Before talking about the valuation characteristics of Fortune Brands, let me forewarn you that it isn't an Internet powerhouse. The company is not in any way, shape, or form a Rule Breaker that is transforming the business world. Although traded for less than two years in its current form, the company has met these growth objectives despite significant challenges in international markets and in the golf business. Fortune Brand's strategy is to build its brands via new product introductions while reaping cost savings from operating efficiencies and acquisitions. The company bolstered its market position this year by buying the Geyser Creek Winery, the Schrock Cabinet Company, and Apollo Presentation Products.
Additional purchases are likely as opportunities arise.
The stock of Fortune Brands currently trades at about 18x consensus earnings estimates for 1999. First Call consensus estimates for 1999. The reported earnings number for Fortune Brands is actually quite conservative. Acquisitions have created a significant amount of goodwill amortization, a noncash expense that hurts earnings but does not hinder cash flow. Acquisitions and new product introductions caused most of this improvement.