Fortune Brands, Inc. reported double-digit growth in earnings per share for the second quarter of 2006. Diluted earnings per share from continuing operations increased 34%, benefiting from solid organic sales growth. The company’s Golf Division reported sales slipped 4.0% to $425.5 million compared to $443.2 million last year. Operating Income in the division fell 11.3% to $82.1 million.
“Fortune Brands delivered another strong quarter of double-digit earnings growth that exceeded the earnings target we provided three months ago,” said Fortune Brands chairman and CEO Norm Wesley. “This was the 20th consecutive quarter that Fortune Brands has achieved double-digit growth in earnings per share on a before charges/gains basis, underscoring how Fortune Brands breadth and balance across high-return consumer businesses enhances our ability to consistently deliver strong results.”
“Our home products brands outperformed a moderating housing market on the strength of our innovations in function and style and the stability of the replace-and-remodel segment. In spirits and wine, the addition of the brands we acquired last July, the enhanced scale and quality of our portfolio, and a lower cost structure helped fuel our strong spirits-and-wine results. The soft spot in the quarter was in sales of golf clubs, which had a strong first quarter but declined against a strong double-digit increase in the year-ago quarter. Even so, we benefited from our unrivalled breadth across the golf category as sales of golf balls, shoes, gloves and accessories all grew solidly in the quarter.”
For the second quarter, on a continuing operations basis:
- Net income was $248 million, or $1.63 per diluted share, up
34% from $1.22 in the year-ago quarter. - Results reflected a net gain of 8 cents per share from
one-time items. The net gain resulted from credits related
to the favorable resolution of state tax audits ($0.10 per
share), partly offset by restructuring and
restructuring-related items ($0.01 per share) and currency
mark-to-market expense ($0.01 per share) that finalized
the previously disclosed purchase price adjustment for the
2005 spirits and wine acquisition. - Excluding the net gain, diluted EPS before charges/gains was
$1.55, up 17%. - These results were 5 cents above the mean estimate of Wall
Street securities analysts (source: Thomson First Call)
and above the company’s previously announced second
quarter target of high-single-digit to low-double-digit
growth. - Net sales were $2.3 billion, up 27%.
- On an adjusted basis – assuming the company had owned
acquired brands in the year-ago quarter, and excluding
excise taxes and foreign exchange – the company estimates
total net sales for Fortune Brands would have risen at a
mid-single-digit rate. - Operating income was $434 million, up 30%.
- Return on equity before charges/gains was 20%.
- Return on invested capital before charges/gains was 10%.
“Were very pleased with Fortune Brands performance in the first half of the year,” said Wesley. “Looking ahead to the second half of 2006, even with the impact of moderating new construction activity and higher costs for commodities, were confident Fortune Brands will continue to benefit from our unique breadth and balance across attractive consumer categories, including our enhanced spirits and wine business, our strength in the growing replace-and-remodel segment of the housing market, and the addition of Simonton Windows. We believe our broad portfolio of powerful and growing consumer brands – such as Moen, Master Lock, Omega, Titleist, FootJoy, Jim Beam, Sauza, Maker’s Mark and many more – will continue to drive Fortune Brands performance.
“For the third quarter, including stock options expense and the benefit of the Simonton Windows acquisition, were targeting EPS before charges/gains to grow at a double-digit rate. For the full year, we now expect to comfortably achieve our goal of double-digit growth in EPS before charges/gains for 2006,” Wesley added.
The company also announced that it is now targeting free cash flow for 2006 in the range of $450-550 million after dividends and capital expenditures. Included in the target is approximately $50 million in net costs resulting from one-time credits and acquisition-related items that wont be repeated.
FORTUNE BRANDS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
(Unaudited)
Three Months Ended June 30,
2006 2005 % Change
---------- ---------- ----------
Net Sales $2,257.1 $1,782.8 26.6
---------- ---------- ----------
Cost of goods sold 1,184.4 960.0 23.4
Excise taxes on spirits and
wine 103.6 71.3 45.3
Advertising, selling, general
and administrative expenses 524.8 410.8 27.8
Amortization of intangibles 9.1 8.2 11.0
Restructuring and
restructuring-related items 1.6 - -
---------- ---------- ----------
Operating Income 433.6 332.5 30.4
---------- ---------- ----------
Interest expense 83.2 20.1 313.9
Other (income) expense, net (10.1) 26.8 (137.7)
---------- ---------- ----------
Income from Continuing Operations
before income taxes and minority
interests 360.5 285.6 26.2
---------- ---------- ----------
Income taxes 108.6 97.7 11.2
Minority interests 4.1 4.1 -
---------- ---------- ----------
Income from Continuing Operations 247.8 183.8 34.8
---------- ---------- ----------
Income from Discontinued Operations - 16.5 -
---------- ---------- ----------
Net Income $247.8 $200.3 23.7
---------- ---------- ----------
Earnings Per Common Share, Basic:
Income from continuing operations 1.68 1.26 33.3
Income from discontinued
operations - 0.12 -
Net Income 1.68 1.38 21.7
---------- ---------- ----------
Earnings Per Common Share, Diluted:
Income from continuing operations 1.63 1.22 33.6
Income from discontinued
operations - 0.11 -
Net Income 1.63 1.33 22.6
---------- ---------- ----------
Avg. Common Shares Outstanding
Basic 147.7 145.5 1.5
Diluted 151.6 150.3 0.9
---------- ---------- ----------
FORTUNE BRANDS, INC.
(In millions, except per share amounts)
(Unaudited)
NET SALES AND OPERATING INCOME
------------------------------
Three Months Ended June 30,
2006 2005 % Change
---------- ---------- ----------
Net Sales
Home and Hardware $1,193.8 $1,048.9 13.8
Spirits and Wine 637.8 290.7 119.4
Golf 425.5 443.2 (4.0)
---------- ---------- ----------
Total $2,257.1 $1,782.8 26.6
---------- ---------- ----------
Operating Income
Home and Hardware $209.9 $179.3 17.1
Spirits and Wine 157.3 78.7 99.9
Golf 82.1 92.6 (11.3)
Corporate expenses 15.7 18.1 (13.3)
---------- ---------- ----------
Total $433.6 $332.5 30.4
---------- ---------- ----------
Operating Income Before Charges (a)
Home and Hardware $210.3 $179.3 17.3
Spirits and Wine 158.5 78.7 101.4
Golf 82.1 92.6 (11.3)
Less:
Corporate expenses 15.7 18.1 (13.3)
Restructuring and
restructuring-related items 1.6 - -
---------- ---------- ----------
Operating Income $433.6 $332.5 30.4
---------- ---------- ----------
