It has been about a month since the last earnings report for Fortune Brands Home & Security (FBHS). Shares have lost about 3.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Fortune Brands Home & Security due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Fortune Brands' Q2 Earnings In Line, Revenues Miss
Fortune Brands reported its financial results for second-quarter 2019, wherein earnings before charges/gains were $1.03 per share, in line with the Zacks Consensus Estimate. Notably, on a year-over-year basis, the bottom line improved 3% on the back of sales growth.
Fortune Brands’ net sales were $1,507.2 million, increasing 5.5% 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 $1,526 million.
The company’s segmental results are discussed below:
Cabinets segment’s sales decreased 0.4% year over year to $635 million. As noted, growth in sales of value products was offset by weakness in premium, semi-custom and Canada.
Plumbing sales jumped 5% to $506.1 million on the back of organic sales growth of 6%.
Doors & Security segment’s sales increased 19% to $366.1 million, backed by gains from the buyout of Fiberon.
Costs & Expenses
In the second quarter, Fortune Brands’ cost of sales before charges/gains increased 7% year over year to $969.6 million. It represented 64.3% of net sales compared with 63.3% in the year-ago quarter. Selling, general and administrative expenses jumped 1.3% to $320.6 million, and represented 21.3% of the net sales compared with 22.1% a year ago.
Operating income before charges/gains increased 7% to $202.4 million. Operating margin before charges/gains climbed 20 basis points to roughly 13.4%. Interest expenses surged 40.8% to $24.5 million.
Exiting the second quarter, Fortune Brands’ cash and cash equivalents were $276.3 million, up 5.1% from $262.9 million at the end of the 2018. Its long-term debt decreased 7.9% to $1,666 million from the end of last year.
In the first six months of 2019, net cash provided by operating activities were $112 million, reflecting 18.4% decrease year over year. Capital expenditure amounted to $54.9 million, down from $67.2 million in the year-ago period.
Sales for 2019 are expected to increase in the range of 5.5-6.5% compared with 6-7.5% rise predicted earlier. Earnings before charges/gains are estimated to be $3.53-$3.67 per share, lower than the $3.53-$3.77 guided previously
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -5.4% due to these changes.
Currently, Fortune Brands Home & Security has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Fortune Brands Home & Security has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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