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Why Is Fortune Brands Home & Security (FBHS) Down 4.4% 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 lost about 4.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Fortune Brands Home & Security due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Fortune Brands Q4 Earnings & Revenues Top Estimates

Fortune Brands reported fourth-quarter 2020 earnings before charges/gains of $1.25 per share, surpassing the Zacks Consensus Estimate of $1.16 by 7.8%. On a year-over-year basis, the bottom line increased 25% on the back of sales growth.

In 2020, the company’s earnings before charges/gains came in at $4.19, higher than $3.60 in the previous year.

In the fourth quarter, Fortune Brands’ net sales were $1,659.7 million, increasing 13% from the year-ago figure. The improvement was driven by solid performance across all of its segments. Also, the top line beat the consensus estimate of $1,618 million by 2.6%.

In 2020, the company’s net sales were $6,090.3 million, reflecting an increase of 6% year over year.

Segmental Details

Quarterly net sales for Cabinets grew 11% year over year to $655.5 million. Results were driven by continued solid demand for the company’s products.

Plumbing net sales increased 16% year over year to $637.7 million. Results were driven by impressive performance across the business.

Outdoors & Security’s net sales increased 11% to $366.5 million on the back of double-digit sales growth for composite decking and doors products.

Costs & Expenses

In the fourth quarter, Fortune Brands’ cost of sales increased 12% year over year to $1,052 million. It represented 63.4% of net sales compared with 63.8% in the year-ago quarter. Selling, general and administrative expenses increased 17% to $364.2 million, and represented 21.9% of the net sales compared with 21.2% a year ago.

Operating income before charges/gains increased 19% to $246.4 million. Operating margin before charges/gains climbed 70 basis points to 14.8%. Interest expenses decreased 13% to $19.5 million.

Balance Sheet

Exiting 2020, Fortune Brands’ cash and cash equivalents were $419.1 million, up 8% from $387.9 million at the end of 2019. Its long-term debt increased 23.3% to $2,572.2 million sequentially.

In 2020, net cash generated by operating activities was $825.7 million compared with $637.2 million a year ago. Capital expenditure amounted to $150.5 million, up from $131.8 million.

Outlook

For 2021, Fortune Brands anticipates sales to increase 12.5-14.5% from the previous year. Earnings before charges/gains are estimated to be $4.85-$5.05 per share. Also, it anticipates to generate free cash flow of $600-$650 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 12.05% due to these changes.

VGM Scores

Currently, Fortune Brands Home & Security has a nice Growth Score of B, though it is lagging a bit 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 second quintile 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 trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Fortune Brands Home & Security has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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