Too bad Fortune Brands (NYSE:FO) isn't a pure spirits and wine company.

After a solid fourth quarter and 2006, 2007 will be a more challenging year for Fortune Brands, thanks to its home and hardware segment and its exposure to the downturn in the domestic housing market. For the year ahead, management is calling for overall earnings per share ranging from the low- to mid-single digits.

The company's primary weakness will stem from home and hardware, as Fortune Brands sees a mid- to high-single-digit decline in operating income. It sees major challenges in the segment for the first part of the year, as it's up against strong comps for 2006, and its primary kitchen and bath exposure is just heading into a new construction downturn. Management has been forthcoming in detailing its current struggles, and industry turmoil is widespread; peers such as Masco (NYSE:MAS) are laying off employees, as is Black and Decker (NYSE:BDK).

The golf division includes the Titleist, Cobra, and Foot Joy brands and is the smallest segment. Management sees a decent 2007 and single-digit growth here. While home and hardware is the current problem child, golf developments should be steady but uneventful as the segment competes against the likes of Callaway Golf (NYSE:ELY). So where's the upside?

As of this year, Fortune Brands is primarily a spirits and wine company. The segment was the largest profit contributor for 2006, as sales grew an impressive 68% and operating income advanced 78%, though a good part of this was due to recent acquisitions. For the year, management expects mid-to-high single-digit operating growth. The segment is also the company's most profitable; it posted 26% operating margins as compared to the 12%-15% margins in the home and golf divisions. In other words, spirits are the company's current cash cow and growth driver.

So why would Fortune choose to hang on to anything that doesn't have to do with high-margin alcoholic beverages? Well, overall, the company has still managed to post 22 straight quarters of earnings expansion, and the home segment has posted more than a decade of double-digit growth. Management expects housing conditions to improve by 2008, but doesn't see much opportunity to buy competitors while the industry suffers. At some point, it could spin off more divisions -- as it did in 2005, by jettisoning office-product supplier Acco Brands (NYSE:ABD) -- but for the time being, there's no talk of any breakup.

Fortune Brands also generates impressive levels of free cash flow. Right now, it's focused on paying down debt from last year's spirit acquisitions, but it generates plenty of capital to pay dividends and make future acquisitions. There's no hurry to buy the shares, since 2007 could be a challenging year, but make sure to keep this company on your watch list.

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Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.