This summary is based on the fourth quarter fiscal 2008 earnings call conducted by Fortune Brands Inc. (FO) on 29 January, 2009.
Management:
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Chairman and CEO: Bruce Carbonari
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SVP and CFO: Craig Omtvedt
Key Investors Issues
- Net loss was $275 million or $1.84 per diluted share from income of $190.7 million or $1.22 a share in the prior year.
- Sales were $1.8 billion, down 19%.
Full Year Highlights:
- The firm reported net income per share was $1.07 down from $4.79 per share in 2007.
- Revenues were $7.6 billion, down 11%.
Fourth Quarter Highlights
Net loss was $275 million or $1.84 per diluted share from $190.7 million or $1.22 a share in the prior year impacted by the excise tax increase in Australia on ready-to-drink spirits products and spirits route-to-market initiatives.
- Additionally, foreign exchange adversely impacted results by 12 cents per share in the quarter.
- Sales were $1.8 billion, down 19%.
- Working capital efficiency came in at 36% and return on equity before charges and gains was 10% and returns on invested capital before charges and gains was 7%.
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Spirits were down 16% to $721 million and at the OI line, operating income before charges was $183 million and that is down 26%.
- OI was adversely impacted by the Australia issue, the route to market initiatives, and foreign exchange.
- On a constant currency basis and excluding excise tax, and starting with bourbon, global depletions for Jim Beam were off at a low single-digit rate largely attributable to RTD in Australia.
- Maker''s Mark volumes grew at a high single-digit rate and net sales and depletion revenues increased double-digits.
In tequila, global volumes for Sauza were off at a low single-digit rate, largely due to the distributor issue in Mexico.
- In Canadian and Scotch whiskey, despite a modest decline in volumes driven primarily by soft results in Canada, Canadian Club increased net sales and depletion revenues at a low single-digit rate.
- Laphroaig grew as fast as its supply would allow with volumes up mid-single digits and on double-digit volume gains in Brazil and India, Teachers scotch continued its momentum.
- In cognac, Courvoisier posted a high single-digit volume increase in the UK, where it is the number one cognac and Courvoisier also gained market share in the US.
- Globally, the brand grew volumes at a low single-digit rate, net sales and depletion revenues in the high-single digits.
- In rum, depletion revenues for Cruzan rum grew at a high single-digit rate, reflecting pricing and favorable mix and in cordials, strong double-digit growth for the Sourz brand in Europe partly offset a mid-single-digit volume decline for DeKuyper in the US.
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Home sales were $852 million, down 23% and operating income before charges came in at $41 million versus $139 million in the year-ago quarter.
- The margin erosion primarily reflects adverse operating leverage due to lower volumes.
- Despite lower sales, the firm continued to benefit from its breadth across price points and distribution channels, as well as the strong customer service.
- Sales from Moen were off at a mid-teens rate in the quarter, as continued growth and share gains in the retail channel partly offset lower sales related to new construction and sales of the Simonton windows brands declined in the range of 20%.
Reflecting its exposure to the new construction market, sales for Therma-Tru doors were off more than 30%.
- In security and storage products, sales for Master Lock were relatively flat and sales for Waterloo tools storage products were off at a single-digit rate.
- Master Lock sales were up at a mid-single-digit rate on share gains driven by successful new products and the penetration of adjacent categories as well as continued international growth.
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Golf revenues were $212 million, that is 13% below the year-ago quarter when sales increased 13% as adverse foreign exchange reduced reported quarterly sales by 4%.
- Additionally, the golf market became increasingly challenging in the quarter as consumers pulled back on bigger-ticket purchases and retailers reduced inventories.
- On the upside, sales in the quarter benefited from strong sell in for the new Titleist 909 series drivers, fairways, and hybrids, as well as continued growth in international markets.
- OI was down $12 million from last year’s loss of $6 million, impacted by the golf industry''s seasonally smallest quarter and adverse operating leverage and lower volume.
Operational Insights:
- In this environment, Fortune Brands continues to pursue the initiatives, which are helping compete effectively in a very challenging economic conditions and positioning for strong growth when the economy returns.
- The firm is aggressively realigning cost structures for current and future demand and also remained focused on maintaining solid cash flow.
- At the same time it is intensely focused on outperforming the marketplace in categories by investing selectively to build brands introducing new products targeted to the most attractive segments and adjusting to the evolving consumer trends.
The firm unwound the partnership with V&S, enhanced talent across the organizations, and developed next-generation sales and distribution routes to market, which were initiated in the US and will launch in international markets at the end of the current quarter.
