Titleist parent, Fortune Brands, Inc., reaffirmed its full-year earnings target range of $2.60-2.90 in diluted EPS before charges/gains versus $2.43 in 2009, and increased its 2010 free cash flow target range to $625-700 million, up from $525-600 million.
As anticipated, due to the expiration of the U.S. homebuyer tax credit as well as the timing of spirits orders, results reflected pull-forward in demand that benefited the second quarter at the expense of the third quarter. Accordingly, net sales were up slightly for the quarter and are up 7% for the first nine months of 2010. Operating income was off 14% in the quarter and is up 33% year to date. For the quarter, diluted earnings per share were 66 cents and diluted EPS before charges/gains was 72 cents. Fortune Brands has publicly estimated that the pull-forward in demand represented 10-15 cents of EPS that was shifted from the third quarter into the second. On a year-to-date basis, EPS before charges/gains is up 24%.
“Fortune Brands third-quarter results were in line with our expectations and the company remains on track to deliver strong results for the full year,” said Bruce Carbonari, chairman and CEO of Fortune Brands. “Our results reflected the headwinds we publicly projected three months ago, including the acceleration of demand into the second quarter due to the expiration of the U.S. homebuyer tax credit and the timing of spirits orders, higher costs for raw materials, and the increased strategic investments we’re making for long-term profitable growth. These investments which include support for new business we’ve recently won, new product innovations, long-term brand building and international growth initiatives are already delivering results.
“Our brands continue to perform very well in the marketplace and are well positioned for the future. In Spirits, new products and successful strategic investments are fueling momentum in the U.S. as we see the positive impact of recent initiatives. We’re also making progress in challenging global markets and growing strongly in priority emerging markets. Even as the home products market has softened, we’re outperforming the market and also winning profitable new business in the cabinetry, faucet and garage organization categories that will enhance our prospects in 2011 and beyond. And in Golf, we’ve driven year-to-date growth in all product categories, we’re continuing to expand strongly in key Asian markets, and the fourth-quarter launch of the advanced-technology new Titleist 910 driver will build on a very successful year of new product introductions.”
For the third quarter of 2010:
- Net income was $102.6 million, or 66 cents per diluted share, compared to 82 cents per diluted share in the year-ago quarter.
- Excluding charges and gains in both the current and prior-year periods, diluted EPS was 72 cents, down 6% from 77 cents in the year-ago quarter.
- Net sales were $1.72 billion, up 0.2%.
-Comparable net sales by business unit were: golf up 3%.
- Operating income was $176.8 million.
- Operating income before charges/gains was $206.4 million, down 3%.
- Return on equity before charges/gains was 8%.
- Return on invested capital before charges/gains was 6%.
Outlook for Strong Full-Year Results
“As we look ahead, we continue to expect that the economic recovery will be gradual and uneven, with the spirits and golf markets likely to grow in the low-single-digit range for the full year and the likelihood that our home products market will now be relatively flat,” Carbonari continued. “The proactive steps we took during the downturn and the investments we’re making at the front end of the recovery have put Fortune Brands in a very strong competitive position. Trusted brands combined with strong innovation, customer wins, strategic brand investments and global expansion initiatives are helping drive broad-based share gains. The leverage of our lower cost structures is helping the bottom line, and our sharp focus on cash is helping fortify our balance sheet.
“Fortune Brands remains on track to deliver strong earnings growth in 2010 and results within our full-year target range of $2.60-2.90 versus $2.43 in 2009. Factoring in previously discussed headwinds, including higher raw materials costs, our increased strategic investments, and comparisons to last year’s improving results, our results are tracking towards the middle of our target range. We believe we are well positioned to continue our momentum in the marketplace, leverage our lower cost structures, and deliver continued earnings growth and improving returns as the economy recovers,” Carbonari concluded.
The increase in Fortune Brands’ target for 2010 free cash flow now in the range of $625-700 million reflects improvements in the company’s working capital position and the timing of capital expenditures. The company’s target represents an earnings-to-free-cash conversion rate well in excess of 100%.
| FORTUNE BRANDS, INC. | ||||||||||||||||||||||||
| (In millions, except per share amounts) | ||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||
NET SALES AND OPERATING INCOME | ||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
| 2010 | 2009 | % Change | 2010 | 2009 | % Change | |||||||||||||||||||
| Net Sales | ||||||||||||||||||||||||
| Spirits | $ | 643.1 | $ | 636.9 | 1.0 | $ | 1,847.7 | $ | 1,723.2 | 7.2 | ||||||||||||||
| Home & Security | 813.7 | 802.4 | 1.4 | 2,390.2 | 2,183.0 | 9.5 | ||||||||||||||||||
| Golf | 265.2 | 278.6 | (4.8 | ) | 1,008.1 | 991.4 | 1.7 | |||||||||||||||||
| Total Net Sales | $ | 1,722.0 | $ | 1,717.9 | 0.2 | $ | 5,246.0 | $ | 4,897.6 | 7.1 | ||||||||||||||
| Operating Income/(Loss) | ||||||||||||||||||||||||
| Spirits | $ | 118.1 | $ | 145.4 | (18.8 | ) | $ | 379.2 | $ | 414.3 | (8.5 | ) | ||||||||||||
| Home & Security | 73.6 | 70.8 | 4.0 | 178.6 | 51.9 | 244.1 | ||||||||||||||||||
| Golf | 5.5 | 9.7 | (43.3 | ) | 115.3 | 62.3 | 85.1 | |||||||||||||||||
| Corporate expenses | (20.4 | ) | (21.4 | ) | 4.7 | (66.4 | ) | (70.6 | ) | 5.9 | ||||||||||||||
| Total Operating Income | $ | 176.8 | $ | 204.5 | (13.5 | ) | $ | 606.7 | $ | 457.9 | 32.5 | |||||||||||||
| Operating Income Before Charges/Gains (a) | ||||||||||||||||||||||||
| Spirits | $ | 145.8 | $ | 149.2 | (2.3 | ) | $ | 411.6 | $ | 421.7 | (2.4 | ) | ||||||||||||
| Home & Security | 75.0 | 74.7 | 0.4 | 181.5 | 95.5 | 90.1 | ||||||||||||||||||
| Golf | 6.0 | 10.1 | (40.6 | ) | 104.5 | 86.9 | 20.3 | |||||||||||||||||
| Less: | ||||||||||||||||||||||||
| Corporate expenses | < | |||||||||||||||||||||||
