It has been about a month since the last earnings report for Fortune Brands Home & Security (FBHS). Shares have added about 26.5% in that time frame, outperforming 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 Q1 Earnings & Revenues Beat Estimates
Fortune Brands reported first-quarter 2020 earnings before charges/gains of 81 cents per share, surpassing the Zacks Consensus Estimate of 69 cents. On a year-over-year basis, the bottom line improved 28.6%, backed by sales growth.
Fortune Brands’ net sales were $1,402.7 million, increasing 6% from the year-ago figure. The rise was driven by healthy growth in Cabinets, and Doors & Security segments. Also, the top line beat the consensus estimate of $1,376 million.
Cabinets’ sales jumped 8% year over year to $620 million. Growth in sales of value products more than offset the weakness in premium products.
Plumbing sales increased 2% to $469 million on the back of impressive performance in the United States, partially offset by the negative impacts of the coronavirus-led market downturn and forex woes.
Doors & Security’s sales jumped 6% to $313.7 million, backed by robust sales growth of doors and composite decking products.
Costs & Expenses
In the first quarter, Fortune Brands’ cost of sales before charges/gains increased 5% year over year to $909.5 million. It represented 64.8% of net sales compared with 65.4% in the year-ago quarter. Selling, general and administrative expenses increased 1% to $313.9 million, and represented 22.4% of the net sales compared with 23.5% a year ago.
Operating income before charges/gains increased 19.6% to $169.8 million. Operating margin before charges/gains climbed 140 basis points to 12.1%. Interest expenses decreased 7% to $22.1 million.
Exiting the first quarter, Fortune Brands’ cash and cash equivalents were $359.7 million, down 7.3% from $387.9 million at the end of 2019. Its long-term debt climbed 14% to $2,035.2 million sequentially.
In the first three months of 2020, net cash used by operating activities was $13.8 million compared with $89.7 million used in the year-ago comparable period. Capital expenditure amounted to $26.9 million, down from $27.2 million in the year-ago period.
For 2020, Fortune Brands believes that the coronavirus outbreak-led market downturn will adversely impact its results, particularly in the second and third quarters.
On uncertainties, regarding the impacts of the coronavirus outbreak on financial and operating results, the company has now suspended its guidance for 2020.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -30.91% due to these changes.
At this time, Fortune Brands Home & Security has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, 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 C. 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 these revisions indicates a downward shift. It's no surprise Fortune Brands Home & Security has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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