US: Times remain troubled for Fortune Brands in Q2
Fortune Brands has posted a reverse in operating profits for its second quarter with sales from its spirits unit also sliding.
The US-based company, which owns Beam Global Spirits & Wine, said today (25 July) that group net sales for the three months to the end of June fell by 8.6% year-on-year to US$2.09bn. Fortune reported an operating loss of $16m from an operating profit of $415.8m a year earlier, with net profits down by 41.4% to $136m.
Beam Global, meanwhile, saw sales in the quarter dip by 1.4% to $607.9m, while operating profit was down by 20.5% at $138.6m.
For the first six months of 2008, group net sales were down by 7.2% to $3.90bn, with operating profit slumping by 68.6% to $211.2m. Net profits slumped by 27.2% to $256.5m.
At Beam Global, half-year sales were flat, down by 1.1% to $1.12bn, with operating profit decreasing by 12.5% to $267.2m.
Despite higher shipments of spirits brands in the US, Fortune said it had been hit by the ongoing correction in the housing market and the softening consumer environment in the US, as well as higher commodities costs, and the unanticipated Australian excise tax increase on RTD products.
The company also said that its results included a non-cash write-down of the company's investment in the Maxxium international joint venture related to the forthcoming exit of Rémy Cointreau, and restructuring and restructuring-related charges in the home products and spirits units. These items were partly offset by credits related to the favourable resolution of IRS tax matters and a gain related to the repurchase of the minority interest in the company's spirits business previously held by V&S Group.
"While we faced a tougher-than-expected environment in the second quarter, we remain intensely focused on two objectives - outperforming our product categories, and investing for the future to drive sustainable long-term growth and returns," said Bruce Carbonari, Fortune's president and CEO. "We're continuing to build a high-performance organisation behind our spirits brands, and we're investing to creatively build premium brand equity to grow revenues faster than case volumes.
"While our double-digit increase in brand-building investments and the Australia RTD tax increase adversely impacted operating income in our spirits business, we drove solid revenue and volume growth for several key premium spirits brands in the US," Carbonari noted. "We also benefited from the anticipated rebuilding of US spirits distributor inventories."
Fortune also said that it has completed the repurchase of the equity minority interest in Beam Global previously held by V&S Group. An independent evaluator established $455m plus accrued dividends as the price to repurchase the preferred shares.
"The price established for the repurchase of the equity minority interest is good news for our shareholders, and reflects the unique features of the preferred shares held by V&S as well as the debt structure of Beam Global," Carbonari said. "Because this valuation was below the $543m value we carry on our books, we have recorded a gain in our second quarter results. With this transaction now complete, we look forward to benefiting from the entire financial performance of our highest profit business."
The company also announced that its board has approved a 5% increase in the dividend on the company's common stock. The dividend will increase by $0.08 per share to an annual rate of $1.76 (payable $0.44 per quarter) from $1.68 per share ($0.42 per quarter). The next quarterly dividend will be paid on 2 September, to shareholders of record at the close of business on 13 August.
The company said that it has repurchased more than 4.3m shares of its common stock since implementing in March an authorisation to repurchase up to 15m shares.
Looking forward, Fortune said it is targeting diluted EPS before charges/gains in the third quarter to be down at a mid-teens-to-mid-20s percentage rate compared to $1.34 in the year-ago quarter. "For the full year," Carbonari said, "we continue to expect diluted EPS before charges/gains to be down at a high-single-digit-to-high-teens percentage rate compared to $5.06 in 2007."
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