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Fortune Brands Misses Q3 Earnings, Revises 2015 Outlook

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Fortune Brands Home & Security Inc. 's FBHS third-quarter 2015 adjusted earnings of 61 cents per share rose 17.3% year over year but fell short of the Zacks Consensus Estimate of 65 cents.

On a GAAP basis, Fortune Brands' earnings soared 23.1% to 64 cents per share. As a result, shares of this Zacks Rank #3 (Hold) company soared 5.6% since its third-quarter earnings release.

Although net sales for the third quarter advanced 17.1% year over year to $1,238.8 million, it fell short of Zacks Consensus Estimate of $1,258 million. The year-over-year increase in sales was driven by increases across all segments.

The year-over-year increase in net sales positively impacted the company's adjusted operating income, which improved almost 23.8% to $160.3 million. Additionally, operating margin expanded 70 basis points (bps) to roughly 12.9%.

Segment Details

Sales at the Cabinet segment ascended 33% to $603.3 million on the back of solid increases in dealer network and in-stock cabinet and vanities sales coupled with contributions from the Norcraft acquisition. The segment reported a 76% increase in adjusted operating income, which came in at $64.2 million.

The Plumbing segment's sales escalated 5% to $364.4 million, supported by strength in the U.S. wholesale and retail channels and higher sales in China, partly offset by Canadian currency headwinds. Adjusted operating income for the segment climbed 7% to $80.9 million.

The Door segment's sales grew 8% to $123.8 million on the back of strength witnessed at both the retail and wholesale networks. The segment's adjusted operating income increased 38% to $16.7 million.

Sales at the Security segment surged 2% to $147.3 million, aided primarily by contributions from SentrySafe and Master Lock U.S. This, however, was partially offset by Canadian and European currency headwinds, which caused adjusted operating income to decrease 18% to $16.6 million.

Financial Details

Fortune Brands ended the quarter with cash and cash equivalents of $350.6 million, while long-term debt (excluding current portion) stood at $1,337.6 million. Shareholders' equity (excluding non-controlling interests) at the end of the quarter was $2,401.6 million.

Looking Ahead

Given Fortune Brands' healthy financial status coupled with the Norcraft acquisition, management believes that the company is well placed to drive growth and boost shareholder value in the future. Consequently, the company updated its guidance for 2015.

Fortune Brands upped the lower end of its sales outlook on anticipation that the U.S. home products market will grow 6-7% in 2015. The company now envisions sales to advance in a range of 14-15% during the year, compared with the earlier projection of 13-15%.

Moreover, the company updated its earnings per share outlook. Adjusted earnings for 2015 are now anticipated in the band of $2.05-$2.07 per share, compared with $1.74 reported in 2014. The company had earlier projected adjusted earnings for 2015 in the band of $2.03-$2.10 per share.

Further, Fortune Brands now expects to generate free cash flow of $300 million in 2015, after deducting capital expenditures of roughly $135 million allocated toward investments to increase capacity and infrastructure in order to sustain multi-year growth.

Stocks to Consider

Some better-ranked stocks in the same industry include Restoration Hardware Holdings, Inc. RH and Tempur Sealy International Inc. TPX , both carrying a Zacks Rank #2 (Buy). Another stock worth considering in the broader retail sector is Tile Shop Holdings, Inc. TTS , sporting a Zacks Rank #1 (Strong Buy).

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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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