Thanks to housing-related woes, Fortune Brands (NYSE:FO) has the unfortunate distinction of a business model with 44% of profits dependent on the struggling home improvement industry. On a more fortunate note, it is a growing player in the highly profitable and popular spirits and wine segment of the alcohol industry.

Yesterday, the company presented at the 27th annual Piper Jaffray Consumer Conference in New York. Fortune Brands' Chief Operating Officer, CFO, and director of investor relations were on hand to present and answer attendee questions. Read below for details into why management believes it is "positioned for multiple expansion" and other positive developments going forward.

Opening remarks
Fortune Brands opened the presentation by touting its "broad strength across three attractive consumer categories," including spirits & wine, gold, and home & hardware. Just two years ago, nearly 10% of operating income stemmed from office supplies, but management chose to spin off the business to shareholders. The company is now known as Acco Brands (NYSE:ABD).

Over this time frame, the golf business has retained a similar proportion of overall profitability and competes with Callaway Golf (NYSE:ELY) in selling golf bags, balls, clubs, and other accessories. The spirits and wine segment has grown from 28% to 45% of operating income, which is a good thing, as it is also the most profitable segment.

Home woes slow growth
Fiscal 2007 will mark a rare earnings drop, since management continues to expect a "low-single digits to down mid-single digits" decrease, with a possible double-digit fall for the upcoming second quarter. The culprit is home and hardware, which is projected to be the only division to post negative growth trends.

So, what is management doing to stem home-product changes? For starters, it plans on continuing to release "innovative new products" to maintain leading market positions with Moen faucets, Master Lock security products, cabinets, and other furnishing offerings. It is also focusing on cost controls in its global supply chain and sees conditions improving eventually, especially considering that only 1/3 of its products are related to new construction, as opposed to the repair and remodel (R&R) market.

Managing the business for the long term
In recent years, Fortune Brands has posted a steady "track record of consistent market-share gains, earnings growth, and strong returns" by growing internally and staying aggressive on the acquisitions front. Collectively, it has posted close to 20% annual sales and increased earnings in the double digits over the past three years. Management also highlighted double-digit earnings growth in nine of the past 10 years, with a steady improvement in operating earnings and free cash flow generation (which it defines as operating cash flow less capex and dividend payments).

Fortune Brands' long-term financial goals consist of 4%-6% organic sales growth, 6%-7% operating income expansion, and double-digit earnings increases. Management plans on growing each business unit by investing in its brands, pursuing "industry-leading innovation," and keeping a tight lid on costs. Judging by past results, it definitely has credibility, even though near-term trends are working against it.     

The Foolish bottom line
Fortune Brands sees its valuation as compelling and expects multiple expansion as housing-related woes wane going forward. As of the presentation, management estimated the stock was trading at a 5% P/E discount to the market and 20%-25% below "other leading consumer companies." Below is a rundown of leading firms in each of the company's divisions:

Trailing P/E

Forward P/E

Spirits and Wine

   

Brown-Forman (NYSE:BF-b)

21.5

20.5

Diageo (NYSE:DEO)

18.1

18.2
     
Home and Hardware    

Masco (NYSE:MAS)

28.8

16.9

Black & Decker (NYSE:BDK)

13.9

14.3
     

Golf

   

Callaway

37.5

21.7

Fortune Brands

15.6

15

Fortune Brands may not deserve the multiple awarded to the pure-play, high-end alcohol firms, but contrarian-minded Fools may want to consider using subprime and other housing concerns to pony up for a position in a company that clearly knows how to successfully manage its brands.

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Fool contributor Ryan Fuhrmann is long shares of Diageo and Masco but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.