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Fortune Brands (FBHS) Tops Q4 Earnings, Gives Solid '18 View

Zacks Equity Research

Fortune Brands Home & Security, Inc. FBHS kept its earnings streak alive in the fourth quarter of 2017 with earnings before charges/gains of 80 cents per share, surpassing the Zacks Consensus Estimate of 79 cents by 1.3%. Also, the bottom line increased 13% from the year-ago tally of 71 cents. The quarterly results benefited from healthy sales growth, partially offset by higher costs and expenses.

For 2017, the company’s earnings, excluding the impact of charges/gains, came in at $3.08 per share, beating the Zacks Consensus Estimate of $3.07. Also, the figure grew 12% from the year-ago tally of $2.75.

Segmental Sales Drive Revenues

Fortune Brands’ net sales in the fourth quarter were $1,382.5 million, increasing 6% year over year on the back of healthy segmental businesses.

Sales were in line with the Zacks Consensus Estimate of $1.38 billion.

The company’s segmental results are discussed below:

Sales at Cabinets increased 4% to $625.9 million, led by growth in in-stock cabinets, vanities and builder direct.

Plumbing sales grew 10% to $469.3 million on the back of 9% organic sales growth. Business in China flourished in the quarter.

Doors sales increased 6% to $128.7 million, backed by strength in both retail and wholesale networks.

Sales at the Security jumped 4% to $158.6 million driven by healthy international, safety and U.S. retail sales.

For 2017, the company’s net sales came in at $5,283.3 million, up 6% year over year. However, the figure slightly lagged the Zacks Consensus Estimate of $5.29 billion.

Margins Improve Despite Rise in Expenses

In the fourth quarter, Fortune Brands’ cost of sales before charges/gains increased 7% year over year, representing 63.7% of net sales compared with 63.3% in the year-ago quarter. Selling, administrative, and research and development expenses before charges/gains, as a percentage of net sales came in at 22.2%, while on a year-over-year basis, it increased 3.1%.

Operating income before charges/gains increased 8% year over year to $186.6 million. Operating margin before charges/gains expanded 20 basis points to roughly 13.5%.

Balance Sheet & Cash Flow

Exiting the fourth quarter, Fortune Brands had cash and cash equivalents of $323 million, up 16.6% from $277.1 million in the previous quarter. Its long-term debt grew 3.1% sequentially to $1,507.6 million.

In 2017, the company’s net cash generation from operating activities totaled $600.3 million, decreasing 7.7% from $650.5 million recorded in the previous year. Capital spending amounted to $165 million versus $149.3 million in 2016. Free cash flow in the year decreased 12.5% year over year to $464.2 million.

During the year, the company used $214.8 million to purchase treasury stocks while paid dividends amounting to $110.3 million.

Outlook

Fortune Brands expects the positive momentum in the U.S. housing market to continue in 2018. It anticipates the U.S. home products market to grow 5-7% in the year while the global market is expected to rise 5-6%. Management predicts sales growth to be in a band of 6-7%.

Earnings before charges/gains are anticipated to be within the $3.54-$3.66 per share range, representing year-over-year growth of 17% at mid-point. The guidance includes the positive impact of lower taxes for corporates. Effective tax rate in the year is predicted to be within 24-26%.

On a segmental basis, Cabinets sales are likely to grow in the mid-single digit range. Sales in the Doors segment will increase in the high-single digits to low-double digits in 2018. Results will be backed by new products and retail expansion. Security sales are predicted to increase in mid-single digits. Growth opportunities are bright in international and commercial markets.

Plumbing segment will benefit from new brands additions in the Global Plumbing Group. The company remains on track to generate roughly $2.5 billion revenues from its Plumbing business by 2020.

Fortune Brands Home & Security, Inc. Price, Consensus and EPS Surprise
 

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

Zacks Rank & Key Picks

With a market capitalization of $10.6 billion, Fortune Brands carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the Zacks Industrial Products sector are Alarm.com Holdings, Inc. ALRM, Colfax Corporation CFX and Lakeland Industries, Inc. LAKE. While both Alarm.com Holdings and Colfax sport a Zacks Rank #1 (Strong Buy), Lakeland Industries carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Alarm.com Holdings pulled off an average positive earnings surprise of 65.40% in the last four quarters. Also, earnings estimates for 2018 improved in the last 60 days.

Colfax’s earnings estimates for 2018 improved in the last 60 days. Also, it delivered an average positive earnings surprise of 5.31% in the last four quarters.

Lakeland Industries’ earnings estimates for fiscal 2019 improved in the last 60 days. It delivered an average positive earnings surprise of 20.64% in the last four quarters.

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