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Fortune Brands' Unit Announces New Distributor Relationship

Zacks Equity Research

Fiberon, a unit of Fortune Brands Home & Security, Inc.’s FBHS Doors & Security segment recently announced a new distributor relationship with Weekes Forest Products.   The partnership with Weekes Forest Products, a major supplier of building materials and lumber, is in sync with Fortune Brands’ strategy to invest in product line expansion of Fiberon (acquired in September 2018).

Notably, the shared objective of offering strong support to customers and trade professionals led both the companies to enter into the collaboration. As noted by Fortune Brands, Weekes Forest Products’ strong logistics network will support Fiberon in extending its composite decking and railing products offerings across the upper Midwest region that include Riverdale, IL; St. Paul, MN; Jackson, WI; Green Bay, WI; and Fargo, ND.

The distributor partnership between both the companies was also driven by Fiberon’s Partner Program. Notably, Fiberon’s Partner Program offers contractors several benefits like an exclusive five-year labor warranty, getting qualified homeowner leads, and marketing sales and support, apart from a free company profile on the Fiberon website. Moreover, in an effort to support dealers, Fiberon offers in-store sales materials, pre-season savings, special deals and other incentives.

Our Take

Fortune Brands remains bullish about its growth prospects across all three business segments, namely, Doors & Security, Plumbing and Cabinets. For instance, solid demand for security products and strength across Therma-Tru and Master Lock businesses are likely to boost revenues of its Doors & Security segment. Also, continued strength in China market is likely to strengthen the company’s Plumbing revenues in the quarters ahead. Moreover, strong demand across most of its product lines, particularly the value cabinets category products, is likely to drive revenues of the company’s Cabinets segment.

Also, Fortune Brands believes in rewarding shareholders with dividends and share repurchase. In 2018, it used $470 million for the Fiberon buyout, $695 million for repurchasing shares and $115 million for paying dividends. In addition, the company announced a 10% hike in its quarterly dividend rate in December 2018. 

In the past three months, this Zacks Rank #3 (Hold) stock has gained 11.9% compared with the industry’s growth of 9%.

However, rising cost of sales and operating expenses remain a major cause of concern for Fortune Brands. In first-quarter 2019, the company’s cost of sales jumped 7% on a year-over-year basis. As a matter of fact, it expects inflation (on account of non-301 tariff inflation) to adversely impact its business by about $65 million in 2019.

Key Picks

Some better-ranked stocks from the same space are Axon Enterprise, Inc. AAXN, Allegion plc ALLE and Brady Corporation BRC. All these companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Axon Enterprise delivered a positive average earnings surprise of 65.97% in the trailing four quarters.

Allegion pulled off a positive average earnings surprise of 1.95% in the trailing four quarters.

Brady pulled off a positive average earnings surprise of 9.22% in the trailing four quarters.

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