A month has gone by since the last earnings report for Fortune Brands Home & Security (FBHS). Shares have added about 3% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Fortune Brands Home & Security due for a pullback? 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 drivers.
Fortune Brands Q3 Earnings & Revenues Miss Estimates
Fortune Brands reported weaker-than-expected financial results for third-quarter 2019. Its earnings before charges/gains were 95 cents per share, missing the Zacks Consensus Estimate of 97 cents. Notably, on a year-over-year basis, the bottom line improved 2.2% on the back of sales growth.
The company’s net sales were $1,459 million, increasing 6% 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 $1,489 million.
The company’s segmental results are discussed below:
Cabinets segment’s sales decreased 2% year over year to $589.7 million. Growth in sales of value products was offset by weakness in premium and semi-custom.
Plumbing sales jumped 11% to $514.1 million on the back of organic sales growth of about 12%.
Doors & Security segment’s sales increased 11% to $355.2 million, backed by gains from the buyout of Fiberon.
Costs & Expenses
In the third quarter, Fortune Brands’ cost of sales before charges/gains increased 5% year over year to $934.8 million. It represented 64.1% of net sales compared with 64.2% in the year-ago quarter. Selling, general and administrative expenses jumped 2% to $311.3 million, and represented 21.3% of the net sales compared with 22.1% a year ago.
Operating income before charges/gains increased 14% to $168 million. Operating margin before charges/gains climbed 80 basis points to roughly 11.5%. Interest expenses increased 24% to $23.6 million.
Exiting the third quarter, Fortune Brands’ cash and cash equivalents were $336.2 million, up 27.9% from $262.9 million at the end of the 2018. Its long-term debt increased 7.7% to $1,949 million from the end of last year.
In the first nine months of 2019, net cash provided by operating activities were $353.8 million, reflecting 2.9% increase year over year. Capital expenditure amounted to $82.4 million, down from $106.5 million.
Sales for 2019 are expected to increase in the range of 5-6% compared with 5.5-6.5% rise predicted earlier. Earnings before charges/gains are estimated to be $3.53-$3.63 per share, lower than the $3.53-$3.67 guided previously.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
Currently, Fortune Brands Home & Security has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. 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 has been net zero. 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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