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Fortune Brands' (FBHS) Earnings Beat, Revenues Miss in Q4

Zacks Equity Research

Fortune Brands Home & Security, Inc. FBHS reported fourth-quarter 2019 earnings before charges/gains of $1 per share, surpassing the Zacks Consensus Estimate of 97 cents. On a year-over-year basis, the bottom line improved 16%, backed by sales growth.

In 2019, the company’s earnings before charges/gains were $3.60 per share, increasing 8% from the year-ago figure of $3.34.

Fortune Brands’ net sales were $1,470.5 million, increasing 4% from the year-ago figure. The rise was driven by healthy growth in Plumbing and Doors & Security segments. However, the top line missed the consensus estimate of $1,481 million.

Net sales in 2019 were $5,764.6 million, increasing 5% year over year, driven by solid momentum in Plumbing and Doors & Security segments.

Fortune Brands Home & Security, Inc. Price, Consensus and EPS Surprise

Fortune Brands Home & Security, Inc. Price, Consensus and EPS Surprise

Fortune Brands Home & Security, Inc. price-consensus-eps-surprise-chart | Fortune Brands Home & Security, Inc. Quote

Segmental Details

Cabinets’ sales decreased 5% year over year to $590.8 million. Growth in sales of value products was offset by weakness in premium products.

Plumbing sales jumped 12% to $548.4 million on the back of impressive performance in China and the United States.

Doors & Security’s sales increased 8% to $331.3 million, backed by robust sales growth of composite decking along with solid operating performance in security products.

Costs & Expenses

In the fourth quarter, Fortune Brands’ cost of sales before charges/gains increased 2% year over year to $938.7 million. It represented 63.8% of net sales compared with 64.7% in the year-ago quarter. Selling, general and administrative expenses jumped 1% to $312.4 million, and represented 21.2% of the net sales compared with 21.7% a year ago.

Operating income before charges/gains increased 37% to $192.5 million. Operating margin before charges/gains climbed 320 basis points to roughly 13.1%. Interest expenses decreased 4% to $22.4 million.

Balance Sheet

Exiting the fourth quarter, Fortune Brands’ cash and cash equivalents were $387.9 million, up 47.5% from $262.9 million at the end of the 2018. Its long-term debt decreased 1.3% to $1,784.6 million.

In 2019, net cash provided by operating activities were $637.2 million, reflecting 5.5% increase year over year. Capital expenditure amounted to $131.8 million, down from $150.1 million.

Outlook

For 2020, Fortune Brands anticipates moderate growth in markets while seeks to focus on operational improvements. The company expects the U.S. home products market to grow 4-6% in the year and the global market to grow 3-5%.

Sales for the year are expected to increase 5-6% from 2019. Earnings before charges/gains are estimated to be $3.83-$4.03 per share, reflecting year-over-year growth of 9.2% at the mid-point.

Zacks Rank & Key Picks

Fortune Brands currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader industry are Graco Inc. GGG, Alarm.com Holdings, Inc. ALRM and Johnson Controls International plc JCI. While Graco sports a Zacks Rank #1 (Strong Buy), Alarm.com and Johnson Controls carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Graco has a long-term earnings growth rate of 11.5%.

Alarm.com has a long-term earnings growth rate of 15%.

Johnson Controls has a long-term earnings growth rate of 9.7%.

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