Fortune Brands Misses Estimates - Analyst Blog
04 August 2011 - 1:51PM
Zacks
Fortune Brands Inc.'s (FO) adjusted earnings of
71 cents a share for the second quarter of fiscal 2011 missed the
Zacks Consensus Estimate of 97 cents and declined 5.1% from the
prior-year quarter. Earnings, on a GAAP basis, were 65 cents per
share compared with $1.17 per share posted in the year-ago
quarter.
Quarterly Details
Net sales during the reported quarter grew 5.5% year over year
to $1,592.4 million, but fell short of the Zacks Consensus Estimate
of $1,926.0 million. Fortune Brands' adjusted operating income
declined 9.9% to $187.5 million and operating margin accordingly
decreased by 200 basis points to 11.8%.
Fortune Brands' Beam Spirit business outperformed in its three
key markets. During the quarter, net sales of the company's spirit
business grew by 11.3 to $702.7 million. However, operating income
upped 0.5% to $146.7 million.
Net sales from the company's Home & Security business
reported a growth of 1.3% to $889.7 million. The softer growth in
the segment was primarily due to tougher comparison growth in the
year-ago quarter.
Moreover, Fortune Brands' operating income plunged 14.8% from
the prior-year quarter to $70.4 million primarily due to higher
commodities costs and increased investments in brand-building
initiatives and new businesses.
At the end of the quarter, Fortune Brands had cash and cash
equivalents of $287.4 million and long-term debt of $3,290.1
million compared with a cash balance of $416.3 million and
long-term debt of $3,580.6 million in the prior-year quarter.
During the quarter, the company generated a free cash flow of
$155.8 million compared with $326.8 million in the prior-year
quarter.
Guidance
The company expects to sustain its growth momentum into fiscal
year 2011. Fortune Brands anticipates that fiscal 2011 will be a
solid year for the company despite higher commodity costs and
investments to support long-term growth.
Business Restructuring
Recently, Fortune Brands announced its intention to split the
company into three standalone units, giving investors pure plays in
golf, home products and alcoholic drinks. After the separation, the
ongoing company will be re-named as Beam Inc.
The company's home products business will retain its name of
Fortune Brands Home & Security. Moreover, the company revealed
that it is planning to spin-off its home and security business to
shareholders in a tax-free transaction by the end of fourth-quarter
2011.
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.
Besides, the company faces intense competition from
well-established players in the market, such as Diageo
plc (DEO) and Brown-Forman Corporation
(BF.B) in its spirits business and Masco
Corporation (MAS) in its home and hardware business.
Further, global competitive conditions have also been intensified.
Consequently, risk associated with operating in such a competitive
environment may undermine the company's future operating
performance.
Currently, Fortune Brands has a Zacks #4 Rank, implying a
short-term Sell rating on the stock. Besides, the company retains a
long-term Neutral recommendation.
BROWN FORMAN B (BF.B): Free Stock Analysis Report
DIAGEO PLC-ADR (DEO): Free Stock Analysis Report
FORTUNE BRANDS (FO): Free Stock Analysis Report
MASCO (MAS): Free Stock Analysis Report
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