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Fortune Brands (FBHS) Lags Q1 Earnings & Sales, Ups '18 View

Driven by frequent acquisitions and collaborations, Cummins (CMI) is likely to drive past estimates in Q1 earnings. Fortune Brands Home & Security, Inc. FBHS reported weaker-than-expected results for the first quarter of 2018, ending the earnings streak of the last nine trailing quarters. Earnings before charges/gains in the reported quarter were 56 cents per share, reflecting a 5.1% decline from the Zacks Consensus Estimate of 59 cents. However, the bottom line increased 6% from the year-ago tally of 53 cents on the back of sales growth and share buybacks, partially offset by higher costs and expenses. Revenues Rise Y/Y In the quarter under review, Fortune Brands’ net sales were $1,254.6 million, up 6% from the year-ago tally. The improvement was driven by healthy Plumbing, Doors and Security segments, partially offset by weakness in Cabinets segment. Normal winter weather was a headwind. The top line was slightly below the Zacks Consensus Estimate of $1.26 billion. The company’s segmental results are discussed below: Cabinets segment’s sales declined 3% year over year to $557.2 million. The weakness was due to the exit from some Canadian and U.S. homecenter businesses. Plumbing sales grew 19% year over year to $449.7 million on the back of a healthy business in all end markets. Acquired assets contributed 3% of the sales growth in the reported quarter. Doors segment’s sales increased 8% year over year to $110.3 million, backed by strength in wholesale networks. Sales at the Security segment surged 4% year over year to $137.4 million, driven by healthy commercial and retail sales in the United States. Margin Slips on Higher Costs and Expenses In the first quarter, Fortune Brands’ cost of sales before charges/gains increased 5.5% year over year to $816.5 million. It represented 65.1% of net sales compared with 65.2% in the year-ago quarter. Selling, administrative, and research and development expenses before charges/gains grew 8.1% year over year to $313.8 million while came in at 25% of the net sales versus 24.5% in the year-ago quarter. Operating income before charges/gains grew 5% year over year to $124.3 million. Operating margin before charges/gains slipped 10 basis points to roughly 9.9%. Balance Sheet & Cash Flow Exiting the first quarter, Fortune Brands’ cash and cash equivalents were $244.4 million, down from $323 million at the end of the previous quarter. Its long-term debt grew 2% sequentially to $1,538 million. In the reported quarter, the company used $51.9 million cash for operating activities, which was above $17.9 million used in the year-ago quarter. Capital expenditures amounted to $37.6 million versus $29.5 million in the year-ago quarter. Free cash outflow increased 121.2% year over year to $85.6 million. During the quarter under review, the company used $325.2 million to purchase treasury stocks while paid dividends amounting to $29.6 million. Also, as noted by the company, approximately 6.4 million shares have been repurchased for $400 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 6-7%. It also anticipates strengthening business of Global Plumbing Group, expectations for the housing market, share buybacks, favorable pricing and gains from cost actions to drive its performance in 2018. The company increased its projection for earnings before charges/gains to $3.58-$3.70 per share from the earlier forecast of $3.54-$3.66 per share. Also, the revised forecast compares favorably with the year-ago earnings of $3.08. Tax rate in the year is predicted to be roughly 25%. On a segmental basis, Cabinets sales are anticipated to grow in the low-single-digit range, lower than the previous expectation of mid-single digit. Sales in the Doors segment will increase in low-double digits in 2018, better than high-single digit to low-double digits expected earlier. Results will be backed by retail expansion. Security sales are predicted to increase in mid-single digit. Plumbing sales are predicted to grow in the low-double digits versus high-single digit that was expected earlier. Cash flow from operations in the year is predicted to be $650-$675 million while capital spending is likely to be $150-$155 million. Free cash flow is anticipated to be $525-$550 million in the year. Fortune Brands Home & Security, Inc. Price, Consensus and EPS Surprise
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