October 28, 2010 / 6:06 PM / 9 years ago

Fortune Brands says open to talks with Ackman

NEW YORK (Reuters) - Fortune Brands Inc FO.N said it is open to constructive talks with activist hedge fund manager William Ackman and defended its current business portfolio, even after reporting weaker-than-expected quarterly results.

The maker of Jim Beam bourbon, Moen faucets and Titleist golf equipment said the driving force behind its diverse portfolio is the combined cash flow that lets it invest in what it deems “attractive markets with headroom”.

The company now expects 2010 free cash flow of $625 million to $700 million, up from a prior target of $525 million to $600 million.

“We feel really good about the businesses right now,” said Chief Executive Officer Bruce Carbonari on Thursday on a conference call with analysts following its third-quarter earnings report. “At the same time, we’re open to constructive discussions with all of our shareholders, and that includes Pershing Square.”

As a matter of policy, Carbonari said Fortune would not discuss certain things, such as shareholder interactions, merger activity or board activities.

Fortune raised its target for 2010 cash flow and stood by its full-year earnings forecast despite third-quarter sales and earnings that missed Wall Street expectations, due in part to the expiration earlier this year of a U.S. tax credit that lifted demand for home goods.

Earlier this month, Ackman’s fund Pershing Square Capital, known for big investments in retailer Target Corp (TGT.N) and shopping mall operator General Growth Properties Inc GGP.N, revealed a 10.9 percent stake in Fortune Brands.

The move sparked speculation about what changes the activist investor might push for at Fortune, whose three distinct areas of business have little overlap.

The company has hired Credit Suisse CSGN.VX in preparation for a potential battle with Ackman, a source familiar with the situation told Reuters on Wednesday.

“We’ve demonstrated our shareholder value orientation, and quite honestly, we’re pretty relaxed,” said Fortune’s chief financial officer Craig Omtvedt. “We look forward to having a dialogue with Ackman and his team as much as we do anybody else.”

Fortune shares, which jumped 7 percent after Ackman announced his stake, were up 0.2 percent at $54.65 in afternoon trade on the New York Stock Exchange.

GRADUAL AND UNEVEN

Fortune’s golf and spirits businesses make it a good barometer of discretionary consumer spending, while the home business — which includes windows, doors and cabinets — speaks to the strength of the U.S. housing market.

“As we look ahead, we continue to expect that the economic recovery will be gradual and uneven, with the spirits and golf markets likely to grow in the low-single-digit range for the full year and the likelihood that our home products market will now be relatively flat,” Carbonari said.

In the spirits business, Fortune’s most profitable, Carbonari said there were “very healthy” signs of improvement, such as an easing of the aggressive promotions that pressured margins earlier in the year, and people returning to bars and restaurants and starting to order more expensive drinks again.

Fortune said net income was $102.6 million, or 66 cents per share, in the third quarter, down from $124.1 million, or 82 cents per share, a year earlier.

Excluding one-time items, earnings were 72 cents per share. Analysts on average were expecting 74 cents per share, according to Thomson Reuters I/B/E/S.

Fortune estimated that the expiration of the U.S. homebuyer tax credit, as well as the timing of some spirits orders, reduced third-quarter earnings by 10 to 15 cents per share by pulling customer demand into the second quarter.

As a result, net sales edged up only 0.2 percent to $1.72 billion. Analysts were looking for $1.75 billion.

Comparable sales, which exclude the impact of excise taxes, foreign exchange rates, acquisitions and divestitures, rose 1 percent. By business, comparable sales rose 2 percent in spirits, 1 percent in home goods and 3 percent in golf equipment.

For the full year, Fortune Brands said its earnings are tracking toward the middle of its target range of $2.60 per share to $2.90 per share. The range’s midpoint is $2.75 per share, which is below analysts’ average estimate of $2.86 per share.

Reporting by Martinne Geller; Editing by Lisa Von Ahn, Gerald E. McCormick

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