Fortune Brands Posts Robust Q4 Earnings - Analyst Blog


Backed by the wave of new construction in recent times and improvement in the Repair & Remodel market, Fortune Brands Home & Security Inc. ( FBHS ) posted strong fourth-quarter 2013 results with adjusted earnings per share (EPS) of 38 cents rising 65.2% on a year-over-year basis. Also, it surpassed the Zacks Consensus Estimate by a penny.

The adjusted EPS for the reported quarter does not include restructuring charges, including which Fortune Brands' earnings came in at 37 cents per share.

For the full year, Fortune Brands posted adjusted earnings of $1.50 per share, reflecting a 69% surge from last year and coming ahead of the Zacks Consensus Estimate of $1.49. GAAP earnings for the full year came in at $1.34 per share, surging 88.7% year over year.

Looking Deeper

Net sales rose 16.2% year over year to $1,101.9 million and surpassed the Zacks Consensus Estimate of $1,097.0 million. The year-over-year increase in top line was primarily driven by improvement in the housing market. Fortune Brands also registered an increase of 20% in the consolidated home product segment sales.

Segment-wise, sales at Fortune Brands' Kitchen & Bath Cabinetry, Plumbing & Accessories and Advanced Material Windows & Door Systems segments increased 34%, 7% and 13%, respectively. All three segments are collectively named the home product segment.  The company's Security & Storage net sales declined 2% in the quarter owing to the bad holiday shipment timing to its strongest consumer.

For full-year 2013, revenues jumped 16.0% to $4.2 billion, almost in line with the Zacks Consensus Estimate.

Adjusted gross profit increased 19.6% year over year to $377.1 million, while as a percentage of net sales it improved 90 basis points (bps) to 34.2%. Operating income before including any one-time charges/gains came in at $97.3 million, up 59.0% from the year-ago comparable quarter. Adjusted operating margin improved 230 bps to 8.8%, primarily driven by a fall in selling, general & administrative (SG&A) expenses as a percentage of sales.

Segment-wise, adjusted operating income before any charges/gains escalated 173.2%, 28%, 18% and 8% for the Kitchen & Bath Cabinetry, Plumbing & Accessories, Advanced Material Windows & Door Systems and Security & Storage sections, respectively.

Financial Details

Fortune Brands ended the year gracefully with a strong balance sheet, mainly on the back of the acquisition of WoodCrafters and the resurgence of the housing markets.

Cash and cash equivalents at year-end were $241.4 million while long-term debt (excluding current maturities) was $350.0 million. Shareholders' equity (excluding non-controlling interests) at the year-end was $2,649.4 million.

During 2013, the company generated cash flow of $297.8 million from operational activities and now has free cash flow of $254.0 million. It had a net debt to EBITDA ratio at 0.2, almost maintaing its previous guidance of approaching a zero net debt to EBITDA ratio.

Moreover, in 2013, Fortune Brands repurchased stock worth $52.0 million and announced a 20% hike in its quarterly dividend with effect from the beginning of 2014.

Looking Ahead

Taking cue from the improving housing markets and the company's confidence in its growth potential, it forecasted sales to advance by 11-13% in 2014.

Further, with optimism that markets for home products will grow by 10-11%, management raised its earnings guidance to a band of $1.91-$2.01 per share for 2014, compared to $1.50 this year. Currently, the Zacks Consensus Estimate stands at $1.94 per share, which may see a revision in the coming days following the company's higher guidance.

Moreover, Fortune Brands is expected to generate free cash flow of over $250 million in 2014, after excluding the impact of its expected capital expenditures of roughly $130-$140 million next year.

This leading home and security products company believes that it has built an impressive momentum in the last couple of years and is well placed to boost profits in the future, by exploiting the structural advantages it enjoys over its competitors.

Other Stocks to Consider

Fortune Brands currently holds a Zacks Rank #4 (Sell). Other companies performing well in the home furnishing space include Haverty Furniture Companies Inc. ( HVT ), Tempur Sealy International Inc. ( TPX ) and Lumber Liquidators Holdings, Inc. ( LL ). All these stocks carry a Zacks Rank #2 (Buy).

FORTUNE BRD H&S (FBHS): Free Stock Analysis Report

HAVERTY FURNIT (HVT): Free Stock Analysis Report

LUMBER LIQUIDAT (LL): Free Stock Analysis Report

TEMPUR SEALY (TPX): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: EPS , FBHS , HVT , LL , TPX

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