This summary is based on the fourth quarter fiscal 2007 earnings call conducted by Fortune Brands, Inc. (FO) on January 25, 2008.
Management:
President, Chief Executive Officer: Bruce A. Carbonari
Senior Vice President, Chief Financial Officer: Craig P. Omtvedt
Key Investors Issues
- EPS were $1.28 per share compared to $1.65 per share last year.
- Income was $201.5 million compared to $257.6 million in the year-ago period.
- Sales rose less than 1% to $2.22 billion from $2.2 billion in the fourth quarter of 2006.
Fourth Quarter Highlights
Net income from continuing operations was $191 million or $1.22 per share.
That is down 23% from $1.59 in the year-ago quarter. Results included a net charge of 17 cents per share. The year-ago quarter reflected a net gain for one-time items of 23 cents per share. These results exclude income from the divested wine business and the related gain on the sale of the wine business amounting to 6 cents per share in both the current year and year-ago quarter.
For one-time items, fourth quarter earnings per share before charges and gains were $1.43, up 1% from $1.42 in the year-ago quarter. That includes income in the wine business through the data divestiture and comfortingly achieved previously announced target for EPS before charges or gains to be in the range of up low-single-digits to down mid-single-digits. Results were also a penny ahead of the first estimate of Wall Street security analysts.
Results on a continuing operating basis, excluding wine:
- Sales were $2.22 billion, up 1%. On a comparable basis, excluding excise tax and foreign exchange, total net sales would have been down low-single digits.
- Full year revenues were up half a percent to a record $8.56 billion. On a comparable basis, assuming the company had owned Simonton through 2006 and excluding excise taxes and FX, the company estimates sales for 2007 would have been off at a low-single-digit rate.
- Operating income was $336 million, down 7%. Primarily reflecting adverse operating leverage in home and hardware segment and restructuring and restructuring related items in home and hardware.
- For the full year operating income was down 5% to $1.38 billion. On a before-charges basis OI was down 3% for the fourth quarter and 4% for the year.
The largest divestiture was wine business.
The company completed the sale of the business to Constellation Brands in December for $885 million after having sold a couple of brands in related assets to Gallo in the summer.
The wine industry is highly capital intensive and therefore a low-return business growth as a spirit, so this sale enabled to focus resources on high return opportunities across the company.
In December the company sold the US distribution right for the Bowmore Scotch brand. These distribution rights offer a limited upside due to the supply agreements that would have constrained long-term supply of the product. At the same time, the company will focus on growing own global scotch brand lead by Laphroaig, Teacher’s, and newly introduced Ardmore single malt. The Bowmore generated about $6 million in annual sales and the company sold US rights and inventory for $58 million.
In the industry’s seasonal largest quarter spirits sales reached $859 million.
- That is up 10%. Revenues benefited from strong shipments of premium brands in the US, Australia, and the Global Duty Free Channel. They also benefited from favourable foreign exchange.
- On a comparable basis, excluding transition related sales in the year-ago quarter, fourth quarter sales in constant currency were up in the low- to mid-single-digit range.
- Operating income before one-time items came in at $246 million and that is up 1%. Operating income trailed sales largely due to the planned strong double-digit increase in brand spending outlined last quarter.
Home and hardware sales came in at $1.11 billion.
