Fortune Brands, Inc. reported strong results from continuing operations for the fourth quarter and full year 2005. Share gains in major consumer categories and the addition of newly acquired spirits and wine brands contributed to 10% growth in earnings per share before charges/gains for the quarter and 12% growth for the full year. Reported net income comparisons were adversely impacted by a substantial tax-related credit recorded in the year-ago quarter.
“Reflecting the consistency of Fortune Brands' performance, the company finished another excellent year with another strong quarter,” said Norm Wesley, chairman and chief executive officer of Fortune Brands. “Fourth quarter sales grew at the high end of our 4-6% long-term underlying sales growth goal, even against double-digit revenue growth in the year-ago quarter. Double-digit sales gains for Moen, Therma-Tru and our cabinet brands, plus strong international demand for premium spirits and solid growth for Titleist, FootJoy and Cobra drove our strong top-line performance. Our newly acquired spirits and wine brands, including Sauza, Canadian Club, Maker's Mark and Clos du Bois, benefited EPS before charges in the quarter, adding approximately eight cents per share.”
Fourth quarter net income was $175.9 million ($1.17 per diluted share), as compared to $249.5 million ($1.68 per diluted share) in the year-ago quarter. Net income for 2005 was $621.1 million ($4.13 per diluted share) versus $783.8 million ($5.23 per diluted share) in 2004. EPS comparisons for the quarter and the year were adversely impacted by the substantial tax-related credits recorded in 2004 and the absence of income due to the ACCO spin-off.
For the fourth quarter, on a continuing operations basis:
- Diluted EPS before charges/gains was $1.22, up 10% from $1.11 in the year-ago quarter. These results were two cents above the mean estimate of Wall Street securities analysts.
- Net sales were $1.96 billion, up 24%. Sales benefited 17 percentage points from the net impact of acquisitions, excise taxes and favorable foreign exchange.
- Operating income was $305 million, up 16%.
As expected, sales and operating margins reflect transitional factors and accounting rules related to the spirits and wine acquisition, including accounting for entities with co-mingled assets under FIN 46 accounting requirements.
“We're pleased to have delivered double-digit fourth quarter growth before charges, even with weak sales at our Waterloo tool storage business and an inventory writedown in that business that impacted results by three cents per share,” Wesley added. “The balance of our Home & Hardware business was strong, with sales up 13% and a slight margin improvement. Also, as anticipated, operating income in Golf was lower in its seasonally-smallest quarter due to the timing of new product launches, hurricane-related manufacturing variances, and higher costs for R&D and patent-defense initiatives.”
For the full year, on a continuing operations basis:
- Diluted EPS before charges/gains was $4.62, up 12% from $4.12 in 2004.
- Net sales were $7.06 billion, up 15%. Sales benefited 8 percentage points from the net impact of acquisitions, excise taxes and favorable foreign exchange.
- Operating income was $1.16 billion, up 14%.
- Free cash flow reached $407 million before the impact of the spirits & wine acquisition and after dividends and capital expenditures.
- Return on equity before charges/gains was 20.9%.
- Return on invested capital before charges/gains was 11.4%.
- The dividend increased 9% to an annual rate of $1.44.
“Fortune Brands begins 2006 a stronger company than just a year ago,” Wesley continued. “Our stepped-up investments in our leading consumer brands paid off in another year of strong top-line growth. We delivered again on our earnings growth goals. And we sharpened the focus of our portfolio with two value-creating moves: the spin-off of our office products business, and the development of our spirits and wine business into a new global leader with the acquisition of more than 25 global and national premium brands. The integration of the spirits and wine acquisition is on track, and we continue to expect that these new brands will benefit EPS by 35 cents or more in 2006.”
2006 Guidance: Double-Digit Growth in EPS Before Charges/Gains
“As a more sharply focused, high-performance consumer brands company, we look to 2006 with confidence,” Wesley said. “Our new product pipeline is fully loaded, we'll continue investing behind our brands, and we'll continue seizing growth opportunities in new markets.
“We expect another year of strong performance for Fortune Brands. With the strength of our brands and the success of our strategy, we expect to comfortably achieve our long-term goal of double-digit growth in EPS before charges/gains and stock options expense. 2006 will be the first year we expense costs for stock options, and we anticipate those costs will be about 18 cents per share for 2006. Even with this expense, we expect to achieve double-digit growth in EPS before charges/gains for 2006. For the first quarter, we're targeting EPS before charges/gains and stock options expense to grow in the high-single-to-low-double-digit range. Inclusive of stock options expense, we're targeting first quarter EPS before charges/gains to be up mid-to-high single-digits. While our first quarter expectations reflect costs associated with finalizing the transition of our spirits and wine assets, we see accretion from the spirits and wine acquisition getting progressively stronger as the year unfolds.”
FORTUNE BRANDS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
(Unaudited)
Three Months Ended December 31,
--------------------------------
2005 2004 % Change
---------- ---------- ----------
Net Sales $1,959.0 $1,579.3 24.0
---------- ---------- ----------
Cost of goods sold 1,060.2 867.1 22.3
Excise taxes on spirits and
wine 104.5 85.6 22.1
Advertising, selling, general
and administrative expenses 468.6 351.3 33.4
Amortization of intangibles 8.4 8.4 -
Restructuring and
non-recurring/
acquisition-related items 12.0 3.3 263.6
---------- ---------- ----------
Operating Income 305.3 263.6 15.8
---------- ---------- ----------
Interest expense 67.6 18.9 257.7
Other (income) expense, net (8.4) (12.1) 30.6
---------- ---------- ----------
Income from Continuing Operations
before income taxes and minority
interests 246.1 256.8 (4.2)
---------- ---------- ----------
Income taxes 62.5 30.2 107.0
Minority interests 7.7 4.4 75.0
---------- ---------- ----------
Income from Continuing Operations 175.9 222.2 (20.8)
---------- ---------- ----------
Income from Discontinued Operations - 27.3 -
---------- ---------- ----------
Net Income $175.9 $249.5 (29.5)
---------- ---------- ----------
Earnings Per Common Share, Basic:
Income from continuing operations 1.20 1.54 (22.1)
Income from discontinued operations - 0.19 -
Net Income 1.20 1.73 (30.6)
---------- ---------- ----------
Earnings Per Common Share, Diluted:
Income from continuing operations 1.17 1.49 (21.5)
Income from discontinued operations - 0.19 -
Net Income 1.17 1.68 (30.4)
---------- ---------- ----------
Avg. Common Shares Outstanding
Basic 146.2 144.2 1.4
Diluted 150.6 149.0 1.1
---------- ---------- ----------
Twelve Months Ended December 31,
--------------------------------
2005 2004 % Change
---------- ---------- ----------
Net Sales $7,061.2 $6,145.2 14.9
---------- ---------- ----------
Cost of goods sold 3,843.0 3,331.8 15.3
Excise taxes on spirits and
wine 326.5 299.7 8.9
Advertising, selling, general
and administrative expenses 1,674.8 1,433.0 16.9
Amortization of intangibles 33.4 35.4 (5.6)
Restructuring and
non-recurring/
acquisition-related items 19.6 20.7 (5.3)
---------- ---------- ----------
Operating Income 1,163.9 1,024.6 13.6
---------- ---------- ----------
Interest expense 158.9 77.3 105.6
Other (income) expense, net 78.9 (47.0) 267.9
---------- ---------- ----------
Income from Continuing Operations
before income taxes and minority
interests 926.1 994.3 (6.9)
---------- ---------- ----------
Income taxes 324.5 261.1 24.3
Minority interests 20.0 17.2 16.3
---------- ---------- ----------
Income from Continuing Operations 581.6 716.0 (18.8)
---------- ---------- ----------
Income from Discontinued Operations 39.5 67.8 (41.7)
---------- ---------- ----------
Net Income $621.1 $783.8 (20.8)
---------- ---------- ----------
Earnings Per Common Share, Basic:
Income from continuing operations 3.99 4.93 (19.1)
Income from discontinued operations 0.27 0.47 (42.6)
Net Income 4.26 5.40 (21.1)
---------- ---------- ----------
Earnings Per Common Share, Diluted:
Income from continuing operations 3.87 4.78 (19.0)
Income from discontinued operations 0.26 0.45 (42.2)
Net Income 4.13 5.23 (21.0)
---------- ---------- ----------
Avg. Common Shares Outstanding
Basic 145.6 145.1 0.3
Diluted 150.5 149.9 0.4
---------- ---------- ----------
Actual Common Shares Outstanding
Basic 146.3 144.3 1.4
Diluted 151.0 149.4 1.1
---------- ---------- ----------
FORTUNE BRANDS, INC.
(In millions, except per share amounts)
(Unaudited)
NET SALES AND OPERATING INCOME
------------------------------
Three Months Ended December 31,
--------------------------------
2005 2004 % Change
---------- ---------- ----------
Net Sales
Home and Hardware $1,128.4 $1,030.0 9.6
Spirits and Wine 629.0 353.5 77.9
Golf 201.6 195.8 3.0
---------- ---------- ----------
Total 1,959.0 1,579.3 24.0
---------- ---------- ----------
Underlying Sales (a) 1,602.5 1,504.8 6.5
---------- ---------- ----------
Acquisitions/Divestitures 281.7 (11.0) -
Foreign Exchange (5.2) - -
Excise Taxes 80.0 85.5 (6.4)
---------- ---------- ----------
Net Sales $1,959.0 $1,579.3 24.0
---------- ---------- ----------
Operating Income
Home and Hardware $169.6 $161.9 4.8
Spirits and Wine 158.0 116.4 35.7
Golf (6.4) 2.1 -
Corporate expenses 15.9 16.8 (5.4)
---------- ---------- ----------
Total 305.3 263.6 15.8
---------- ---------- ----------
Operating Income Before Charges (b)
Home and Hardware 169.6 164.5 3.1
Spirits and Wine 168.8 116.4 45.0
Golf (6.4) 2.8 -
Less:
Corporate expenses 14.7 16.8 (12.5)
Restructuring and
non-recurring/
acquisition-related items 12.0 3.3 263.6
---------- ---------- ----------
Operating Income $305.3 $263.6 15.8
---------- ---------- ----------
NET SALES AND OPERATING INCOME
------------------------------
Twelve Months Ended December 31,
--------------------------------
2005 2004 % Change
---------- ---------- ----------
Net Sales
Home and Hardware $4,153.4 $3,763.7 10.4
Spirits and Wine 1,642.0 1,169.3 40.4
Golf 1,265.8 1,212.2 4.4
---------- ---------- ----------
Total 7,061.2 6,145.2 14.9
---------- ---------- ----------
Underlying Sales (a) 6,302.6 5,873.3 7.3
---------- ---------- ----------
Acquisitions/Divestitures 444.4 (27.8) -
Foreign Exchange 27.2 - -
Excise Taxes 287.0 299.7 (4.2)
---------- ---------- ----------
Net Sales $7,061.2 $6,145.2 14.9
---------- ---------- ----------
Operating Income
Home and Hardware $655.1 $598.5 9.5
Spirits and Wine 401.0 333.7 20.2
Golf 171.5 153.8 11.5
Corporate expenses 63.7 61.4 3.7
---------- ---------- ----------
Total 1,163.9 1,024.6 13.6
---------- ---------- ----------
Operating Income Before Charges (b)
Home and Hardware 655.1 613.0 6.9
Spirits and Wine 419.4 333.7 25.7
Golf 171.5 160.0 7.2
Less:
Corporate expenses 62.5 61.4 1.8
Restructuring and
non-recurring/
acquisition-related items 19.6 20.7 (5.3)
---------- ---------- ----------
Operating Income $1,163.9 $1,024.6 13.6
---------- ---------- ----------
