Fortune Brands, Inc. (FO), a maker of distilled spirits, home/hardware products and golf equipment, reported Friday a sharp fall in profit for the third quarter, mainly reflecting much lower one-time gains. On an adjusted basis, quarterly earnings per share declined from last year on unfavorable foreign exchange and a double-digit decline in net sales, while both earnings and top line beat market projections. Further, the Deerfield, Illinois-based company lifted the bottom-end of its fiscal 2009 adjusted earnings forecast range, citing third-quarter performance and signs of stabilization in the US new-home construction market.
Third-quarter net income attributable to Fortune Brands fell 63.1% to $124.1 million from prior year's $335.9 million. On a per share basis, earnings declined 62.9% to $0.82 from $2.21 in the year-ago quarter.
The latest quarter results included $5.4 million or $0.03 per share of restructuring and restructuring-related items, more than offset by a gain of $12.5 million or $0.08 per share related to a dividend distribution from Maxxium investment.
Meanwhile, the company's prior year results included $24.6 million or $0.16 per share of restructuring and restructuring-related items, and the write down of the Maxxium international spirits distribution joint venture investment of $25.4 million or $0.17 per share, more than offset by a hefty gain on the termination of the Future Brands U.S. spirits distribution joint venture of $142.7 million, or $0.94 per share, and an accelerated Future Brands deferred gain of $44.9 million, or $0.29 per share.
On an adjusted basis, quarterly net income fell to $117 million or $0.77 per share from $168.1 million or $1.11 per share in the same quarter last year. On average, eight analysts polled by Thomson Reuters expected the company to earn $0.61 per share for the quarter. Analysts' estimates typically exclude special items.
The company pointed out that foreign exchange adversely impacted quarterly earnings per share by $0.07 per share.
Net sales for the quarter fell 10.6% to $1.72 billion from $1.92 billion in the comparable quarter last year, yet beat Wall Street analysts' consensus estimate of $1.63 billion for the quarter. On a comparable basis, excluding excise taxes, foreign exchange, acquisitions/divestitures, and the impact of required accounting related to spirits route-to-market initiatives, total net sales were down 11%.
Segment-wise, sales from Spirits edged up 0.1% to $636.9 million from $636.3 million last year, as higher sales of Jim Beam bourbon and Canadian Club whisky, the Cruzan acquisition, and strong growth in emerging markets was offset by soft results in other international markets.
Meanwhile, Home and Hardware sales plunged 17.9% to $802.4 million from $977.6 million a year ago, and Golf sales dropped 9.5% to $278.6 million from $307.9 million last year.
On a comparable basis, net sales from spirits dropped 4%, golf were down 7%, and sales from home & hardware fell 17%.
Third-quarter operating income was $204.5 million, down 19.7% from $254.8 million in the previous year. Operating income before items were $212.6 million.
Commenting on the results, Bruce Carbonari, chairman and chief executive officer of Fortune Brands, stated, "Despite the challenges of the global economy and the overall U.S. housing market, Fortune Brands continued to deliver results and operating margins at the forefront of our categories. Each of our businesses performed at or above our expectations in the quarter."
"In the third quarter, we also remained focused on our successful initiatives to reduce cost structures, improve global supply chains and enhance our cash position. These initiatives are benefiting Fortune Brands and helping position the company for future growth," Carbonari added.
In its preceding second quarter, Fortune Brands had reported a 27% decline in net income attributable to the company of $99.8 million, or $0.66 per share, hurt by double-digit sales declines in its home and golf products businesses due to continued lower construction and consumer spending. Net sales dropped to $1.74 billion from $2.10 billion in the year ago quarter.
Among others in the sector, home improvement and building products maker Masco Corp. (MAS) would report its third-quarter results on Monday, October 26, with analysts estimating earnings of $0.09 per share on sales of $2.03 billion. While announcing the second quarter results, Masco had stated that business conditions remain difficult and it continues to estimate that 2009 housing starts will decline 40% to approximately 550,000 units. Masco also said that it anticipates that consumer spending for home improvement products in North American and International markets will continue at depressed levels in the near-term.
Bemis Co. Inc. (BMS), a maker of flexible packaging products and pressure sensitive materials, is slated to release its third-quarter earnings results on Tuesday, October 27, with analysts projecting earnings of $0.39 per share on sales of $908.99 million.
Avery Dennison Corp. (AVY), a maker of pressure-sensitive materials, office and consumer products, is also likely to announce third-quarter results on next Tuesday. Wall Street's earnings estimate is $0.57 per share for the quarter on sales of $1.47 billion.
For the nine months of fiscal 2009, Fortune Brands' net income attributable to the company fell 61% to $231.3 million from $592.4 million last year, and earnings per share dropped 60.1% to $1.53 from $3.83 a year ago. Adjusted net income was $268.6 million or $1.77 per share, lower than prior year's $479.8 million or $3.11 per share. Nine-month net sales fell 15.9% to $4.90 billion from $5.82 billion last year.
Looking ahead, Fortune Brands said it expects that its fourth quarter results will reflect the impact of adverse operating leverage in the seasonally small quarter for golf and home products, as well as a double-digit year-over-year boost in brand investment behind key spirits brands.
Further, the company lifted the bottom end of its fiscal 2009 earnings forecast range, and now expects earnings from continuing operations before charges/gains in the range of $2.10 to $2.30 per share, compared to previous guidance range of $2.00 to $2.30. Analysts currently anticipate the company to earn $2.23 per share for the full year, with estimates ranging between $2.10 and $2.36 per share.
On a GAAP basis, the company is currently targeting earnings per share from continuing operations in the range of $1.60 to $1.80 per share.
Carbonari said, "While we are encouraged by the continued stability of our spirits business and signs of stabilization in new-home construction, we anticipate that consumers will remain cautious in the months ahead, and that the overall home products market - particularly for big-ticket remodeling purchases - will continue to be challenging into 2010."
Fortune Brands also reaffirmed its 2009 target to generate free cash flow in the range of $400 million after dividends and net capital expenditures.
FO is currently trading at $45.61, up $2.48 or 5.77%.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.