This is a summary of the fourth quarter fiscal 2006 earnings call conducted by Fortune Brands, Inc. (FO) on January 26, 2007.
Fourth Quarter Highlights
- Net income was $252 million, or $1.62 per diluted share, up 38% from $1.17 in the year-ago quarter.
- Comparisons benefited from a net gain (23 cents per share) from a deferred tax benefit (31 cents per share) related to reduced international tax rates, partly offset by restructuring-related charges (8 cents per share) principally for supply-chain initiatives in the home products business.
- Excluding one-time items in both the current and prior-year periods, EPS before charges/gains was $1.39, up 14% from $1.22 in the year-ago quarter.
- Net sales were $2.28 billion, up 16%.
- Operating income was $381 million, up 25%.
Full Fiscal 2006 Highlights
- Net income was $824 million, or $5.39 per diluted share, up 39% from $3.87 in 2005.
- Excluding one-time items in both years, EPS before charges/gains was $5.30, up 15% from $4.62 in 2005.
- Net sales were $8.77 billion, up 24%.
- On a comparable basis, the company estimates total net sales for Fortune Brands would have risen in the range of 4-5% in constant currency.
- Operating income was $1.50 billion, an increase of 29%.
- Free cash flow reached $584 million after dividends and capital expenditures, above the top of the company''s previously announced target range of $450-500 million and well above the $385 million in free cash flow generated in 2005.
- Return on equity before charges/gains was 18%.
- Return on invested capital before charges/gains was 10%.
- The dividend increased 8% to an annual rate of $1.56 per share.
Spirits & Wine delivered quarterly records for both sales and operating income.
Fourth quarter sales reached $857 million that’s 36% higher than a year ago quarter when revenues didn’t reflect the full value of acquired brands and that was due to fin 46 accounting. On a comparable basis sales grew at a double-digit rate.
Fourth quarter sales benefited from strong spirit shipments in the U.S. and Asia-Pacific regions, as well as strong case volume growth for our wine brands in the U.S.
- Fourth quarter operating income was 63% higher at $258 million and that’s up 56% before charges.
- For the full year, Spirits & Wine sales came in at $2.77 billion, up 68%.
2006 sales include about $90 million in transitional revenues that produced no operating income.
These revenues relate to two items - the Pernod Ricard bottling contract and accounting for first quarter sales to Maxxium in Spain. About $40 million of those transitional revenues were recorded in the first quarter of 2006.
- On a comparable basis full year sales grew at a high single digit rate.
- Full year operating income reached $714 million up 78%.
- Before charges O/I was up 72% achieving the goal set a year ago.
The company is pleased with the strong margin performance delivered by the Spirits & Wine business.
Margins improved as the year progressed and adjusting for the bottling contract operating margin expanding above 27% for the year. That represents one of the best margins in the industry.
In the first full year following the acquisition the company’s expanded and enhanced portfolio grew around the world. Global case volumes for the Spirits & Wine brands grew in the range of 2% to 3% in 2006 again net sales were up high single digits benefiting from stronger growth at the premium end of the market.
The case volumes are based on depletions in the U.S. and shipments in all other markets. In the United States, the company’s largest market, full year depletions for the entire Spirits & Wine portfolio grew at a low single digit rate with the premium and super premium brands growing faster.
In markets outside the U.S. spirits case shipments grew collectively at a mid single digit rate.
That growth was supported by strong volume performance in the Asian Pacific region Mexico South America and the duty free channel as well as solid growth for the company’s global brands in greater Europe.
As expected, the major premium and super premium brands delivered the strongest growth.
The flagship Jim Beam brand continued its worldwide momentum reflecting the success of the brand building investments global volumes for Jim Beam grew at a mid single digit rate. Including sustained growth for the world’s number one bush on in the brands three biggest markets the U.S., Australia and Germany.
