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NEW YORK (CNN/Money) - Fortune Brands reported a 59 percent drop in third-quarter earnings last week -- and since then the stock has risen nearly three dollars a share.

That's because the earnings decline was widely expected, mostly the result of a one-time charge from the company's July purchase of more than 20 brands of spirits and wine, including Maker's Mark bourbon, Sauza tequila and Courvoisier Cognac.

Excluding all non-recurring charges and tax adjustments, earnings for the most recent quarter rose 12 percent, about in line with analysts' expectations.

More important, the newly acquired brands should help drive sales and earnings growth.

The purchases contributed to a 19 percent gain in revenues for the quarter. Without acquisitions, revenues would have increased by 8 percent.

What's more, sales of the new brands carry higher profit margins.

In 2004, Fortune Brands (Research) got about half its revenues and earnings from hardware and housing-related products, including Moen faucets, Master Lock locks and Therma-Tru doors.

Spirits and wine, led by Jim Beam bourbon, accounted for only 16 percent of sales but 30 percent of operating profit. Golf supplies and office products, which had lower margins, accounted for most of the rest.

Since then the company has not only increased the size of its spirits franchise, but also has spun off some of the office-products lines. The net result should be an improvement in profitability and earnings growth.

Overall, the company manages a fine stable of consumer brands, a number of which rank No. 1 or No. 2 in their markets. If there is any weakness to the company's product mix, it is overdependence on the housing sector.

To date, that has not been a problem, but Fortune Brands' decision to bulk up its liquor business looks like a smart strategic move to help maintain earnings growth in the event the real-estate market weakens.

For 2005 as a whole, earnings are expected to rise more than 12 percent, with slightly higher gains possible in 2006.

Compound annual growth over the next five years or longer is projected at 12 percent or more. In addition, the shares yield 1.8 percent.

With total return potential well above that of the broad market and some defensive characteristics, you might think that Fortune Brands would receive a premium valuation. The share price, however, has slipped at least 15 percent since August.

At $80.69 a share, the stock trades at just over 15 times estimated earnings for 2006, which makes Fortune Brands looks like a clear-cut bargain.

Sivy on Stocks resources:

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Michael Sivy is an editor-at-large for MONEY magazine. Click here to receive Sivy on Stocks via e-mail every Tuesday.