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Fortune Brands (FBHS) Beats Q1 Earnings, Sales, Ups View

Fortune Brands Home & Security, Inc.FBHS kept its earnings streak alive in first-quarter 2017, with earnings and sales beating the respective Zacks Consensus Estimate by 15.2% and 1.4%.

Earnings before charges/gains came in at 53 cents per share, above the Zacks Consensus Estimate of 46 cents. Also, the bottom line grew 26.2% from the year-ago tally of 42 cents.

The company's revenues in the quarter totaled $1.187 billion, marginally above the Zacks Consensus Estimate of $1.17 billion. Also, the top line increased roughly 7% year over year on the back of segmental strength witnessed in the quarter.

Segmental Revenues

Fortune Brands reports its revenues under the segments discussed below:

Sales at the Cabinet segment grew 4% to $573.6 million in the first quarter, led by improving growth in i-stock cabinets and vanities.

The Plumbing segment's sales increased 12% to $378.4 million. Excluding acquisitions, the Plumbing segment posted sales gains in the mid-single digits range on the back of improving focus on product innovations and marketing.

The Door segment's sales grew 8% to $102.2 million in the quarter, backed by strength witnessed at both the retail and wholesale networks.

Sales at the Security segment increased 7% to $132.6 million in the quarter.

Margins: In the quarter, Fortune Brands' cost of sales increased 6% year over year, representing 64.9% of total revenue compared with 65.9% in the year-ago quarter. Selling, administrative, and research and development expenses, as a percentage of total revenue came in at 24.3%.

Adjusted operating income improved about 17% year over year while adjusted operating margin expanded 80 basis points (bps) to roughly 10.3%. The solid margin growth was driven by robust performance across all operating segments.

Balance Sheet & Cash Flow: Exiting the first quarter, Fortune Brands had cash and cash equivalents of approximately $210.8 million, below $251.5 million in the previous quarter. The company's long-term debt increased 4.2% sequentially to $1,491.5 million.

In the quarter, Fortune Brands' net cash used for operating activities totaled $17.9 million, up from $6.1 million used in the year-ago quarter. Capital expenditure totaled $29.5 million. Also, the company used $27.3 million to purchase treasury stocks while paid dividends of $27.6 million.

Outlook

Fortune Brands expects the positive momentum to continue throughout 2017, driven by impressive first-quarter results and favorable tax rate expectations. On the back of these positive aspects, the company raised its earnings guidance to $3.00-$3.12 per share from the earlier projection of $2.95-$3.05. At mid-point, the revised projection represents 11.3% growth over the year-ago tally of $2.75.

Also, the company anticipates the U.S. home products market to grow 6-7% in 2017 while the global market is expected to rise 5-6%. Management predicts sales growth to be in a band of 6-8% in the year.

Cash flow from operations is predicted to be roughly $565 million while capital expenditures will likely be in the $135-$140 million range. Free cash flow is anticipated to be approximately $450 million.

Fortune Brands Home & Security, Inc. Price and Consensus

Fortune Brands Home & Security, Inc. Price and Consensus | Fortune Brands Home & Security, Inc. Quote

Zacks Rank & Key Picks

With a market capitalization of $10.1 billion, Fortune Brands Home & Security carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry include Ituran Location and Control Ltd. ITRN , Alarm.com Holdings, Inc. ALRM and Allegion PLC ALLE . While Ituran Location and Control sports a Zacks Rank #1 (Strong Buy), both Alarm.com Holdings and Allegion carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Ituran Location and Control's earnings estimates for 2017 represent year-over-year growth of 28.76%.

Alarm.com Holdings' financial performance was impressive in the last four quarters, with an average positive earnings surprise of 40.56%. Also, earnings estimates for 2017 and 2018 improved in the last 60 days.

Allegion PLC's earnings estimates for 2017 and 2018 represent year-over-year growth of 9.58% and 11.27%, respectively.

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


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

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