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Driven by the spate of new construction in recent times and improvement in the Repair & Remodel market, Fortune Brands Home & Security, Inc. (FBHS - Snapshot Report) posted strong third-quarter 2013 results with adjusted earnings per share (EPS) rising 58.6% year over year to 46 cents. Moreover, quarterly adjusted earnings surpassed the Zacks Consensus Estimate of 41 cents per share.

The adjusted EPS for the reported quarter does not include restructuring charge of a penny and an asset impairment charge of 8 cents per share. Including these one-time charges, Fortune Brands’ earnings came in at 37 cents per share.

Quarter in Detail

Net sales rose 23.8% year over year to $1,125.1 million and surpassed the Zacks Consensus Estimate of $1,057.0 million. The year-over-year increase in top line was primarily driven by improvement in the housing market. Fortune Brands also registered double-digit sales growth across all of its segments, with the consolidated home product segment sales increasing 26%.

Segment-wise, sales at Fortune Brands’ Kitchen & Bath Cabinetry, Plumbing & Accessories and Advanced Material Windows & Door Systems segments grew by 36%, 22% and 14%, respectively. All these three segments are together named the home product segment.  The company’s Security & Storage net sales improved 10% in the quarter.

Adjusted gross profit increased 24.3% year over year to $384.5 million, while as a percentage of net sales it improved 20 basis points (bps) to 34.2%. Operating income before including any one-time charges/gains came at $121.6 million, up 66.8% from the year-ago comparable quarter. Adjusted operating margin improved 280 bps to 10.8%, primarily driven by fall in selling, general & administrative (SG&A) expenses as a percentage of sales.

Financial Details

Fortune Brands ended the quarter with cash and cash equivalents of $157.0 million and long-term debt (excluding current maturities) of $350.0 million. Shareholders’ equity at the quarter-end was $2,550.5 million.

During the first nine months of 2013, the company generated cash flow of $166.2 million from operational activities and now has free cash flow of $154.4 million. Furthermore, Fortune Brands is expecting to generate free cash flow of nearly $300 million at the year-end and bring debt-to-EBITDA around zero.

Moreover, in the first three quarters of 2013, Fortune Brands repurchased stocks worth $43.1 million and paid dividends worth $33.2 million.

Revised Outlook

Based on better-than-expected quarterly results and expectations of a continued recovery in the home products market, the leading home and security products company raised its sales and earnings per share guidance for 2013. The company now anticipates sales to grow in the range of 15%–16%, up from previous range of 13%–15%.

Similarly, earnings are now expected to come in the band of $1.47 to $1.49 per share, compared with the prior projection of $1.35–$1.43. Currently, the Zacks Consensus Estimate stands at $1.42 per share, which may see revision in the coming days following the company’s higher guidance.

Other Stocks to Consider

Fortune Brands currently holds a Zacks Rank #3 (Hold). Other companies performing well in the retail space include Cabela’s Incorporated (CAB - Analyst Report), Marinemax Inc. (HZO - Snapshot Report) and Five Below, Inc. (FIVE - Snapshot Report). All these stocks carry a Zacks Rank #2 (Buy).

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