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Fortune Brands (FBHS) Displays Bright Prospects Despite Risks

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·3 min read
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Fortune Brands Home & Security, Inc. FBHS has been benefiting from strength across its plumbing business, driven by growing popularity of its products. In both the first quarter and the second quarter of 2021, the company experienced double-digit sales growth across all brands, channels and regions in its plumbing business. Solid demand for doors and decking products, along with strength in its security business, is likely to drive its performance. Improvement in demand for its value price point cabinetry products, coupled with solid backlog level, is expected to be advantageous as well. For 2021, the company anticipates overall sales to grow 23-25% on a year-over-year basis.

Fortune Brands effectively deploys its capital for acquisitions, rewarding shareholders and boosting organic prospects. It used $5.2 million (net of cash acquired) in the first six months of 2021. In December 2020, Fortune Brands acquired LARSON Manufacturing, which has been strengthening its foothold in the doors and decking market. In the second quarter of 2021, the LARSON buyout expanded the Outdoors & Security segment’s sales by 35%.

Regarding rewards to shareholders, the company paid out dividends of $72 million in the first half of 2021, reflecting an increase from $66.6 million in the year-ago period. Also, the company bought back shares worth $156 million against $150 million used for share buyback in the year-ago period. Its focus on supply-chain optimization, operational efficiency and cost-control measures might boost margins and profitability in the coming quarters.

However, the company has been experiencing escalating costs of sales over the past few quarters. In 2020, its cost of sales and selling, general and administrative expenses increased 38% and 43%, respectively, on a year-over-year basis, despite its cost-reduction initiatives. In second-quarter 2021, its cost of sales and its selling, general and administrative expenses jumped 24% and 18%, respectively, on a year-over-year basis.

Fortune Brands’ high-debt profile poses a concern. In the last five years (2016-2020), its long-term debt rose 12.4% (CAGR). Its long-term debt balance was $2,608.3 million at the end of the second-quarter 2021, reflecting an increase of 1.4% from 2020-end. Any further increase in debt levels can raise the company’s financial obligations.

In the past month, the Zacks Rank #3 (Hold) stock has lost 0.3% compared with the industry’s decline of 2.8%.

Zacks Investment Research
Zacks Investment Research


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Key Picks

Some better-ranked stocks from the same space are Tempur Sealy International, Inc. TPX, Haverty Furniture Companies, Inc. HVT and RH RH. While Tempur Sealy currently sports a Zacks Rank #1 (Strong Buy), Haverty Furniture and RH carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Tempur Sealy delivered an earnings surprise of 30.22%, on average, in the trailing four quarters.

Haverty Furniture delivered an earnings surprise of 85.20%, on average, in the trailing four quarters.

RH delivered an earnings surprise of 19.83%, on average, in the trailing four quarters.


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