Fortune Brands Home Security, Inc. FBHS has failed to impress with its recent operational performance, on account of tough end-market conditions amid the coronavirus outbreak, which are expected to negatively impact its earnings.
The Zacks Rank #4 (Sell) company has a market capitalization of $9 billion. In the past six months, it has gained 1.8% compared with the industry’s decline of 9.4%.
Let’s delve into the factors that might continue to take a toll on the firm.
Low Demand Environment: In the second and third quarters of 2020, Fortune Brands anticipates an adverse impact on its businesses on account of the coronavirus outbreak-led market downturn. Notably, temporary operational shutdowns at some of the company’s facilities coupled with the impacts of governmental regulations imposed in response to the crisis will likely have a bearing on its results.
Escalating Costs & Expenses: Fortune Brands has been experiencing rising costs over the past few quarters. For instance, its cost of sales increased 2% and 5% in the fourth quarter of 2019 and first quarter of 2020 respectively on a year-over-year basis. In addition, in both the quarters, the company’s selling, general and administrative expenses expanded 1% year over year. We believe rise in costs and expenses, if unchecked, might continue to prove detrimental to its finances in the quarters ahead.
Forex Woes & High Debt Level: Given its Plumbing and Cabinet segments’ significant operational presence in Canada, its business is exposed to the unfavorable foreign currency movements. As a matter of fact, in the first quarter, adverse foreign currency translation impact hurt the company’s Plumbing segment’s revenues by $4 million. In addition, at the end of the first quarter, its total debt was $2,435.1 million, reflecting growth of 11.5% on a sequential basis. Further, an increase in debt levels can raise the company’s financial obligations.
Estimate Trend: In the past 60 days, analysts have increasingly become bearish on the company, as evident from negative earnings estimate revisions. Notably, the Zacks Consensus Estimate for its 2020 earnings has trended down from $3.62 to $2.88 on seven downward estimate revisions against none upward revisions. In addition, over the same timeframe, the consensus estimate for 2021 earnings has trended down from $4.01 to $3.34 on seven downward estimate revisions against none upward revisions.
Stocks to Consider
Some better-ranked stocks are Activision Blizzard, Inc. ATVI, Broadwind Energy, Inc. BWEN and Graphic Packaging Holding Company GPK. While Activision Blizzard currently sports a Zacks Rank #1 (Strong Buy), Broadwind Energy and Graphic Packaging carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Activision Blizzard delivered a positive earnings surprise of 31.34%, on average, in the trailing four quarters.
Broadwind Energy delivered a positive earnings surprise of 50.00%, on average, in the trailing four quarters.
Graphic Packaging delivered a positive earnings surprise of 9.59%, on average, in the trailing four quarters.
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Activision Blizzard, Inc (ATVI) : Free Stock Analysis Report
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