Consumer goods maker Fortune Brands posted a sharply higher quarterly profit that topped Wall Street’s expectations as an improving economy helped spur sales of premium liquor and Titleist golf clubs.
But the conglomerate said sales of its Simonton windows, up at a double-digit rate, were fueled by the expiration of a consumer tax credit for the purchase of energy-efficient home products. As a result, it expects the overall window market to fall at a mid-single-digit rate this year.
Shares, which had been up as much as 2.5 percent, were down 0.1 percent in afternoon trading.
The performance of Fortune, which also makes Moen faucets and Jim Beam bourbon, is often viewed as an economic barometer, since sales of its windows, doors and cabinets are correlated to the housing market, and its golf balls and alcoholic drinks to consumers’ discretionary spending.
Morningstar analyst Philip Gorham said Fortune’s strong quarterly performance might not be sustainable, given the one-time boost and the fact that rising gasoline prices could put a damper on spending.
“Good quarter, but watch the space because there are threats on the horizon,” Gorham said. What is more, he said all eyes are on Fortune’s planned breakup.
“It isn’t about a couple of cents on EPS anymore,” Gorham said. “It’s about how much value they’re going to unlock later this year.”
Fortune said in December that it planned to spin off its home goods unit and sell or spin off its golf unit, amid pressure from activist investor William Ackman, raising the odds for a takeover of the parts.
Several major private equity firms, including Blackstone Group and Bain Capital, have considered the potential of buying Fortune’s home products division, sources told Reuters in January.
The company said Friday that its board would approve the breakup in pieces and that it has hired Morgan Stanley to explore a spin or sale of the golf division, confirming earlier press reports.
“So you will see things related to that happening in the marketplace probably sooner than later,” said Chief Executive Bruce Carbonari.
Fortune said the separation process was on track for completion in the second half of 2011.
OUTPACING THE MARKET
Fortune’s fourth quarter net income was $85.4 million, or 55 cents per share, up from $11.5 million, or 8 cents per share, a year earlier.
Excluding items, earnings were 63 cents per share, topping the analysts’ average estimate of 58 cents, according to Thomson Reuters I/B/E/S.
Quarterly net sales were $1.90 billion, up 5 percent from a year earlier and topping the analysts’ average estimate of $1.8 billion. By business, sales rose 6 percent in drinks, 2 percent in home and security, and 10 percent in golf.
Fortune said it expects 2011 earnings before items to rise at a percentage rate in the high single-digit to high-teens range, minus the impact from separating the business.
Comparisons with last year will be “challenging” for the first half of the year, Fortune said, due to strong gains a year ago in the home business due to the expiration of a homebuyer tax credit, higher investment and commodity costs and the divestiture of the Cobra brand.
The company expects the overall market for all its business to rise at a low single-digit rate this year and said it expects to outpace that.
Fortune shares were down 6 cents at $61.49 on the New York Stock Exchange Friday afternoon after rising to $63.11 earlier in the day.
