Friday, December 21, 2007


Did you follow up on your task, calling the IR department? I did. A very pleasant gentleman named Tony Diaz, the Vice President of IR for Fortune Brands (FO), called me yesterday to answer three questions I posed before I'd consider investing in his company. For those of you not familiar with Fortune, they are a conglomerate who thrive in 3 environments: 1. Liquor (Jim Beam, Maker's Mark, Sauza, etc.) 2. Hardware (Moen and more) 3. Golf (Titleist, Cobra). Here are my questions and the answers to each.

1. FO is currently bidding to acquire Absolut. Do you expect to win the auction and if so, how long before the acquisition is accretive to earnings?

Mr. Diaz, in reference to analyst speculation that the acquistion may be too expensive, stated that FO had recently put out a press release that the company would not pursue the acquisition if it were to be dilutive to earnings of .50-$1.

Note that FO has previously partnered with Absolut and is considered the frontrunner to win the auction.

2. Your website lists new home construction as a driver for your home and hardware products. Clearly the new home market is in a freefall. How will this affect earnings for that division/entire company?

Mr. Diaz conceded that FO foresees the new construction slowdown extending through 2008, and expects an earnings decrease of 100 basis points in that division.

3. Why does the company carry $5 billion dollars in debt given its excellent cashflow?

Mr. Diaz noted that the $5 billion was almost entirely from the acquisition of Allied Domecq in 2005, a huge distributor of wine and liquor, that has become hugely accretive for the company. This is "investment grade" debt.

He also noted to look for corporate guidance for 08' that will be released 1/25. We certainly will!Thank you, Mr. Diaz. FO is also currently trading at its 52-week low.

As I am new to the options game , I would like to post a link to an interesting strategy suggested in an article about Walgreen's (WAG). The strategy employed is called a "strangle," and involves buying both puts and calls on a stock that you think will make a sudden move. Credit Suisse's Sveinn Palsson and Edward K. Tom recod this strategy due to the nature of WAG's conference call, the first in which they will allow analyst and investor questions. They suggest that this will provide necessary volatility to the strangle in either direction. Turns out, they were on the money as WAG has gone through the roof today on good earnings. Here is the link:

Now, did this blogger profit from such excellent advice? Errr...not exactly. It was my intention to make a very modest test ($500, $250 for each part of the strangle), but as luck would have it I was not working and my trusty home HP monitor flickered, then faltered to its death yesterday and I was not able to purchase a position. That simple investment would've provided a 1-day return of about $1,000. The only thing that feels strangled is my manhood/nuts.

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