Fortune Brands, Inc. reported that first quarter of 2007, despite strong profit performance for the company's spirits and wine brands, earnings per share were lower than a year ago due primarily to the impact of the housing downturn in the United States and higher year-over-year commodities costs for home products. Sales in Golf were relatively flat due largely to the timing of new-product launches that managements expects will benefit the second quarter.
“As anticipated, the strong headwinds of lower housing activity in the U.S. and the impact of higher raw materials costs for home products weighed on our first quarter results, and sales and earnings per share were both down from the record levels we posted a year ago,” said Fortune Brands chairman and chief executive officer Norm Wesley. “Comparisons were also adversely impacted by our very strong results in last year's first quarter.” First quarter net sales of $1.95 billion were down 3%. Earnings per diluted share were $0.77 and, excluding one-time items, EPS before charges/gains was $0.81 compared with $1.06 in the year-ago quarter.
“Our results were in line with what we expected and were consistent with the earnings target we announced three months ago,” Wesley added. “On an operating basis, each of our businesses performed at or above our expectations, but that upside was offset by an unfavorable mark-to-market expense for commodities hedges that amounted to about 3 cents per share. While we will continue to face tough market conditions for our home products brands, we believe that performance for Fortune Brands will get progressively better and that our most challenging quarter of the year is now behind us.”
“Fortune Brands continued to benefit from our unique breadth and balance in the first quarter as solid profit growth for our spirits and wine brands partly offset lower results for our home products brands. In Spirits & Wine, while reported revenue comparisons were lower due to certain one-time factors, underlying sales were up low-single digits and operating income grew at a mid-single-digit rate. In the marketplace, strong global consumer demand for our premium and super-premium spirits and wine brands drove mid-single-digit growth in distributor case volume shipments, led by double-digit growth for Sauza, Courvoisier and Teacher's. While comparable sales for our Home products brands were off in the range of 10%, it's notable that we continued to outperform the market with share gains for Moen, Master Lock and our cabinetry brands. Sales in Golf were relatively flat due largely to the timing of new-product launches that we expect will benefit the second quarter.”
For the first quarter of 2007:
-- Net income was $120.2 million, or $0.77 per diluted share, versus
$173.4 million ($1.15 per diluted share) in the year-ago quarter.
-- Comparisons were impacted by a tax-related gain in the year-
ago quarter and modest restructuring-related charges in both
periods.
-- Excluding one-time items in both the current and prior-year
periods, diluted EPS before charges/gains was $0.81, down 24%
from $1.06 in the year-ago quarter.
-- These results were consistent with the company's previously
announced estimate that diluted EPS before charges/gains could
be down in the range of 20%.
-- Net sales were $1.95 billion, down 3%.
-- On a comparable basis - assuming the company had owned
acquired brands in the year-ago quarter and excluding excise
taxes - the company estimates total net sales for Fortune
Brands would have been off approximately 8% in constant
currency.
-- Operating income was $260.3 million, down 15%.
-- Return on equity before charges/gains was 18%.
-- Return on invested capital before charges/gains was 10%.
Outlook for Second Quarter; Reaffirming Full-Year Target
“As challenging as the home products market remains, we expect that results for Fortune Brands – while still down – will get better in the second quarter,” Wesley continued. “We expect to continue benefiting from the sustained global growth of our premium and super-premium spirits brands and the success of our powerful golf brands. We'll also fully benefit from targeted price increases that we've successfully implemented to mitigate higher commodities costs.
“For the second quarter, we expect diluted earnings per share before charges/gains could be down in the mid-single-digit-to-low-double-digit range, as strength in our Spirits & Wine and Golf segments and the benefit of price increases in home products temper the impact of lower but gradually improving results in Home & Hardware.
“For the full year, we continue to believe strong performance in Spirits & Wine and growth in Golf will help offset lower results for our home products brands. Accordingly, we're reaffirming our expectation that earnings per share before charges/gains for Fortune Brands will be in the range of down mid-single digits to up low-single digits. That's against the EPS before charges/gains of $5.33 that Fortune Brands delivered in 2006,” Wesley concluded.
The company also announced that it is continuing to target free cash flow for 2007 in the range of $500-600 million after dividends and capital expenditures.
FORTUNE BRANDS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
(Unaudited)
-----------------------------
Three Months Ended March 31,
-----------------------------
2007 2006 % Change
-----------------------------
-----------------------------
Net Sales $1,948.8 $2,016.8 (3.4)
-----------------------------
Cost of goods sold 1,082.0 1,079.9 0.2
Excise taxes on spirits and wine 98.5 120.8 (18.5)
Advertising, selling, general
and administrative expenses 486.5 488.6 (0.4)
Amortization of intangibles 12.1 10.0 21.0
Restructuring
and restructuring-related items 9.4 10.6 (11.3)
-----------------------------
Operating Income 260.3 306.9 (15.2)
-----------------------------
Interest expense 81.1 79.1 2.5
Other (income) expense, net (9.4) (10.0) 6.0
Income before income taxes
-----------------------------
and minority interest 188.6 237.8 (20.7)
-----------------------------
Income taxes 62.3 59.7 4.4
Minority interests 6.1 4.7 29.8
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Net Income 120.2 173.4 (30.7)
-----------------------------
Earnings Per Common Share
-----------------------------
Basic 0.79 1.18 (33.1)
Diluted 0.77 1.15 (33.0)
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Avg. Common Shares Outstanding
-----------------------------
Basic 152.4 146.4 4.1
Diluted 156.1 150.4 3.8
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Actual Common Shares Outstanding
-----------------------------
Basic 152.6 146.6 4.1
Diluted 156.2 150.7 3.7
-----------------------------
