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Fortune Brands Reports Strong Sales and EPS Growth in Q4 and Full Year 2019; Provides 2020 Annual Outlook for Continued Growth

Highlights from continuing operations:

  • Q4 2019 sales increased 4 percent year-over-year to $1.5 billion with EPS of $0.74, an increase of 23 percent; EPS before charges / gains increased 16 percent to $1.00
  • Full-year 2019 sales increased 5 percent to approximately $5.8 billion, 6 percent excluding FX, with EPS of $3.06, an increase of 15 percent; EPS before charges / gains increased 8 percent to $3.60
  • Company expects full-year 2020 EPS before charges / gains to grow to $3.83 - $4.03 on sales growth of 5 percent to 6 percent

Fortune Brands Home & Security, Inc. (NYSE: FBHS), an industry-leading home and security products company, today announced fourth quarter and year end 2019 results.

"Our strong results during the fourth quarter reflect our team’s ability to execute well in a housing market with modest growth and tariff challenges," said Nicholas Fink, chief executive officer, Fortune Brands. "Our Plumbing business continues to outperform its market with exciting consumer-driven innovation and category expansion. The momentum we have in the value price point segment of our Cabinets business is proof our accelerated pivot plans are working. Distribution gains in composite decking products should provide a tailwind for our Doors & Security division during 2020 and beyond. As we look into the next year, we have multiple growth initiatives to pursue in a strengthening market, and we are keenly focused on capturing those opportunities."

Fourth Quarter 2019

For the fourth quarter of 2019, sales were $1.5 billion, an increase of 4 percent over the fourth quarter of 2018. Earnings per share were $0.74, compared to $0.60 in the prior-year quarter. EPS before charges / gains were $1.00, compared to $0.86 the same quarter last year. Operating income was $192.5 million, compared to $140.1 million in the prior-year quarter. Operating income before charges / gains was $206.8 million, compared to $180.6 million the same quarter last year, up 15 percent.

For each segment in the fourth quarter of 2019, compared to the prior-year quarter:

  • Plumbing sales increased 12 percent led by outperformance in China and the U.S. Operating margin before charges / gains continued at leading 21.7 percent margins.
  • Cabinet sales decreased 5 percent versus the prior year but were roughly flat excluding the 53rd week in 2018. In the U.S., growth in value priced cabinets was offset by softness in more premium products. Operating margin before charges / gains was 10.1 percent.
  • Doors & Security sales increased 8 percent, driven by continued, strong double-digit sales growth of composite decking and solid operating performance in security products versus the comparable quarter last year. Operating margin before charges / gains was 14.9 percent, which was up over 600 basis points versus the fourth quarter of 2018.

Full Year 2019

For the full year 2019, sales were nearly $5.8 billion, an increase of 5 percent over 2018, 6 percent excluding FX. Earnings per share were $3.06 compared to $2.66 in the prior year, and EPS before charges / gains were $3.60 versus $3.34 last year, an increase of 8 percent.

"We have executed in a year that was more challenging than anticipated. Balance sheet strength from our continued strong free cash flow profile has enabled us to further delever, and we now enter 2020 at 2x net debt to EBITDA, before charges / gains," stated Patrick Hallinan, chief financial officer, Fortune Brands. "We will continue to be focused on driving shareholder value through M&A, strategic partnerships, opportunistic share repurchases and maintaining a healthy dividend."

Annual Outlook for 2020

The Company expects full-year 2020 sales growth in the range of 5 percent to 6 percent, based on our assumption of a total global market expanding by 3 percent to 5 percent, including growth in the U.S. home products market of approximately 4 percent to 6 percent.

The Company expects EPS before charges / gains to be in the range of $3.83 to $4.03.

For 2020, the Company expects to generate free cash flow of $565 to $585 million.

"Our teams delivered sales and profit growth despite continued market and tariff headwinds," said Fink. "We believe there will be a better home products market in 2020. We have put in place a prudent plan to generate solid EPS growth in 2020 and could have upside to that plan should U.S. new construction growth exceed expectations, or we generate meaningful additional share gains from the current effects of anti-dumping and countervailing duties on Chinese cabinet imports."

About Fortune Brands

Fortune Brands Home & Security, Inc. (NYSE: FBHS), headquartered in Deerfield, IL., creates products and services that fulfill the dreams of homeowners and help people feel more secure. The Company's operating segments are Plumbing, Cabinets, and Doors & Security. Its trusted brands include Moen, Riobel, Perrin & Rowe, Shaws, Victoria + Albert and Rohl under the Global Plumbing Group (GPG); more than a dozen core brands under MasterBrand Cabinets; Therma-Tru entry door systems, Fiberon composite decking and Master Lock and SentrySafe security products in the Doors & Security segment. Fortune Brands holds market leadership positions in all of its segments. Fortune Brands is part of the S&P 500 Index. For more information, please visit www.FBHS.com. To learn more about how Fortune Brands is embracing and accelerating its environmental, social and governance duties, please visit the Company's ESG section and report at www.FBHS.com/global-citizenship.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This press release contains certain "forward-looking statements" regarding business strategies, market potential, potential of the anti-dumping and countervailing duty case, future financial performance, the potential of our brands and other matters. Statements preceded by, followed by or that otherwise include the words "believes," "positioned," "expects," "estimates," "plans," "look to," "outlook," and similar expressions or future or conditional verbs such as "will," "should," "would," "may" and "could" are generally forward-looking in nature and not historical facts. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is based on the current plans and expectations of our management. Although we believe that these statements are based on reasonable assumptions, they are subject to numerous factors, risks and uncertainties that could cause actual outcomes and results to be materially different from those indicated in such statements. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including the factors discussed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission. The forward-looking statements included in this release are made as of the date hereof, and except as required by law, we undertake no obligation to update, amend or clarify any forward-looking statements to reflect events, new information or circumstances occurring after the date of this release.

Use of Non-GAAP Financial Information

This press release includes measures not derived in accordance with generally accepted accounting principles ("GAAP"), such as diluted earnings per share before charges / gains, sales excluding the impact of foreign exchange, operating income before charges / gains, organic sales, operating margin before charges / gains, net debt to EBITDA and free cash flow. These measures should not be considered in isolation or as a substitute for any measure derived in accordance with GAAP and may also be inconsistent with similar measures presented by other companies. Reconciliations of these measures to the most closely comparable GAAP measures, and reasons for the Company’s use of these measures, are presented in the attached pages.

 
FORTUNE BRANDS HOME & SECURITY, INC.
(In millions, except per share amounts)
(Unaudited)
 
 
Net Sales
 
 

Three Months Ended December 31,

Twelve Months Ended December 31,

2019

2018

% Change

2019

2018

% Change

Net Sales (GAAP)Net Sales (GAAP)
Cabinets

$

590.8

 

$

624.8

 

(5

)

Cabinets

$

2,388.5

 

$

2,418.6

 

(1

)

Plumbing

 

548.4

 

 

488.4

 

12

 

Plumbing

 

2,027.2

 

 

1,883.3

 

8

 

Doors & Security

 

331.3

 

 

307.5

 

8

 

Doors & Security

 

1,348.9

 

 

1,183.2

 

14

 

Total Net Sales

$

1,470.5

 

$

1,420.7

 

4

 

Total Net Sales

$

5,764.6

 

$

5,485.1

 

5

 

 
Current Quarter Operating Income
 
 
Before Charges & GainsGAAP
 
Three Months Ended December 31,Three Months Ended December 31,
Operating Income (loss) Before Charges/Gains (a)

 

2019

 

 

2018

 

% Change

Operating Income (loss)

 

2019

 

 

2018

 

% Change

Cabinets

$

59.8

 

$

62.3

 

(4

)

Cabinets

$

44.3

 

$

21.3

 

108

 

Plumbing

 

118.8

 

 

108.8

 

9

 

Plumbing

 

119.7

 

 

102.2

 

17

 

Doors & Security

 

49.5

 

 

26.8

 

85

 

Doors & Security

 

49.8

 

 

33.9

 

47

 

Corporate Expenses

 

(21.3

)

 

(17.3

)

(23

)

Corporate Expenses

 

(21.3

)

 

(17.3

)

(23

)

 
Total Operating Income Before Charges/Gains

$

206.8

 

$

180.6

 

15

 

Total Operating Income (GAAP)

$

192.5

 

$

140.1

 

37

 

 
Earnings Per Share Before Charges/Gains (b)Diluted EPS from Continuing Operations (GAAP)
Diluted - Continuing Operations

$

1.00

 

$

0.86

 

16

 

Diluted EPS - Continuing Operations

$

0.74

 

$

0.60

 

23

 

 
 
EBITDA Before Charges/Gains (c)

$

247.6

 

$

226.0

 

10

 

Income from Continuing Operations, net of tax

$

104.0

 

$

85.3

 

22

 

 
 
Year to Date Operating Income
 
 

Before Charges & Gains

GAAP

 

 

 

 

 

 

Twelve Months Ended December 31,

Twelve Months Ended December 31,

Operating Income (loss) Before Charges/Gains (a)

 

2019

 

 

2018

 

% Change

Operating Income (loss)

 

2019

 

 

2018

 

% Change

Cabinets

$

230.5

 

$

232.3

 

(1

)

Cabinets

$

178.3

 

$

143.5

 

24

 

Plumbing

 

435.8

 

 

396.0

 

10

 

Plumbing

 

427.6

 

 

375.3

 

14

 

Doors & Security

 

177.4

 

 

155.3

 

14

 

Doors & Security

 

172.3

 

 

155.6

 

11

 

Corporate Expenses

 

(79.7

)

 

(78.9

)

(1

)

Corporate Expenses

 

(79.7

)

 

(79.2

)

(1

)

 
Total Operating Income Before Charges/Gains

$

764.0

 

$

704.7

 

8

 

Total Operating Income (GAAP)

$

698.5

 

$

595.2

 

17

 

 
Earnings Per Share Before Charges/Gains (b)Diluted EPS From Continuing Operations (GAAP)
Diluted - Continuing Operations

$

3.60

 

$

3.34

 

8

 

Diluted EPS - Continuing Operations

$

3.06

 

$

2.66

 

15

 

 
 
EBITDA Before Charges/Gains (c)

$

919.9

 

$

868.3

 

6

 

Income from Continuing Operations, net of tax

$

431.3

 

$

390.0

 

11

 

 
 
(a) (b) (c) For definitions of Non-GAAP measures, see Definitions of Terms page
 
 
FORTUNE BRANDS HOME & SECURITY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (GAAP)
(In millions)
(Unaudited)
 
 

December 31,

 

December 31,

2019

 

2018

 
Assets
Current assets
Cash and cash equivalents

$

387.9

$

262.9

Accounts receivable, net

 

624.8

 

571.7

Inventories

 

718.6

 

678.9

Other current assets

 

166.9

 

172.6

Total current assets

 

1,898.2

 

1,686.1

 
Property, plant and equipment, net

 

824.2

 

813.4

Goodwill

 

2,090.2

 

2,080.3

Other intangible assets, net of accumulated amortization

 

1,168.9

 

1,246.8

Other assets

 

309.8

 

138.0

Total assets

$

6,291.3

$

5,964.6

 
 
Liabilities and Equity
Current liabilities
Short-term debt

$

399.7

$

525.0

Accounts payable

 

460.0

 

459.0

Other current liabilities

 

549.6

 

508.1

Total current liabilities

 

1,409.3

 

1,492.1

 
Long-term debt

 

1,784.6

 

1,809.0

Deferred income taxes

 

157.2

 

162.6

Other non-current liabilities

 

512.4

 

320.9

Total liabilities

 

3,863.5

 

3,784.6

 
Stockholders' equity

 

2,426.6

 

2,178.2

Noncontrolling interests

 

1.2

 

1.8

Total equity

 

2,427.8

 

2,180.0

Total liabilities and equity

$

6,291.3

$

5,964.6

 
 
 
FORTUNE BRANDS HOME & SECURITY, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
 
 
 

Twelve Months Ended December 31,

 

2019

 

 

2018

 

Operating Activities
Net income

$

431.3

 

$

389.8

 

Depreciation and amortization

 

152.7

 

 

149.6

 

Recognition of actuarial losses

 

34.1

 

 

3.8

 

Non-cash lease expense

 

35.9

 

 

-

 

Deferred taxes

 

(7.5

)

 

2.8

 

Asset impairment charges

 

43.2

 

 

62.6

 

Other noncash items

 

33.5

 

 

39.6

 

Changes in assets and liabilities, net

 

(86.0

)

 

(44.2

)

Net cash provided by operating activities

$

637.2

 

$

604.0

 

 
Investing Activities
Capital expenditures

$

(131.8

)

$

(150.1

)

Proceeds from the sale of assets

 

4.2

 

 

6.1

 

Cost of acquisitions, net of cash

 

-

 

 

(465.6

)

Other investing activities, net

 

-

 

 

(24.7

)

Net cash used in investing activities

$

(127.6

)

$

(634.3

)

 
Financing Activities
(Decrease)/Increase in debt, net

$

(150.7

)

$

826.2

 

Proceeds from the exercise of stock options

 

17.3

 

 

4.9

 

Treasury stock purchases

 

(100.0

)

 

(694.6

)

Dividends to stockholders

 

(123.0

)

 

(115.2

)

All other

 

(33.3

)

 

(28.1

)

Net cash used in financing activities

$

(389.7

)

$

(6.8

)

 
 
Effect of foreign exchange rate changes on cash

 

4.3

 

 

(15.2

)

 
Net increase in cash and cash equivalents

$

124.2

 

$

(52.3

)

Cash, cash equivalents and restricted cash* at beginning of period

 

270.7

 

 

323.0

 

Cash, cash equivalents and restricted cash* at end of period

$

394.9

 

$

270.7

 

 
 
 
FREE CASH FLOW

Twelve Months Ended December 31,

2020 Full Year

 

2019

 

 

2018

 

Approximation

 
Free Cash Flow**

$

526.9

 

$

464.9

 

$ 565.0 - 585.0

Add:

 

Capital expenditures...