The name Fortune Brands, Inc. (NYSE: FO) may not be a household name, but the holding company owns many brands that the average American consumer knows well. The company's brands include: Moen faucets, Master Locks, Waterloo tool cabinets, Jim Beam, Courvoisier, Canadian Club, Maker's Mark, Titleist, FootJoy, Cobra and Pinnacle to name a few. In terms of sales, Fortune's leading brand is Moen faucets with 2007 sales of approximately $950 million, followed by Titleist with $800 million, Jim Beam bourbon with $550 million, and Aristokraft cabinets with 2007 sales of $500 million.
Though these products may seem unrelated, the two ties that bind them together are their brand strength in the U.S. marketplace and a strong management team. The company's management focuses intently on growing sales through building Fortune's already hulking strength of brands. However, with the U.S. housing market slump from subprime woes, 2007 was a tough year. The company posted sales growth of only 0.5%, and total operating income actually decreased approximately 4.9%.
Fortune Brands, Inc. operates in three business segments: Home and Hardware, Spirits and Wine, and Golf. Among these segments, the leader in sales is the Home and Hardware segment, whose sales accounted for 53% of the company's $8.56 billion 2007 revenues and 35% of overall operating earnings in the same period. Second only in sales is the Spirits and Wine segment with 31% of overall 2007 sales. However, this segment led in earnings with 53% of the company's 2007 total, while providing the highest profit margins among the three segments. The Spirits and Wine Segment increased net sales by 3.7% in 2007. Finally, the Golf segment contributed 16% of sales, which exceeded $1.4 billion, and 12% of overall 2007 earnings.
The company's management couples the strategy of internal growth with wise strategic acquisitions of companies within Fortune's three business segments. In 2007, the company's Research and Development teams filed nearly 600 patent applications for their creations, while more than 20% of revenues were generated from products introduced within the prior three-year period, thus fueling internal growth. Though 2007 saw no major acquisitions for Fortune Brands, Inc., the company has a strong financial position that facilitates the company's purchasing of strong competing brands through the use of debt or equity. However, the company sold two wine brands to E. & J. Gallo Winery in August 2007, and sold the remainder of its U.S. wine assets to Constellation Brands for $844.5 million last December. Being able to buy companies using inexpensive funding, namely debt, allows Fortune to grow profits, using the acquired company's operational revenue to cover the payments. This situation is something that the company's management has become adept at identifying and exploiting. When looking for potential growth opportunities, an investor should not overlook Fortune Brands, Inc.
