Fortune Brands Slices Profit Forecast

The Deerfield Park, Ill. company boasts an enviable portfolio: hardware brands such as Moen and MasterBrand Cabinets, a spirits lineup featuring Sauza tequila and Curvoisier cognac alongside Jim Beam and golf brands including Titleist and Cobra, all household names for affluent consumers.

But the dismal state of the housing market has long been on drag on Fortune's performance, and Tuesday's announcement was only noteworthy in the sense that management said things are even worse than expected. Fortune Brands gets more than half its revenue from home and hardware, and the drag is noticeable. According to Thomson Financial, Fortune had about $8.6 billion in revenue in 2007, and is on track for $8.1 billion in sales this year, a 5% decline.

The company had already warned investors to expect a high-single-digit-to-mid-teens percentage rate drop in second-quarter earnings, which hit $1.53 a year ago. Fortune is scheduled to report earnings July 21, and said both quarterly and full-year earnings will be worse than expected.

The quarterly miss will be in the high teens to mid-20s, and that will depress full-year earnings at a high-single-digit-to-high-teens percentage rate. Fortune earned $5.11 a share in 2007.

"The environment has become more challenging for our brands and the second quarter is shaping up to be more difficult than we had anticipated," Fortune CEO Bruce Carbonari said. "April was a solid month that tracked with our expectations, followed by softer-than-anticipated results in May. We've seen continued softness in June and it's now clear that we will not make up the May shortfall."

New housing construction in May dropped for the 27th consecutive month, according to U.S. Commerce Department figures. A severe tightening of credit in the wake of the subprime mortgage meltdown has dried up financing for major home renovations, which account for about two-thirds of Fortune's home and hardware sales.

Wachovia Capital Markets analyst Jonathan Feeney on Tuesday cut his rating on the stock to Market Perform from Market Outperform.

"Probably 100% of their problem is macro in nature and not internal to the company," says Alex Paris, an analyst at Barrington Research.

Favor isn't following Fortune anywhere, it seems. The recent unexpected passage of a 70% Australian excise tax increase on ready-to-drink cocktails — think premade bourbon and colas — hits one of the company's highest-margin products in a market that accounts for 10% of its total sprits business.