New York, May 14 - Despite a faltering U.S. economy, the new chief executive of Fortune Brands Inc is optimistic about the fundamental health of his company's business, which sells consumer products ranging from bourbon and golf balls to windows and faucets.
Bruce Carbonari, who rose to the top job on Jan. 1, told Reuters on Wednesday that revenues in the company's spirits business, which includes Jim Beam bourbon, Sauza tequila and Courvoisier cognac, should outperform the industry this year, both at home and abroad.
Domestic spirits revenue should increase in the mid single digits in percentage terms, while industry sales may rise at the low end of its historical range of 2 percent to 4 percent, Carbonari, the former president and chief operating officer, said in an interview.
Carbonari, like the heads of other alcoholic drink makers, said sales have been affected by the weak U.S. economy as cash-strapped consumers make fewer trips to restaurants and bars. Drinkers are still treating themselves to an "affordable luxury," but are drinking at home more often.
"On-premise" (restaurants and bars) sales, one-fifth of the market, are slowing, Carbonari said, while "off-premise" sales through retailers, which make up four-fifths, are growing.
As more people drink at home, there is no evidence of consumers "trading down" to cheaper brands, he said.
"The spirits business has been a very stable market. People view it as something that is reasonable, cost-wise, social and kind of a relief from what's really happening out there," Carbonari said.
Spirits sales abroad, roughly one-half of the unit's $2.61 billion in total sales last year, should rise in the high single digits this year, compared with a mid single-digit rate for the industry. Carbonari pointed to strength in emerging markets like Brazil, India, China and Russia.
HOPEFUL ON THE HOME FRONT
Fortune's stock is down 9 percent over the last year due in part to its exposure to the U.S. housing market. Home products like Moen faucets, Simonton windows and Aristokraft cabinets made up more than one-half its revenues last year.
Though the business will continue to suffer in the near term, Carbonari called the long-term fundamentals of the U.S. housing market "excellent."
He expects U.S. housing starts to return to an annual rate of 1.7 million to 1.8 million after the inventory glut lessens.
Carbonari said inventories have begun to stabilize and homes are becoming more affordable, with people spending an average of about 19 percent of discretionary incomes on mortgage payments, down from roughly 26 percent before the housing bubble burst.
In terms of investing for growth and shareholder returns, Carbonari said Fortune's main priority is internal growth, followed by acquisitions and share buybacks. He said Fortune has repurchased 1.6 million shares under its current buyback authorization for up to 15 million shares, announced in March.
Fortune's golf business -- with brands like Titleist and FootJoy -- account for about 16 percent of total sales and is the most ripe for organic growth. As a result, acquisitions will most likely be in the home and spirits units, Carbonari said.
The company recently lost an auction to buy Vin & Sprit, getting outbid by French company Pernod Ricard, which makes Absolut vodka. As a result, Pernod, which has the rights to sell Stolichnaya outside Russia, is expected to eventually stop selling the Russian vodka. That would create an opportunity for Fortune to fill its lack of a large vodka brand.
"We're looking at all acquisitions," Carbonari said in response to a question about Stolichnaya. "The opportunity in Stolichnaya is one that we would look at, but right now we have an arrangement with Absolut through 2012."
Fortune is the majority owner of a joint venture with Vin & Sprit called Future Brands, which has the right to distribute Absolut in the United States through 2012. Analysts have said Pernod may seek to untie the deal early, but Pernod has denied it.
Fortune shares closed up 81 cents, or 1.2 percent, at $70.91 on the New York Stock Exchange, and have gained 11 percent since late March, when the Absolut deal was announced.