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Fortune Brands (FBHS) to Gain From Business Strength Amid Risks

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Fortune Brands Home & Security, Inc. FBHS has been benefiting from solid momentum in its plumbing business, supported by a healthy demand environment and incremental investments in brands and customer service. Strong demand for the company’s doors and decking products, coupled with strength in its security business, is likely to drive its performance in the coming quarters. The growing acceptance of its value price point cabinetry products and solid backlog level are also likely to be beneficial. For 2021 (results awaited), it expects sales to increase in the range of 24.5-25.5% year over year.

Fortune Brands intends to strengthen its businesses through the addition of assets. Its acquisition of LARSON Manufacturing (December 2020) has been boosting its offering for outdoor living and strengthening its foothold in the doors and decking space. Also, strength in the Fiberon business (acquired in September 2018) has been complementing its existing door brand, Therma-Tru. In third-quarter 2021, sales from Fiberon decking business increased in the mid-single-digit range on a year-over-year basis.

Fortune Brands remains committed toward rewarding shareholders through dividend payouts and share buybacks. In the first nine months of 2021, the company repurchased shares worth $252.9 million and paid out dividends worth $107.9 million. Also, in July 2021, FBHS announced a share buyback program, which entitles it to repurchase up to an additional $400 million of its shares (valid till Jul 23, 2023). Further, it hiked its quarterly dividend rate by 7.7% in December 2021.

However, the company’s high-debt profile poses a major concern. Exiting third-quarter 2021, Fortune Brands’ long-term debt was $2,629.1 million, reflecting an increase of 0.8% sequentially. Any further increase in debt levels can raise its financial obligations and hurt profitability.

It has also been experiencing escalating costs and expenses over time. In third-quarter 2021, FBHS’ cost of sales and its selling, general and administrative expenses jumped 19% and 22%, respectively, on a year-over-year basis. Also, supply chain constraints, raw-material inflation and a shortage of labor remain persistent concerns.

Zacks Investment Research
Zacks Investment Research

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In the past three months, this Zacks Rank #3 (Hold) stock has returned 1% against the industry’s decline of 17.3%.

Key Picks

Some better-ranked stocks from the Zacks Retail-Wholesale sector are discussed below.

The Lovesac Company LOVE presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Its earnings surprise in the last four quarters was 245.88%, on average.

In the past 60 days, Lovesac’s earnings estimates have increased 40.6% for fiscal 2022 (ending January 2022) and 57.9% for fiscal 2023 (ending January 2023). LOVE’s shares have lost 37.5% in the past three months.

Tempur Sealy International, Inc. TPX presently carries a Zacks Rank #2 (Buy). Its earnings surprise in the last four quarters was 22.39%, on average.

Tempur Sealy’s earnings estimates have been stable for 2021 (results awaited) and 2022 in the past 60 days. TPX’s shares have lost 15.4% in the past three months.

Beacon Roofing Supply, Inc. BECN presently carries a Zacks Rank #2. Its earnings surprise in the last four quarters was 566.78%, on average.

BECN’s earnings estimates have increased 11.3% for fiscal 2022 (ending September 2022) and 5% for fiscal 2023 (ending September 2023) in the past 60 days. Its shares have gained 6.5% in the past three months.


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