This summary is based on the first quarter fiscal 2007 earnings call conducted by Fortune Brands, Inc (FO) on 26th April, 2007.
Chairman of the Board and Chief Executive Officer: Norman H. Wesley
President and Chief Operating Officer: Bruce A. Carbonari
Senior Vice President and Chief Financial Officer: Craig P. Omtvedt
Senior Vice President, Finance and Treasurer: Mark Hausberg
Senior Vice President, Strategy & Corporate Development: Christopher J. Klein
Key Investors Issues
- Net income was $120.2 million, or 77 cents per diluted share, versus $173.4 million, or $1.15 per diluted share in the year-ago quarter.
- Net sales were $1.95 billion, down 3% from a year earlier.
- Operating income was $260.3 million, down 15% from a year ago.
- Return on equity before charges/gains was 18%.
- Return on invested capital before charges/gains was 10%.
First Quarter 2007 Highlights
The company reported net income was $120.2 million or 77 cents per diluted share, compared to $1.15 a year ago. The earnings per share, excluding one-time items in both the current and prior-year periods, before charges and gains was 81 cents, off 24% from $1.06 a year ago.
The sales for the quarter totaled $1.95 billion, which was 3% below the prior year quarter.
The sales would have been 8% down, excluding excise taxes, had the company acquired its own brands.
First-quarter operating income was $260 million, 15% below a year ago.
- The operating margins were down 1.8 points which principally related to the company’s rules in home and hardware.
- The return on equity, before charges and gains, was 18%.
- After tax return on net tangible assets before charges and gains was 22%.
- Working capital efficiency was 34% while return on invested capital before charges and gains was 10%.
In spirits and wine, the company’s largest profit contributor, achieved mid-single digit growth in both global depletion case volumes and operating income driven by strong consumer demand for premium and super premium brands.
While the reported revenue comparisons were lower due to certain one-time factors, strong global consumer demand for the company’s premium and super-premium spirits and wine brands drove mid-single-digit growth in distributor case volume shipments, led by double-digit growth for Sauza, Courvoisier and Teacher''s.
While Home products brands growth was 10% from a year earlier, the company continued to outperform the market with share gains for Moen, Master Lock and cabinetry brands.
Sales in Golf were relatively flat due largely to the timing of new-product launches that are expected to benefit the second quarter.
The company has reduced the overheads in administrative structures throughout home and hardware and implemented hiring freezes and spending reduction.
- Over the past year the company has reduced the hourly and salary positions in its homes products area by more than 10%.
- The management is also protecting profitability by having a sharp focus on lean manufacturing and improved inventory management to reduce material costs.
- The company also successfully implemented price increases to offset higher raw material costs which will fully benefit the company in the second quarter.
Fiscal 2007 Outlook
The company expects to continue benefiting from the sustained global growth of its premium and super-premium spirits brands and the success of our powerful golf brands. The company hopes to fully benefit from targeted price increases that have been successfully implemented to mitigate higher commodities costs.
The management projects the second quarter diluted earnings per share before charges/gains to be down in the mid-single-digit to low-double-digit range, as well as strength in its Spirits & Wine and Golf segments while the benefit of price increases in home products counter the impact of lower and gradually improving results in Home & Hardware.
In the year, the management expects strong performance in Spirits & Wine and growth in Golf which is expected to help offset lower results for home products brands.
The management’s expectation is that earnings per share before charges/gains will be in the range of down mid-single digits to up low-single digits. That''s against the EPS before charges/gains of $5.33 that the company delivered in 2006.
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