Fortune Brands, Inc. (NYSE: FO):
* Company Delivers Results within Targeted Earnings Range Despite Challenging U.S. Environment
* International Growth and Successful New Products Across Company Moderate Impact of U.S. Home Products Market
* Brand-Building Investments Support Sales Growth for Key Spirits and Golf Brands
Fortune Brands, Inc.1 (NYSE: FO), the company behind leading consumer brands including Jim Beam, Titleist and Moen, today reported results for the first quarter of 2008. Strong growth in international markets across the company’s segments helped temper the impact of the correction in the U.S. housing market on the company’s home products brands. On a continuing operations basis, total net sales for Fortune Brands were 5% lower and diluted earnings per share before charges/gains were off 7%. The company’s sales in international markets grew by double digits, and worldwide net sales increased for brands including Jim Beam, Courvoisier, Teacher’s, Titleist, Cobra, FootJoy and Master Lock.
“Even with the U.S. housing correction and challenges in the U.S. economy, results in our seasonally smallest quarter achieved our previously announced earnings target range,” said Bruce Carbonari, president and chief executive officer of Fortune Brands. “We’re continuing to move aggressively to best position our business to compete in this environment and over the long term. That includes reducing cost structures in our home products business, sharply focusing on company-wide productivity initiatives, and continuing strategic investments to fuel long-term growth across our brands.”
Investing in Sustainable Long-Term Growth
“Specifically, we’re determined to maintain strategic spending to support brand building, new products and international expansion,” Carbonari continued. “While new investments in these targeted growth initiatives reduced first-quarter operating income in our spirits and golf segments, we believe that these are the right investments to help drive sustainable long-term growth. Furthermore, our underlying performance was better than our reported first-quarter numbers indicate, and we expect improved performance in the second half of the year.
“While our reported spirits sales were relatively flat, shipments of spirits were adversely impacted in the U.S. by larger-than-usual seasonal reductions in distributor inventories that don’t reflect the health of our brands in the marketplace,” Carbonari said. “Had distributor inventory movements been consistent with the prior year, our worldwide spirits sales would have been solidly higher. Sales increased at the premium end of our portfolio, reflecting favorable mix shift and our focus on growing our global premium spirits brands. On a depletions basis, our global premium brands grew in the U.S. and demonstrated strong growth in the U.K., Spain and Germany, as well as in Russia, India and China. We sustained the double-digit increase in brand spending we began in the third quarter of 2007, and we believe the brand-building campaigns we launched over the past several months for Sauza, Canadian Club and Courvoisier are helping each of these brands accelerate growth.
“In an increasingly challenging environment for our home products brands, Moen and Master Lock continued to gain share in the quarter. We’re also benefiting from our strength in the replace/remodel segment, which continues to perform significantly better than the new construction segment of the market. The success of our international growth initiatives contributed to results, as well.
“And in golf, new advanced-technology products helped us achieve a first-quarter sales record with growth in every product category and in all key geographies. That included especially strong growth in Japan and Korea, two key markets where we’re investing to expand our business,” Carbonari added.
For the first quarter of 2008, on a continuing operations basis:
* Net income was $108 million, or $0.69 per diluted share, down 12% from $0.78 in the year-ago quarter.
Comparisons were impacted by a $0.03 per share charge for one-time expenses related to the company’s participation in the V&S auction process. Results in both the current and prior-year periods also reflected $0.03 per share in restructuring-related charges.
* Excluding one-time items in both the current and prior-year periods, diluted EPS before charges/gains was $0.75, down 7% from $0.81 in the year-ago quarter.
These results were within the company’s previously announced target range for diluted EPS before charges/gains to be in the range of flat to down at a high-single-digit rate.
* Net sales were $1.81 billion, down 5%.
On a comparable basis, excluding excise taxes and foreign exchange, total net sales would have been down 7%.
* Operating income was $227 million, down 11%.
* Return on equity before charges/gains was 15%.
* Return on invested capital before charges/gains was 9%.
Outlook for Second Quarter and Full Year
“As we look ahead, we remain focused on our near-term goals: outperforming our markets, investing in our brands, and leveraging our breadth and balance to deliver growth and returns,” Carbonari said. “We’ll continue implementing high-return cost initiatives, as well as funding our long-term strategic investments. That includes our brand-building investments in spirits and our international growth initiatives across our businesses, all of which support sustainable long-term growth. Additionally, our combined cash flows, the strength of our balance sheet, and our substantial share repurchase authorization give us excellent flexibility to create value. At our current stock price, we continue to see share repurchases as a very attractive way to allocate capital.
“Looking to the balance of the year, our home products brands continue to face a very difficult economic environment. We’re continuing to budget for a home products market that declines at a low-double-digit rate on a revenue basis throughout the year. In our golf business, we are seeing a delayed start to the playing season in many northern U.S. markets due to bad weather. On the upside, our new golf products are being well received in the marketplace and we expect U.S. spirits shipments to bounce back in the months ahead.
“Taking these factors into account, we’re targeting diluted EPS before charges/gains for the second quarter to be down at a high-single-digit to mid-teens rate. That’s versus an EPS before charges/gains from continuing operations number of $1.51 for the second quarter of 2007,” Carbonari continued.
“We expect second-half results to be better than the first half, as we drive growth in spirits, outperform the home products market, progressively benefit from our company-wide productivity initiatives, and as our strategic brand investments annualize. For the full year, we’re continuing to target results within the range we established at the beginning of the year. However, given the uncertain U.S. economic environment, we’re narrowing our full-year target range. We’re now targeting diluted EPS before charges/gains to be in the range of flat to down at a high-single-digit rate. That’s versus $5.06 for 2007,” Carbonari added.
The company also reaffirmed its target of $500-600 million in free cash flow for 2008 after dividends and capital expenditures.
[Source: Fortune Brands]
- 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 distilled spirits, home and hardware, and golf products. Beam Global Spirits & Wine, Inc. is the company’s premium spirits business. Major spirits brands include Jim Beam and Maker’s Mark bourbon, Sauza tequila, Canadian Club whisky, Courvoisier cognac, Teacher’s and Laphroaig Scotch, and DeKuyper cordials. 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™ Patent Index. [↩]
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