Fortune Brands Inc.’s (FO) adjusted earnings for the fourth quarter of fiscal 2010 came in at 63 cents a share, beating the Zacks Consensus Estimate of 58 cents but falling short of the year-ago adjusted figure of 66 cents. Earnings, on a GAAP basis, were 55 cents per share compared with 8 cents per share posted in the year-ago quarter.
For fiscal 2010, the company reported adjusted earnings per share of $2.81, comfortably ahead of the Zacks Consensus Estimate of $2.77.
Meanwhile, net sales during the reported quarter grew 5.5% year over year to $1,895.5 million. Total revenue beat the Zacks Consensus Estimate of $1,799 million.
For fiscal 2010, net sales came in at $7,141.5 million compared with $6,694.7 million reported in the year-ago period. Net sales also beat the Zacks Consensus Estimate of $7,051.0 million.
Quarter Details
The Home & Security segment reported sales of $843.8 million, thereby, increasing 2.4% year over year and Spirit sales increased 9.6% to $818.2 million. Golf segment sales increased 2.9% to $233.5 million.
Fortune Brands’ gross profit during the quarter rose 8.7% year over year to $914.6 million and gross margin expanded 150 basis points (bps) to 48.3%. Operating income fell 0.5% to $181.0 million and operating margin accordingly declined 60 bps to 9.5%.
Financials
At the end of the year, Fortune Brands had cash and cash equivalents of $864.7 million and long-term debt of $3,637.4 million, compared with a cash balance of $417.2 million and long-term debt of $4,413.3 million at 2009 end.
During the year, the company generated free cash flows of $690.0 million, compared with $724.7 million in the prior year. For 2010, Fortune Brands expects free cash flows of $450 million to $525 million.
Guidance
The company expects to sustain its growth momentum into fiscal year 2011. Fortune Brands anticipates earnings to grow in a band of high-single-digit to high-teens.
Business Restructuring
Recently Fortune Brandsannounced its intention to split the companyinto three standalone units, giving investors pure plays in golf, home products and alcoholic drinks. The company revealed that it would spin off its home and security business to shareholders in a tax-free transaction.
Fortune Brands also plans to either spin off or sell its golf business. The home and security business earns revenue from products such as Moen faucets and Master locks while the golf division owns brands like Titleist.
Consequent to the spin-off, the company will continue to subsist as a publicly traded manufacturer of distilled spirit. This unit has parented brands like Jim Beam bourbon, Courvoisier cognac and Sauza tequila. Fortune Brands looks forward to pull off this strategic restructuring within the next several months.
Fortune Brands is the largest spirits company in the U.S. and the fourth largest in the world. It competes head-to-head with Diageo plc (DEO), the world’s leading spirit company, Pernod Ricard, the second largest company in the world for spirits, and privately held Bacardi, the third largest company in the world for spirits.
Fortune Brands’ shares maintain a Zacks #2 Rank, which translates into a short-term Buy recommendation. Our long-term recommendation for the stock remains Neutral.
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