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Why Is Fortune Brands Home & Security (FBHS) Up 3.2% Since Last Earnings Report?

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It has been about a month since the last earnings report for Fortune Brands Home & Security (FBHS). Shares have added about 3.2% 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 catalysts.

Fortune Brands Q2 Earnings & Revenues Beat Estimates

Fortune Brands reported second-quarter 2021 earnings before charges/gains of $1.56 per share, which surpassed the Zacks Consensus Estimate of $1.37 by 13.9%. On a year-over-year basis, the bottom line increased 66% on the back of sales growth.

In the second quarter, Fortune Brands’ net sales were $1,936.1 million, increasing 41% from the year-ago figure. The improvement was driven by solid performance across all its segments. Also, the top line beat the consensus estimate of $1,885 million by 2.7%.

Segmental Details

Quarterly net sales for Cabinets grew 31% year over year to $706 million. Results were driven by continued solid demand for the company’s products.

Plumbing net sales increased 38% year over year to $694.6 million. Results were driven by impressive performance across the business.

Outdoors & Security’s net sales increased 61% to $535.5 million on the back of double-digit sales growth for composite decking, doors and security products.

Costs & Expenses

In the second quarter, Fortune Brands’ cost of sales increased 38% year over year to $1,230.3 million. It represented 63.5% of net sales compared with 64.9% in the year-ago quarter. Selling, general and administrative expenses increased 43% to $394.6 million, and represented 20.4% of the net sales compared with 20.1% a year ago.

Operating income before charges/gains increased 51% to $297.5 million. Operating margin before charges/gains climbed 110 basis points to 15.4%. Interest expenses decreased 4.5% to $21.2 million.

Balance Sheet

Exiting the second quarter, Fortune Brands’ cash and cash equivalents were $460 million, up 29.2% from $356.1 million at the end of the previous quarter. Its long-term debt increased 1.4% to $2,608.3 million from 2020-end.

In the first six months of 2021, net cash provided by operating activities was $262.7 million compared with $260.5 million in the year-ago period. Capital expenditure amounted to $65.8 million, up from $42.3 million. In the first six months of the year, its free cash flow was $230.7 million, down 5.4% from the year-ago period.

In the first six months of 2021, the company rewarded shareholders with a dividend payout of $72 million. The amount represents growth of 8.1% year over year. Amount spent on purchasing treasury stock totaled $156 million, up 4%.

Outlook

For 2021, Fortune Brands anticipates sales to increase 23-25% from the previous year, higher than growth of 20-22% guided earlier. Earnings before charges/gains are estimated to be $5.65-$5.85 per share compared with 5.45-$5.65 per share predicted earlier. Also, it anticipates generating free cash flow of $675-$725 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

At this time, Fortune Brands Home & Security has a strong 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions 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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