Fortune Brands, Inc. reported strong top-line growth and double-digit growth in earnings per share for the second quarter of 2005. Robust demand for the company's Moen, Jim Beam, Titleist, Master Lock, and cabinet brands drove the company's first $2 billion sales quarter in its 8-year history as Fortune Brands.
“Share gains by many of our leading brands drove another quarter of broad-based success for Fortune Brands,” said Fortune Brands chairman and CEO Norm Wesley. “The fact that Fortune Brands delivered double-digit growth in both sales and earnings above last year's strong results underscores the momentum we've built in the marketplace and the success of our strategy. Our brand-building investments, including successful new products and high-impact marketing, are helping create consumer demand. Supply-chain efficiencies combined with strong volumes are fueling earnings growth.”
“As we look ahead to completing our major spirits and wine acquisition and the spin-off of our office products business, we're highly optimistic about our future as a more sharply-focused, high-performance consumer brands company.”
For the second quarter, net income was $200.3 million, or $1.33 per diluted share, up 20% over $1.11 in the year-ago quarter. Diluted EPS before charges/gains was $1.45, up 13% from $1.28 and one cent above the mean estimate of Wall Street securities analysts. Net sales increased to $2.07 billion, up 10%. The net impact of acquisitions, excise taxes, and foreign exchange benefited sales by 2%. Operating income was $359.2 million, up 21%. Return on equity was 26.6%. Return on invested capital was 18.0%.
In the quarter, the company recorded charges – partly offset by a tax-related credit – principally associated with its currency hedging program for the upcoming spirits and wine acquisition. “When we first announced our spirits and wine acquisition, we estimated the purchase price would reach $5.3 billion at the prevailing exchange rates,” Wesley added. “We are delighted that our hedging program both protected our downside and has enabled us to capitalize on the recent strengthening of the dollar. As a result, we'll save more than $300 million on the purchase, reducing our outlay at closing to approximately $5.0 billion. We continue to expect that this acquisition will add between 25 and 35 cents to our earnings per share in 2006.”
Third Quarter and Full-Year Outlook
“As we look to the back half of the year, we feel good about our position in the marketplace,” Wesley continued. “Because our spirits and wine acquisition has not yet closed, we do not yet have access to proprietary information on the brands we're purchasing, which we'll need to finalize a second-half forecast. At this point, we're assuming modest accretion from the new spirits and wine brands over the balance of the year as we begin the process of integrating the acquisition. We're targeting our continuing operations, including the new spirits and wine brands, to deliver double-digit growth in EPS before charges/gains for the third quarter and for the full year. It's important to note that our office products business will be considered a discontinued operation as of the third quarter and will no longer be reflected in our results.” Historical results of continuing operations, adjusted for the upcoming ACCO spin-off, are now available on the company's website, www.fortunebrands.com.
FORTUNE BRANDS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
(Unaudited)
Three Months Ended June 30,
---------------------------
2005 2004 % Change
----------------------------
--------------------------------
Net Sales $2,070.0 $1,889.5 9.6
--------------------------------
Cost of goods sold 1,134.7 1,041.3 9.0
Excise taxes on spirits and wine 71.3 65.1 9.5
Advertising, selling, general
and administrative expenses 493.4 451.9 9.2
Amortization of intangibles 8.5 8.3 2.4
Restructuring and
restructuring-related items 2.9 27.0 (89.3)
-----------------------------
Operating Income 359.2 295.9 21.4
-----------------------------
Interest expense 22.6 21.7 4.1
Other (income) expense, net 26.6 (7.5) -
Income taxes 105.3 109.7 (4.0)
Minority interests 4.4 4.2 4.8
-----------------------------
Net Income 200.3 167.8 19.4
-----------------------------
Earnings Per Common Share
Basic 1.38 1.15 20.0
Diluted 1.33 1.11 19.8
Avg. Common Shares Outstanding
Basic 145.5 145.8 (0.2)
Diluted 150.3 150.7 (0.3)
FORTUNE BRANDS, INC.
(In millions, except per share amounts)
(Unaudited)
NET SALES AND OPERATING INCOME
------------------------------
Three Months Ended June 30,
-----------------------------
2005 2004 % Change
-----------------------------
Net Sales
Home and Hardware $1,048.9 $952.8 10.1
Spirits and Wine 290.7 260.0 11.8
Golf 443.2 407.9 8.7
Office 287.2 268.8 6.8
-------------------------------
Total $2,070.0 $1,889.5 9.6
-------------------------------
Operating Income
Home and Hardware $179.3 $161.2 11.2
Spirits and Wine 78.7 75.9 3.7
Golf 92.6 73.7 25.6
Office 26.9 4.0 572.5
Corporate expenses 18.3 18.9 (3.2)
-----------------------------
Total $359.2 $295.9 21.4
-----------------------------
