Fortune Brands, Inc., parent company of the Acushnet Golf business, reported that company-wide net sales decreased 8.6% for the second quarter to $2.10 billion. For the Acushnet Company, which includes Titleist, Cobra and FootJoy, second quarter net sales decreased 4.7% to $452.4 million from $474.6 million last year. The division’s operating income dropped 23.1% for the second quarter to $68.1 million from $88.6 million last year. 


For the company as a whole, higher shipments of spirits brands in the U.S. and strong growth in Asian markets for the company’s golf and home products brands partly offset the adverse impact of the ongoing correction in the U.S. housing market, the softening consumer environment in the U.S., higher commodities costs, and the unanticipated Australian excise tax increase on ready-to-drink spirits products.

Reported results reflected the impact of one-time items amounting to a net after-tax charge of $60 million. The one-time items include a non-cash write-down of goodwill and identifiable intangibles related to the impact of the U.S. housing correction primarily on the company’s door brands, a non-cash write-down of the company’s investment in the Maxxium international joint venture related to the forthcoming exit of Rémy Cointreau, and restructuring and restructuring-related charges in the home products and spirits units. These items were partly offset by credits related to the favorable resolution of IRS tax matters and a gain related to the repurchase of the minority interest in the company’s spirits business previously held by V&S Group.


“While we faced a tougher-than-expected environment in the second quarter, we remain intensely focused on two objectives-outperforming our product categories, and investing for the future to drive sustainable long-term growth and returns,” said Bruce Carbonari, president and chief executive officer of Fortune Brands. “We’re benefiting from proactive cost reductions, productivity improvements and share-gain initiatives in our home products business, where we’ve eliminated 25% of facilities while maintaining supply-chain flexibility and strategic spend. We’re continuing to build a high-performance organization behind our spirits brands, and we’re investing to creatively build premium brand equity to grow revenues faster than case volumes. And we’re investing to grow our golf brands through innovation and expansion in promising international markets. We believe that these are the right moves to create long-term value for our shareholders.


“The action plans we’re pursuing benefited Fortune Brands in the second quarter,” Carbonari added. “While our double-digit increase in brand-building investments and the Australia RTD tax increase adversely impacted operating income in our spirits business, we drove solid revenue and volume growth for several key premium spirits brands in the U.S. We also benefited from the anticipated rebuilding of U.S. spirits distributor inventories. Despite a U.S. housing correction that has intensified, we continued outperforming the home products market on the success of our share-gain initiatives, while achieving expected savings from our proactive cost initiatives. And our international growth initiatives helped drive double-digit growth for our golf brands in key Asian markets, partly offsetting the impact of a double-digit increase in brand investment and the soft consumer environment in the U.S.”


For the second quarter of 2008:


Net income was $136.0 million, or 88 cents per diluted share, versus $1.48 per share in the year-ago quarter. Comparisons were impacted by a net charge of 37 cents per diluted share from one-time items, including: the non-cash intangibles write-down in home products of $311 million after tax; the non-cash Maxxium investment write-down of $25 million after tax; restructuring-related charges of $11 million after tax; a gain of $82 million related to the repurchase of the minority interest in the company’s spirits business; and a gain of $205 million related to favorable resolution of pending IRS tax matters, $107 million of which is reflected in discontinued operations. 


Excluding one-time items in both the current and prior-year periods, diluted EPS before charges/gains for continuing operations was $1.25, down 17% from $1.51 in the year-ago quarter. These results were at the high end of the company’s recently updated target range for diluted EPS before charges/gains to be down at a high-teens-to-mid-20s percentage rate.  Results reflected a 5-cents-per-share benefit from the routine true-up of the company’s year-to-date effective tax rate. 


Net sales from continuing operations were $2.1 billion, down 9%. On a comparable basis, excluding excise taxes and foreign exchange, total net sales would have been down 10%. 


Operating income was a loss of $16 million, and was positive $325 million on a before charges/gains basis. Return on equity before charges/gains was 13%. Return on invested capital before charges/gains was 8%.


Outlook for Third Quarter and Full Year


“As we look to the back half of the year, we’ll continue to focus on outperforming our markets and ensuring a strong foundation for sustainable long-term growth,” said Carbonari. “While we’ll still face the headwinds of an intensified U.S. housing correction, the weakness in U.S. consumer confidence and the Australian ready-to-drink tax increase, we expect to benefit from share gains, growth in international markets, our position in the relatively stable premium spirits market, annualization of our stepped-up brand investments in spirits and golf, and company-wide productivity initiatives and cost controls.


“For the third quarter, we’re targeting diluted EPS before charges/gains to be down at a mid-teens-to-mid-20s percentage rate compared to $1.34 in the year-ago quarter. For the full year, we continue to expect diluted EPS before charges/gains to be down at a high-single-digit-to-high-teens percentage rate compared to $5.06 in 2007,” Carbonari concluded.


The company also announced that it is now targeting free cash flow for 2008, after dividends and capital expenditures, to approximate $500 million.


 




































































































































































































































































































FORTUNE BRANDS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
(Unaudited)
 

 


Three Months Ended June 30,

2008   2007   % Change
 
Net Sales $ 2,095.4     $ 2,293.3     (8.6 )
 
Cost of goods sold 1,099.7   1,212.3   (9.3 )
 
Excise taxes on spirits 128.7 118.9 8.2
 

Advertising, selling, general and administrative expenses

529.8 523.5 1.2
 
Amortization of intangibles 12.5 12.0 4.2
 
Intangible asset impairments 324.3
 

Restructuring and restructuring-related items

16.4 10.8 51.9
 
Operating Income/(Loss)   (16.0 )     415.8      
 
Interest expense 58.2 76.4 (23.8 )
 
Other (income) expense, net 13.7 (7.5 )
 

Income/(Loss) from Continuing Operations before income taxes and minority interests

  (87.9 )     346.9      
 
Income taxes (38.4 ) 111.5
 
Minority interests (76.1 ) 5.9
 
Income from Continuing Operations $ 26.6     $ 229.5     (88.4 )
 
Income from Discontinued Operations 109.4 2.5
 
Net Income $ 136.0     $ 232.0     (41.4 )
 
 
Earnings Per Common Share, Basic:  
Income from continuing operations $ 0.17 $ 1.50 (88.7 )
Income from discontinued operations 0.72