Backed by the wave of new construction in recent times and
improvement in the Repair & Remodel market,
Fortune Brands Home & Security Inc.
) 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
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
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
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,
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
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.
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
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.
Tempur Sealy International Inc.
Lumber Liquidators Holdings, Inc.
). All these stocks carry a Zacks Rank #2 (Buy).
FORTUNE BRD H&S (FBHS): Free Stock Analysis
HAVERTY FURNIT (HVT): Free Stock Analysis
LUMBER LIQUIDAT (LL): Free Stock Analysis
TEMPUR SEALY (TPX): Free Stock Analysis
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