Fortune Brands, Inc. (FO), a manufacturer of distilled spirits, home products and golf equipment, reported on Friday a market-beating performance for the second quarter, boosted by a 9% sales growth. With an aim to outperform its markets, the company raised its full-year outlook for earnings and free cash flow.
The Deerfield, Illinois-based maker of Jim Beam bourbon, Moen faucets and Titleist golf clubs reported net income for the second quarter of $227.4 million or $1.48 per share, which more than doubled from $99.8 million or $0.66 per share in the prior-year quarter.
The latest quarter's results include gains from the resolution of routine income tax audits of $0.44 per share, a gain on the sale of the Cobra golf brand assets of $0.07 per share and restructuring charges of $0.01 per share. The year-ago quarter's results include restructuring and other charges of $0.04 per share.
Excluding charges and gains, earnings for the latest quarter increased to $150.5 million or $0.98 per share from $106.5 million or $0.70 per share in the year-ago quarter. On average, eleven analysts polled by Thomson Reuters expected the company to earn $0.76 per share for the second quarter. Analysts' estimates typically exclude special items.
Net sales for the second quarter rose 9.1% to $1.90 billion from $1.74 billion in the same quarter last year, and topped analysts' consensus revenue estimate of $1.80 billion. On a comparable basis, net sales for the quarter increased 9%.
The company noted that the increase in sales reflects double-digit sales growth for home and security products, in addition to strong gains for the spirits and golf brands.
Bruce Carbonari, chairman and chief executive officer of Fortune Brands said, "In the quarter, we achieved broad-based share gains and leveraged our lower cost structures, while also benefiting from pull-forward of sales by customers in our home and spirits segments as well as favorable comparisons. Each of our three brand groups grew sales faster than our markets, delivered operating margins at or near the top of our consumer segments, and outperformed our expectations in the quarter."
Sales from spirits for the second quarter increased 5.3% from the year-ago quarter to $631.5 million, as brands such as Maker's Mark bourbon, Courvoisier cognac, Hornitos tequila, Cruzan rum and Red Stag by Jim Beam helped fuel growth.
Home and Security sales grew 13.3% from a year ago to $878.1 million, benefiting from share gains fueled by new products and new offerings across price points.
Golf sales rose 6.4% from the prior-year quarter to $389.3 million, reflecting growth in international markets as well as double-digit sales gains for the Titleist Pro V1 golf ball and FootJoy shoes.
On a comparable basis, net sales from spirits grew 5%, home & security net sales rose 12% and golf net sales increased 8%.
Looking ahead, for fiscal 2010, Fortune Brands raised its outlook for earnings before charges/gains to a range of $2.60-$2.90 per share from the prior range of $2.50-$2.80 per share. The company reported adjusted earnings per share of $2.43 in the prior year. Analysts estimate the company to earn $2.84 per share for fiscal 2010.
The company continues to believe that the markets for each of its three brand groups will grow at a low-single-digit rate for the year.
Carbonari said, "Our strategies are delivering and we remain confident that Fortune Brands will produce strong earnings growth in 2010. As a result, we plan to continue investing behind our brands, including higher year-over-year support for long-term growth initiatives in the second half of 2010."
Further, the company raised its target for full-year free cash flow to a range of $525 million-$600 million from the previous range of $375 million $475 million. The target includes the company's anticipated higher earnings and improved cash flow management, and the increase reflects the benefit of asset sales.
Fortune Brands estimates that the pull-forward in home products demand due to expiration of the U.S. homebuyer tax credit in addition to the timing of spirits orders benefited the second quarter at the expense of the third quarter by approximately $0.10-$0.15 per share.
The company anticipates the back half of the year will be impacted by higher costs for raw materials and transportation, the stronger U.S. dollar, annualizing cost savings and increasingly challenging comparisons to last year's improving results.
FO closed Thursday's regular trading session at $43.38, down $0.02 on a volume of 2.17 million shares. The stock has been trading in a range of $37.05-$55.68 in the past 52 weeks.
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