Fortune Brands Posts Lower Q3 Profit

Operating income in the spirits business reflected the impact of previously disclosed costs associated with the company's route-to-market initiatives. In both the home products and golf segments, operating income reflected adverse operating leverage, tempered by the impact of lower cost structures in these businesses.

26 Oct 2009 --- Fortune Brands, Inc., the company behind leading consumer brands including Jim Beam, Titleist and Moen, reported results for the third quarter of 2009.  Net sales for the third quarter were $1.72 billion, down 11%, reflecting flat sales for the company's spirits business, and more moderate revenue decreases for the golf and home products brands.  Diluted earnings per share were $0.82, and excluding one-time items, diluted EPS before charges/gains was $0.77.

Given its third-quarter performance and signs of stabilization in the U.S. new-home construction market, the company raised the bottom end of its full-year earnings target range. The company is now targeting to deliver EPS before charges/gains for 2009 of $2.10-2.30 versus its previous target of $2.00-2.30.

"Despite the challenges of the global economy and the overall U.S. housing market, Fortune Brands continued to deliver results and operating margins at the forefront of our categories," said Bruce Carbonari, chairman and chief executive officer of Fortune Brands. "Each of our businesses performed at or above our expectations in the quarter.

"Consumers are clearly remaining cautious, but our innovative new-product programs, trusted brands and compelling value propositions are helping us compete successfully in the marketplace," Carbonari continued. "In the third quarter, we also remained focused on our successful initiatives to reduce cost structures, improve global supply chains and enhance our cash position. These initiatives are benefiting Fortune Brands and helping position the company for future growth.

"Spirits sales were flat in the quarter, benefiting from higher sales of Jim Beam bourbon and Canadian Club whisky, the Cruzan acquisition, and strong growth in emerging markets, offset by soft results in other international markets," Carbonari added. The company's spirits revenues also benefited from previously disclosed required accounting for the company's route-to-market initiatives, largely offset by unfavorable foreign exchange. "Amidst signs the U.S. housing downturn is decelerating, our share-gain initiatives across product categories helped sales in our home products business decline at a more moderate pace than in the prior two quarters. And in golf, we outperformed the industry with successful new products and double-digit constant-currency sales gains in Europe and Korea that partly offset a double-digit decrease in the United States," said Carbonari. Notable new products contributing to the company's results included the first full quarter of Red Stag by Jim Beam, eco-friendly Moen faucets, energy-efficient Simonton windows, innovative Master Lock products, the new Titleist Pro V1 family of golf balls, and the Titleist 909 series of drivers, fairways and hybrid clubs.

Operating income in the spirits business reflected the impact of previously disclosed costs associated with the company's route-to-market initiatives. In both the home products and golf segments, operating income reflected adverse operating leverage, tempered by the impact of lower cost structures in these businesses.

For the third quarter of 2009:

* Net income was $124.1 million, or $0.82 per diluted share, compared to $2.21 per diluted share in the year-ago quarter.
o Comparisons were adversely impacted by a net gain, including discontinued operations, of $1.10 per diluted share in the year-ago quarter that more than offset a net gain of $0.05 per share in the current period.
* Excluding one-time items in both the current and prior-year periods, diluted EPS before charges/gains was $0.77 compared to $1.11 in the year-ago quarter.
o Foreign exchange adversely impacted EPS by $0.07 per share.
* Net sales were $1.72 billion, down 11%.
o On a comparable basis - excluding excise taxes, foreign exchange, acquisitions/divestitures, and the impact of required accounting related to spirits route-to-market initiatives - total net sales would have remained down 11%.
o Comparable net sales by business unit were: spirits down 4%; golf down 7%; home & hardware down 17%.
* Operating income was $204.5 million.
o Operating income before charges/gains was $212.6 million.
* Return on equity before charges/gains was 7%.
* Return on invested capital before charges/gains was 5%.

Raising Low End of Earnings Target & Reaffirming Free Cash Flow Target

"Looking to the balance of 2009, we now believe EPS before charges/gains will be in the range of $2.10-2.30 for 2009, as compared to our previous target of $2.00-2.30," Carbonari continued. "While we are encouraged by the continued stability of our spirits business and signs of stabilization in new-home construction, we anticipate that consumers will remain cautious in the months ahead, and that the overall home products market - particularly for big-ticket remodeling purchases - will continue to be challenging into 2010. In addition, our fourth quarter results will also reflect the impact of adverse operating leverage in the seasonally small quarter for golf and home products, as well as a double-digit year-over-year boost in brand investment behind key spirits brands." The company also reaffirmed its 2009 target to generate free cash flow in the range of $400 million after dividends and net capital expenditures. Benefiting from factors including its free-cash-flow initiatives and bond issuance in June, the company is now in an undrawn position on its existing revolving credit facility and remains in a strong liquidity position.