favorable conclusion of the IRS review of our
2002-2003 tax returns and routine state tax audits.
EPS Before Charges/Gains is a measure not derived in accordance
with GAAP. Management uses this measure to evaluate the overall
performance of the company and believes this measure provides
investors with helpful supplemental information regarding the
underlying performance of the company from year-to-year. This measure
may be inconsistent with similar measures presented by other
companies.
--------------------------------
Three Months Ended September 30,
--------------------------------
2007 2006 % Change
--------------------------------
--------------------------------
Income Before Charges/Gains $211.1 $201.2 4.9
--------------------------------
Earnings Per Common Share - Basic
--------------------------------
Income Before Charges/Gains 1.38 1.33 3.8
Minority Interest charge - (0.32) -
Tax-related credits - - -
Currency mark-to-market
expense - - -
Restructuring
and restructuring-related
items (0.02) (0.01) -
--------------------------------
Net Income 1.36 1.00 36.0
--------------------------------
Earnings Per Common Share - Diluted
--------------------------------
Income Before Charges/Gains 1.35 1.30 3.8
Minority Interest charge - (0.31) -
Tax-related credits - - -
Currency mark-to-market
expense - - -
Restructuring
and restructuring-related
items (0.02) (0.01) -
--------------------------------
Net Income 1.33 0.98 35.7
--------------------------------
--------------------------------
Nine Months Ended September 30,
--------------------------------
2007 2006 % Change
--------------------------------
--------------------------------
Income Before Charges/Gains $575.9 $594.7 (3.2)
--------------------------------
Earnings Per Common Share - Basic
--------------------------------
Income Before Charges/Gains 3.77 4.01 (6.0)
Minority Interest charge - (0.32) -
Tax-related credits - 0.26 -
Currency mark-to-market
expense - (0.02) -
Restructuring
and restructuring-related
items (0.10) (0.07) -
--------------------------------
Net Income 3.67 3.86 (4.9)
--------------------------------
Earnings Per Common Share - Diluted
--------------------------------
Income Before Charges/Gains 3.68 3.91 (5.9)
Minority Interest charge - (0.31) -
Tax-related credits - 0.25 -
Currency mark-to-market
expense - (0.02) -
Restructuring
and restructuring-related
items (0.09) (0.07) -
--------------------------------
Net Income 3.59 3.76 (4.5)
--------------------------------
RESTRUCTURING AND RESTRUCTURING-RELATED ITEMS
The company recorded pre-tax restructuring and
restructuring-related items of $3.5 million ($2.2 million after tax)
in the three-month period ended September 30, 2007. The charges
principally relate to supply chain initiatives in the Home and
Hardware and Golf segments.
The company recorded pre-tax restructuring and
restructuring-related items of $23.7 million ($14.9 million after tax)
in the nine-month period ended September 30, 2007. The charges
principally relate to supply chain initiatives in the Home and
Hardware and Golf segments and the distributor transition in Australia
in the Spirits and Wine segment.
---------------------------------------------
Three Months Ended September 30, 2007
(In millions, except per share amounts)
---------------------------------------------
Restructuring-Related
Items
-----------------------
Cost of Sales SG & A
Restructuring Charges Charges Total
---------------------------------------------
Home and Hardware $2.8 $0.5 $- $3.3
Golf 0.2 - - 0.2
---------------------------------------------
Total $3.0 $0.5 $- $3.5
---------------------------------------------
-------
Income tax benefit 1.3
-------
Net charge $2.2
-------
Charge per common share
Basic $0.02
Diluted $0.02
-------
---------------------------------------------
Nine Months Ended September 30, 2007
(In millions, except per share amounts)
---------------------------------------------
Restructuring-Related
Items
-----------------------
Cost of Sales SG & A
Restructuring Charges Charges Total
---------------------------------------------
Spirits and Wine $3.1 $- $- $3.1
Home and Hardware 13.2 6.8 0.4 20.4
Golf 0.2 - - 0.2
---------------------------------------------
Total $16.5 $6.8 $0.4 $23.7
---------------------------------------------
-------
Income tax benefit 8.8
-------
Net charge $14.9
-------
Charge per common share
Basic $0.10
Diluted $0.09
-------
RECONCILIATION OF 2007 COMPARABLE SALES TO GAAP NET SALES
For the third quarter, the company estimates Comparable Sales for
Fortune Brands would have been down 2%. On a GAAP basis, the company's
Net Sales were down 1%.
Comparable Sales is Net Sales in accordance with GAAP excluding
changes in foreign currency exchange rates, spirits & wine excise
taxes and net sales from divested entities. Comparable Sales also
includes net sales from acquisitions for the comparable prior-year
period.
Comparable sales is a measure not derived in accordance with GAAP.
Management uses this measure to evaluate the overall performance of
the company, and believes this measure provides investors with helpful
supplemental information regarding the underlying performance of the
company from year-to-year. This measure may be inconsistent with
similar measures presented by other companies.
RECONCILIATION OF 2007 EARNINGS BEFORE CHARGES TARGETS TO GAAP
EARNINGS TARGETS
For the fourth quarter, the company is targeting diluted EPS
before charges/gains to be in the range of up low-single digits to
down mid-single digits. On a GAAP basis, the company is targeting
diluted EPS to be up at a double-digit rate.
For the full year, the company is targeting diluted EPS before
charges/gains to be down in the range of low-to-mid-single digits. On
a GAAP basis, the company is targeting diluted EPS to in the range of
up mid-single digits to down mid-single digits.
EPS Before Charges/Gains is Net Income calculated on a per-share
basis excluding restructuring, restructuring-related and one-time
items.
EPS Before Charges/Gains is a measure not derived in accordance
with GAAP. Management uses this measure to evaluate the overall
performance of the company and believes this measure provides
investors with helpful supplemental information regarding the
underlying performance of the company from year-to-year. This measure
may be inconsistent with similar measures presented by other
companies.
FORTUNE BRANDS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)
(Unaudited)
------------- -------------
September 30, September 30,
2007 2006
------------- -------------
Assets
Current assets
------------- -------------
Cash and cash equivalents $285.3 $218.5
Accounts receivable, net 1,206.2 1,267.4
Inventories 2,279.0 2,111.3
Other current assets 449.4 382.0
------------- -------------
Total current assets 4,219.9 3,979.2
Property, plant and equipment, net 1,938.7 1,926.1
Intangibles resulting from
business acquisitions, net 8,430.2 8,251.2
Other assets 465.8 399.0
------------- -------------
Total assets $15,054.6 $14,555.5
------------- -------------
Liabilities and Stockholders' Equity
Current liabilities
------------- -------------
Short-term debt $719.5 $767.0
Current portion of long-term debt 200.1 301.0
Other current liabilities 1,774.2 1,845.8
------------- -------------
Total current liabilities 2,693.8 2,913.8
Long-term debt 4,659.9 5,037.8
Other long-term liabilities 1,828.5 1,617.3
Minority interests 559.3 561.4
------------- -------------
Total liabilities 9,741.5 10,130.3
Stockholders' equity 5,313.1 4,425.2
------------- -------------
Total liabilities and
stockholders' equity $15,054.6 $14,555.5
------------- -------------
FORTUNE BRANDS, INC.
Reconciliation of ROE based on Net Income Before Charges/Gains to
ROE based on GAAP Net Income
September 30, 2007
Amounts in millions
(Unaudited)
Rolling twelve months ROE based on
Net Income Before Net Income
Charges/Gains less Before
Preferred Dividends Equity Charges/Gains
--------------------- ---------- ---------------
Fortune Brands $ 796.9 / $4,958.4 = 16.1%
Rolling twelve months ROE based on
GAAP Net Income less GAAP Net
Preferred Dividends Equity Income
--------------------- ---------- ---------------
Fortune Brands $ 818.1 / $4,855.8 = 16.8%
Return on Equity - or ROE - Before Charges/Gains is net income less
preferred dividends derived in accordance with GAAP excluding any
restructuring and non-recurring items divided by the twelve month
average of GAAP common equity (total equity less preferred equity)
excluding any restructuring and non-recurring items.
FORTUNE BRANDS, INC.
Reconciliation of ROIC based on Net Income Before Charges/Gains to
ROIC based on GAAP Net Income
September 30, 2007
Amounts in millions
(Unaudited)
Rolling twelve months
Net Income Before ROIC based on Net
Charges/Gains plus Invested Income Before
Interest Expense Capital Charges/Gains
--------------------- ----------- -----------------
Fortune Brands $ 1,007.3 / $ 10,848.3 = 9.3%
Rolling twelve months
GAAP Net Income plus Invested ROIC based on
Interest Expense Capital GAAP Net Income
--------------------- ----------- -----------------
Fortune Brands $ 1,028.4 / $ 10,745.6 = 9.6%
Return on Invested Capital - or ROIC - Before Charges/Gains is net
income plus interest expense derived in accordance with GAAP
excluding any restructuring and non-recurring items divided by the
twelve month average of GAAP Invested Capital (net debt plus equity)
excluding any restructuring and non-recurring items.
ROE Before Charges/Gains and ROIC Before Charges/Gains are
measures not derived in accordance with GAAP. Management uses these
measures to determine the returns generated by the company and to
evaluate and identify cost-reduction initiatives. Management believes
these measures provide investors with helpful supplemental information
regarding the underlying performance of the company from year-to-year.
These measures may be inconsistent with similar measures presented by
other companies.
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