UPDATE 4-Fortune Brands says open to talks w/ Ackman

* Q3 adj EPS $0.72 misses Wall Street’s $0.74/shr view

* Sales rise 0.2 pct to $1.72 bln, miss Street estimate

* Keeps 2010 EPS forecast; raises cash flow view

* Affirms faith in current model; welcomes talk w/ Ackman

* Shares up 0.2 pct
(Rewrites with comments on Pershing Square; changes headline)

By Martinne Geller

NEW YORK, Oct 28 (BestGrowthStock) – 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

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

“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

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.


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

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

UPDATE 4-Fortune Brands says open to talks w/ Ackman