Fortune Brands (FBHS) Q1 Earnings & Sales Miss; Up Y/Y - Analyst Blog

With the housing products market recovering at a moderate rate, Fortune Brands Home & Security, Inc.FBHS began 2015 on a mixed note. The company's first-quarter 2015 top and bottom-line results were lower-than-expected. However, both sales and earnings improved year over year.

The company's quarterly adjusted earnings from continuing operations of 28 cents per share climbed 3.7% year over year. However, earnings fell short of the Zacks Consensus Estimate of 33 cents.

Fortune Brands Home & Security Inc. - Earnings Surprise | FindTheCompany

Including one-time items, this Zacks Rank #4 (Sell) company's quarterly earnings came in at 25 cents per share, down 7.4% year over year.

Looking Deeper

Net sales advanced nearly 7% year over year to $950.8 million, backed by growth witnessed in most segments. However, sales fell short of the Zacks Consensus Estimate of $985 million.

The year-over-year increase in net sales positively influenced the company's adjusted operating income, which improved 4.4% to $73.2 million. However, the operating income margin contracted 20 basis points (bps) to 7.7%.

Segment Details

Sales at the Cabinet segment remained nearly flat year over year at $411.1 million. An 8% growth in the key dealer network was offset by adverse currency translations and unfavorable timing of shipments. However, the segment reported a 31% plunge in adjusted operating income, which came in at $13.9 million.

The Plumbing segment's sales escalated 8% to $333.6 million, supported by strength in the U.S., wholesale and retail channels, coupled with growth in Canada. Adjusted operating income for the segment jumped 17% to $64.9 million.

The Door segment's sales grew 5% to $83.2 million, on the back of strength witnessed at both the retail and wholesale networks. However, the segment's adjusted operating loss increased significantly to $1.2 million.

Sales at the Security segment surged 39% to $122.9 million, aided primarily by contributions from the SentrySafe acquisition. Also, adjusted operating income at the segment jumped 8% to $9.9 million.

Financial Details

Fortune Brands ended the quarter with cash and cash equivalents of $179.4 million, while long-term debt stood at $733.7 million. Further, shareholders' equity (excluding non-controlling interests) at the end of the quarter was $2,294.7 million.

Other Developments

The company remains on track to close its previously announced acquisition of Norcraft Companies Inc. by the end of second-quarter 2015. Following the transaction, Norcraft will be merged with the company's Cabinets segment, complementing the latter well with its solid operational management, robust dealer network and commendable experience.

Looking Ahead

Given the pace of housing market recovery, Fortune Brands' healthy financial status and plans of accelerating additional construction activities in the second half of 2015, management believes that the company is well placed to drive growth and boost shareholder value in the future. Consequently, the company reiterated its guidance for 2015

However, it lowered the upper end of its sales outlook to reflect the adverse effects of currency swings and assumption that the U.S. home products market will grow 6%-8% in 2015. The company now envisions sales to advance in a range of 9%-10.5% during the year, compared with the earlier projection of 9%-11%.

Nevertheless, adjusted earnings for 2015 are still anticipated in the band of $2.00-$2.10 per share, compared with $1.74 reported in 2014. This includes the impact of the SentrySafe acquisition, but excludes any impact from Norcraft's pending acquisition.

Fortune Brands still expects to generate free cash flow of $250 million in 2015, after deducting capital expenditures of roughly $130 million slated toward investments in incremental capacity and infrastructure to support multi-year growth.

Stocks to Consider

Better-ranked stocks in the same industry include Restoration Hardware Holdings, Inc. RH and Tempur Sealy International Inc. TPX , each carrying a Zacks Rank #2 (Buy). Also, a better-ranked stock in the broader retail sector is Target Corp. TGT , with a Zacks Rank #2.

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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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