This summary is based on the first quarter 2008 earnings call conducted by Fortune Brands Inc. (FO) on April 24, 2008.
Management:
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President and CEO: Bruce Carbonari
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Senior VP and CFO: Craig Omtvedt
Key Investors Issues
- Net income from continuing operations were $108 million or 69 cents per diluted share, down 11.3%.
- Net sales were down 5.4% to $1.81 billion from $1.91 billion in the prior year.
- The offshoot process for Absolut has concluded, and the Swedish government has signed a deal with Pernod Ricard.
First Quarter Highlights
Net income from continuing operations were $108 million or 69 cents per diluted share, down 11.3% from $121.3 million or 78 cents in the year ago quarter, reflecting a net charge of 6 cents per share.
- On a comparable basis, excluding excise tax and foreign exchange, total net sales were down 5.4% to $1.81 billion from $1.91 billion in the prior year, even though the firm drove strong growth in international markets for the Spirits, Golf and Home Products brands.
- Operating income was $227 million, down 11%, with the decrease reflecting the adverse operating leverage in the Home Products business and modest one-time charges. - Return on equity before charges and gains was 15%, after tax returns on net tangible assets before charges and gains was 23%, and working capital efficiency came in at 33%.
The offshoot process for Absolut has concluded, and the Swedish government has signed a deal with Pernod Ricard.
- The firm knows the V&S business well and saw an opportunity to create value and substantial synergies at the right price.
- It has a strong value sheet that enables it to focus resources on building the brands, repurchasing shares, evaluating high return add-on acquisitions, and paying dividends.
Upon conclusion of the auction on the last day of the quarter, it immediately announced an authorization to repurchase up to 15 million of shares.
- The firm also has significant protection in the distribution joint ventures with Absolut and in the US, it intends to continue the current distribution arrangements with Absolut into 2012.
- Absolut remains in the Maxxium International joint venture, representing 15% of Maxxium''s total volume, and Pernod Ricard has publicly indicated that the brand could remain at Maxxium for two more years.
- The firm is moving forward with plans to repurchase the 10% equity stake that V&S holds in the Beam Global Spirits business.
Segment Highlights:
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Spirits sales were $515 million, off 1% from a year ago and operating income before charges and spirits came in at $130 million, down 3%, reflecting the planned double-digit increase in brand spending, as well as the distributor inventory work down impact.
- Net sales were off at a high single digit rate in the US due to the larger than usual distributor inventory movements.
- At the same time, sales were up double-digits in international markets.
On a depletion basis, net sales from distributors to retailers were higher in the US for the key premium brands.
- Internationally, net net sales were up double-digits in constant currency in the UK and up solidly in Australia and the global duty-free channel.
- Sales in Spain were lower due to the timing of shipments, as the firm had customers who bought in inventory at the end of the year in advance for the January price increase.
- It also drove strong double-digit increases in four key emerging markets, Brazil, Russia, India and China and while depletions for Jim Beam were off in the US, it is expecting another strong year for Beam.
To further underpin the brand''s growth, it is rolling out the next generation of Jim Beam''s marketing campaign here in the second quarter.
- There were excellent trends in the marketplace for Sauza, despite lower shipments in the quarter due to the distributor inventory movements and tough year-over-year comparison.
- Depletions for Sauza were up globally and up strongly in the US, on the heels of the brand''s repositioning and repackaging campaign, which was launched at the end of last year.
- The firm also sees brand building success stories emerging in Canadian Club and Courvoisier.
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Home and Hardware sales came in at $894 million, down 13%, while operating income before charges were $68 million, also down 27%.
- Operating income trailed sales largely due to adverse operating leverage.
- While operating margins were up a 150 basis points in this business, the firm continues to expect full year margins to be off in the range of 100 bps, as it progressively benefits from productivity and restructuring initiatives.
- The segment is also benefiting from growth initiatives that are extending certain brands into adjacent categories and into international markets.
International sales grew at a double-digit rate reflecting the investment and the commitment.
