Fortune Brands has seen sales at its Beam Global Spirits & Wine division flatten in the first nine months of this year, as operating profit fell by over a half at the group.

The company said today (24 October) that group net sales for the nine months to the end of September fell by 8.3% year-on-year, totalling US$5.82bn. Net sales at Fortune's spirits unit inched up in the period, by 0.7%, to $1.76bn.

Group operating profit, however, took a hammering in the first nine months of 2008, plunging by 55.2% to $466m. At Beam Global, operating profit came in 12.4% down at $417.6m, with the company recording a charge of $40.8m in the period, related in part to "organisational repositioning, supply chain activities, and route-to-market initiatives" for its drinks division.

Group net profit in the year so far was up by 5.6% year-on-year to $592.4m.

For the third quarter, group net sales slid by 10.4% to $1.92bn, with Beam Global's sales rising by 4% to $636.3m. Group operating profit dropped by 30.8% to $254.8m, while Beam Global's contribution decreased by  12.3% to $150.4m.

Net profit for the group in the quarter, meanwhile, leapt by 60.8% to $335.9m.

The company noted that, "in an increasingly challenging economic environment", sales growth from brands including Jim Beam, Maker's Mark and Courvoisier "helped deliver results within its previously announced earnings target range". Spirits results in the quarter benefited from the timing of shipments in the US, higher pricing, and favourable product mix, partly offset by the impact of the excise tax increase in Australia on RTD products earlier this year, Fortune said.

As a result of a net gain due to previously announced one-time items, reported earnings per diluted share increased 66% to $2.21 for the quarter.  Excluding one-time items, EPS was $1.11, down 17%.

"In the third quarter, we ... made significant progress to proactively position Fortune Brands for future growth," said Fortune's chairman and CEO, Bruce Carbonari. "We efficiently unwound our spirits partnership with V&S Group on very favourable terms: We repurchased the minority interest in our spirits business at an attractive valuation; we received a $230m pre-tax payment from Pernod Ricard to accelerate the end of our US distribution joint venture with the V&S brands; we established our new spirits sales and distribution platform in the US and globally; and we acquired Cruzan Rum at an attractive price, giving us an excellent position in a growing premium category.

"Taken together, these moves enable our highly profitable spirits business to look to the future with more clarity, a simpler sales structure, and prospects for strong long-term growth."

Looking forward, Carbonari conceded that the current economic environment "will present near-term challenges".

Fortune is set to benefit, however from the fact that "nearly 60% of our profits now come from the relatively stable distilled spirits category", he noted.

In the fourth quarter, Fortune's spirits results will take a one-time hit from the implementation of a new inventory management model "that will rely on leaner and more consistent US distributor inventory levels going forward".

"Given that the current economic environment has become more challenging and uncertain than anyone had anticipated, we are approaching our earnings targets with caution," Carbonari said. "For the fourth quarter,  ... we're targeting earnings per share before charges/gains to be down at a low-30s-to-high-40s percentage rate versus $1.39 a year ago. Nearly half of the anticipated fourth-quarter decline is attributable to the Australia RTD tax issue and our spirits route-to-market initiatives. For the full year, we are now targeting 2008 results to be down at a high-teens-to-mid-20s percentage rate compared to $5.06 in 2007."