Norman Wesley has reason to be proud.
The chairman and CEO of Fortune Brands, a $6 billion, publicly held holding company, boasts an impressive list of consumer products — Moen, Master Lock, Jim Beam, DeKuyper, Titlelist, Footjoy, Pinnacle, Swingline, Kensington — many of them their segment’s market leader.
The Fortune Brands strategy is simple: Acquire the best consumer product companies in their industries, then make sure the best people are running them so the parent company can increase shareholder value.
"The common thread is they are growing consumer categories where we have leadership positions," says Wesley. "Ninety percent of our sales come from brands that have a No. 1 or No. 2 market position.
"They tend to be categories that are underpinned by good growth and where innovation is important. We’re great believers in growth through innovation. Twenty-five percent of our sales come from products introduced in just the last three years."
Fortune Brands focuses on four product categories: home and hardware, spirits and wine, golf, and office products. And that narrow focus has worked — Fortune Brands’ stock price has increased more than 50 percent in the past year to the mid-$70 range, and Wesley still thinks the shares are undervalued.
"We’ve made some good acquisitions (most recently, Therma-Tru doors), bought well and have been able to execute well," he says. "That’s been reflected in good earnings growth, which has been reflected and appreciated in our stock price."
Growth is important, but managing the company’s assets is crucial to success.
"We generate very substantial free cash," Wesley says. "Last year we generated in the range of $430 million of free cash. We have a target to grow our earnings per share by double digits. We can do that by using our free cash to buy back our shares.
"If we’re good stewards of capital, then we look to do better than that. And if you look at six out of the last seven years, we’ve exceeded that target, and we’ve actually grown by pretty strong double digits. Most people think of double digit as 10 or 11 percent. We’ve probably compounded at a growth of above 15 percent."
That ability to effectively manage the company’s assets and balance sheet helps Wesley navigate Fortune Brands through difficult economic times and often, the demands of finicky investors.
"Particularly on Wall Street, it takes a long time to build your reputation," Wesley says. "We are very careful about telling people what it is we want to do, and then we live to it. We don’t surprise them with things that are inconsistent with what we told them before.
"It’s a trust we earn and a confidence we get, whether it’s with our customers or consumers. Our employees are sort of our shareholders every day. We’ve been very clear as to what our strategy is; we’ve had a disciplined approach. Fortunately, that’s consistently delivered strong results because we’ve executed well."