Fortune Brands, Inc. reported a fourth-quarter revenue record, benefiting from double-digit sales increases for the company’s distilled spirits and golf brands. While reported earnings comparisons for the fourth quarter and full year were adversely impacted by the downturn in the U.S. housing market, charges for supply-chain initiatives, and the absence of one-time gains recorded in the prior-year periods, the company achieved results within its earnings target ranges for both periods.


“The effectiveness of our proactive growth and returns strategies, underpinned by the strength of our company’s unique breadth and balance, helped Fortune Brands deliver results that achieved our earnings target for the fourth quarter, as well as the full-year target we established at the beginning of 2007,” said Bruce Carbonari, president and chief executive officer of Fortune Brands. “That’s especially notable given the fact that the housing correction in the U.S. has proven more challenging and persistent than anyone anticipated a year ago – or even three months ago.”


Winning in the Marketplace


“And in Golf, our brands set an industry sales record in 2007, finishing the year with a double-digit sales increase in the fourth quarter. Successful innovations helped Titleist, FootJoy and Cobra achieve individual brand records, as we also attained sales records in every product category and in all major markets for the year,” Carbonari added.


For the fourth quarter:



  • Income from continuing operations was $190.7 million, or $1.22 per diluted share, down 23% from $1.59 in the year-ago quarter. 
  • Comparisons were adversely impacted by: a current-quarter net charge (17 cents per share) as restructuring-related items more than offset a gain on sale; and a year-ago-quarter net gain (23 cents per share) from one-time items. 
  • These results exclude income from the divested wine business and the related gain on sale, amounting to $0.06 per diluted share in both the current-year and year-ago quarters. Wine results are reported in discontinued operations.  
  • Diluted EPS before charges/gains was $1.43, up 1% from $1.42 in the year-ago quarter. Results benefited from solid operating performance, a lower effective tax rate and lower corporate expenses. 
  • These results, which include income from the wine business through the date of divestiture, achieved the company's previously announced target to be up low-single digits to down mid-single digits. 
  • Net sales from continuing operations were $2.22 billion, up 1%. 
  • Operating income from continuing operations was $336.2 million, down 7%. 

For the full year:



  • Income from continuing operations was $749.5 million, or $4.79 per diluted share, down 10% from $5.31 in 2006. 
  • Diluted EPS before charges/gains was $5.11, down 4% from $5.33 in 2006. 
  • These results include income from the wine business through the date of divestiture. 
  • Net sales from continuing operations were $8.56 billion, up 0.5%.  
  • Operating income from continuing operations was $1.38 billion, down 5%. 
  • Free cash flow was $520 million after dividends and capital expenditures. 
  • Return on equity before charges/gains was 15.3%. 
  • Return on invested capital before charges/gains was 9.2%. 
  • The dividend increased 8% to an annual rate of $1.68 per share. 

Establishing Targets for 2008


“While the U.S. housing correction will continue to present challenges in 2008, we look to the future with confidence,” Carbonari continued. “We enter the year with enhanced flexibility on our balance sheet and higher returns following the sale of our wine business in the fourth quarter. We remain sharply focused on growth and returns, and we’re continuing to invest for the future – to build our brands, create innovative new products, expand into new markets, and optimize our supply chains. Combined with our unique breadth and balance, we believe these initiatives will continue to benefit us in 2008 and beyond, and position us extremely well for when the U.S. housing market recovers.


“Looking to 2008, we’re determined to continue growing our premium spirits and golf brands, and to continue outperforming the home products industry. That said, in an environment in which the home products market is expected by most economists to decline double digits again in 2008, we’re budgeting accordingly.


“Based on our initial estimates, we’re targeting EPS before charges/gains to be in the range of up at a low-single-digit rate to down at a high-single-digit rate. That’s versus an EPS before charges/gains for continuing operations number of $5.06 for 2007. Our 2008 target is based on these goals for our business units:



  • In Spirits, we're targeting operating income before charges to be up at a mid-to-high-single-digit rate. 
  • In Home & Hardware, we estimate the home products market was down low-double digits on a revenue basis in 2007 and we're budgeting for a similar market decline in 2008. We're targeting to again outperform the market at the top line, to again minimize margin declines, and for operating income before charges in Home & Hardware to be down at a mid-single-digit-to-mid-teens rate. 
  • In Golf, we're targeting operating income before charges to be up modestly, reflecting increased investment in brand building and international growth opportunities. 

“For the first quarter of 2008, we’re targeting diluted EPS before charges/gains to be in the range of flat to down at a high-single digit rate. That’s compared to an EPS before charges/gains for continuing operations number of $0.81 for the year-ago quarter,” Carbonari added.


The company also announced that it is targeting free cash flow for 2008 in the range of $500 million to $600 million after dividends and net capital expenditures.










































































































































































































































































































































































































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

Three Months Ended December 31,

2007   2006   % Change
         
Net Sales $2,215.4     $2,199.4     0.7  
   
Cost of goods sold 1,135.4 1,104.1 2.8
 
Excise taxes on spirits 183.7 175.5 4.7
 
Advertising, selling, general
and administrative expenses 516.0 528.1 (2.3 )
 
Gain on sale
of The Dalmore Scotch assets (45.6 )
 
Amortization of intangibles 11.8 11.8
 
Restructuring
and restructuring-related items 77.9 19.8
         
Operating Income 336.2     360.1     (6.6 )
 
Interest expense 67.5 79.3 (14.9 )
 
Other income, net (8.1 ) (10.3 ) (21.4 )

 

         

Income from Continuing Operations before income taxes and minority interests

276.8     291.1     (4.9 )
 
Income taxes 79.9 37.6 112.5
 
Minority interests 6.2 5.7 8.8
         
Income from Continuing Operations 190.7     247.8     (23.0 )
 
Income from Discontinued Operations 10.8 9.8 10.2
         
Net Income $201.5     $257.6     (21.8 )
 
Earnings Per Common Share, Basic:          
Income from continuing operations $1.24 $1.63 (23.9 )
Income from discontinued operations 0.07