More than a month has gone by since the last earnings report for Fortune Brands Home & Security, Inc.FBHS . Shares have lost about 2.7% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Fortune Brands Tops Q2 Earnings, Revises '17 View
Fortune Brands kept its earnings streak alive in second-quarter 2017. Earnings before charges/gains came in at $0.92 per share, surpassing the Zacks Consensus Estimate of $0.87 by 5.7%. Also, the bottom line grew 12.2% from the year-ago quarter's tally of $0.82.
Net sales in the quarter were $1.365 billion, marginally below the Zacks Consensus Estimate of $1.39 billion. On a year-over-year basis, the top line increased 5% on the back of healthy sales growth in the Cabinet, Plumbing and Doors segments.
Segmental Revenues: Fortune Brands reports its revenues under the segments discussed below:
Sales at Cabinet grew 1% to $653.4 million in the second quarter, led by improving growth in in-stock cabinets and vanities.
Plumbing sales increased 15% to $434.8 million on the back of improving focus on product innovations and marketing.
Doors sales grew 4% to $133.5 million in the quarter, backed by strength witnessed at both the retail and wholesale networks.
Sales at the Security segment decreased 2% to $143.7 million in the quarter.
Margins: In the quarter, Fortune Brands' cost of sales increased 3% year over year, representing 62.2% of net sales compared with 63.4% in the year-ago quarter. Selling, administrative, and research and development expenses, as a percentage of total revenue came in at 21.4%.
Adjusted operating income improved about 12% year over year while adjusted operating margin expanded 100 basis points (bps) to roughly 15.8%. The solid margin growth was driven by robust performance across all operating segments.
Balance Sheet & Cash Flow: Exiting the second quarter, Fortune Brands had cash and cash equivalents of approximately $252.7 million, up from $210.8 million in the previous quarter. The company's long-term debt decreased 6.7% sequentially to $1,391.9 million.
In the first half of 2017, Fortune Brands generated net cash of $171.2 million from its operating activities, increasing 3.8% from the year-ago period. Capital expenditure totaled $59.5 million. Also, the company used $32.7 million to purchase treasury stocks while paid dividends of $55.3 million.
Outlook: Fortune Brands expects the positive momentum to continue through 2017. It anticipates the U.S. home products market to grow 6-7% in the year 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.
The company has revised its earnings guidance to $3.04-$3.12 per share from the earlier projection of $3.00-$3.12. The mid-point now stands at $3.08 versus $3.06 predicted earlier.
On a segmental basis, Cabinets segment's sales are likely to grow in the mid-single digit range while sales in the Doors segment will increase in the mid to high-single digit range. Security sales are predicted to increase roughly 4%. Plumbing segment will benefit from product innovations and marketing.
Cash flow from operations is predicted to be roughly $560 million (down from $565 million expected earlier) while capital expenditures will likely be in the $135-$140 million range. Free cash flow is anticipated to be approximately $450 million.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the past month as none of them issued any earnings estimate revisions.
Fortune Brands Home & Security, Inc. Price and Consensus
Currently, the stock has a great Growth Score of A, though it is lagging a bit on the momentum front with a B. Following the exact same course, the stock was allocated also a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, stocks has an aggregte VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is primarily suitable for growth investors while also being suitable for those looking for momentum and to a lesser degree value.
The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.