Driven by the spate of new construction in recent times and
improvement in the Repair & Remodel market,
Fortune Brands Home & Security, Inc.
) posted strong third-quarter 2013 results with adjusted earnings
per share (EPS) rising 58.6% year over year to 46 cents.
Moreover, quarterly adjusted earnings surpassed the Zacks
Consensus Estimate of 41 cents per share.
The adjusted EPS for the reported quarter does not include
restructuring charge of a penny and an asset impairment charge of
8 cents per share. Including these one-time charges, Fortune
Brands' earnings came in at 37 cents per share.
Quarter in Detail
Net sales rose 23.8% year over year to $1,125.1 million and
surpassed the Zacks Consensus Estimate of $1,057.0 million. The
year-over-year increase in top line was primarily driven by
improvement in the housing market. Fortune Brands also registered
double-digit sales growth across all of its segments, with the
consolidated home product segment sales increasing 26%.
Segment-wise, sales at Fortune Brands' Kitchen & Bath
Cabinetry, Plumbing & Accessories and Advanced Material
Windows & Door Systems segments grew by 36%, 22% and 14%,
respectively. All these three segments are together named the
home product segment. The company's Security & Storage
net sales improved 10% in the quarter.
Adjusted gross profit increased 24.3% year over year to $384.5
million, while as a percentage of net sales it improved 20 basis
points (bps) to 34.2%. Operating income before including any
one-time charges/gains came at $121.6 million, up 66.8% from the
year-ago comparable quarter. Adjusted operating margin improved
280 bps to 10.8%, primarily driven by fall in selling, general
& administrative (SG&A) expenses as a percentage of
Fortune Brands ended the quarter with cash and cash
equivalents of $157.0 million and long-term debt (excluding
current maturities) of $350.0 million. Shareholders' equity at
the quarter-end was $2,550.5 million.
During the first nine months of 2013, the company generated
cash flow of $166.2 million from operational activities and now
has free cash flow of $154.4 million. Furthermore, Fortune Brands
is expecting to generate free cash flow of nearly $300 million at
the year-end and bring debt-to-EBITDA around zero.
Moreover, in the first three quarters of 2013, Fortune Brands
repurchased stocks worth $43.1 million and paid dividends worth
Based on better-than-expected quarterly results and
expectations of a continued recovery in the home products market,
the leading home and security products company raised its sales
and earnings per share guidance for 2013. The company now
anticipates sales to grow in the range of 15%-16%, up from
previous range of 13%-15%.
Similarly, earnings are now expected to come in the band of
$1.47 to $1.49 per share, compared with the prior projection of
$1.35-$1.43. Currently, the Zacks Consensus Estimate stands at
$1.42 per share, which may see revision in the coming days
following the company's higher guidance.
Other Stocks to Consider
Fortune Brands currently holds a Zacks Rank #3 (Hold). Other
companies performing well in the retail space include
Five Below, Inc.
). All these stocks carry a Zacks Rank #2 (Buy).
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