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Fortune Brands (FBHS) Beats Q1 Earnings, Sales, Ups View

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Fortune Brands Home & Security, Inc. kept its earnings streak alive in first-quarter 2017, with earnings and sales beating the respective Zacks Consensus Estimate by 15.2% and 1.4%.   

Earnings before charges/gains came in at 53 cents per share, above the Zacks Consensus Estimate of 46 cents. Also, the bottom line grew 26.2% from the year-ago tally of 42 cents.

 

The company’s revenues in the quarter totaled $1.187 billion, marginally above the Zacks Consensus Estimate of $1.17 billion. Also, the top line increased roughly 7% year over year on the back of segmental strength witnessed in the quarter.

Segmental Revenues

Fortune Brands reports its revenues under the segments discussed below:

Sales at the Cabinet segment grew 4% to $573.6 million in the first quarter, led by improving growth in i-stock cabinets and vanities.

The Plumbing segment’s sales increased 12% to $378.4 million. Excluding acquisitions, the Plumbing segment posted sales gains in the mid-single digits range on the back of improving focus on product innovations and marketing.

The Door segment’s sales grew 8% to $102.2 million in the quarter, backed by strength witnessed at both the retail and wholesale networks.
Sales at the Security segment increased 7% to $132.6 million in the quarter.

Margins: In the quarter, Fortune Brands’ cost of sales increased 6% year over year, representing 64.9% of total revenue compared with 65.9% in the year-ago quarter. Selling, administrative, and research and development expenses, as a percentage of total revenue came in at 24.3%.

Adjusted operating income improved about 17% year over year while adjusted operating margin expanded 80 basis points (bps) to roughly 10.3%. The solid margin growth was driven by robust performance across all operating segments.

Balance Sheet & Cash Flow: Exiting the first quarter, Fortune Brands had cash and cash equivalents of approximately $210.8 million, below $251.5 million in the previous quarter. The company’s long-term debt increased 4.2% sequentially to $1,491.5 million.

In the quarter, Fortune Brands’ net cash used for operating activities totaled $17.9 million, up from $6.1 million used in the year-ago quarter. Capital expenditure totaled $29.5 million. Also, the company used $27.3 million to purchase treasury stocks while paid dividends of $27.6 million.

Outlook

Fortune Brands expects the positive momentum to continue throughout 2017, driven by impressive first-quarter results and favorable tax rate expectations. On the back of these positive aspects, the company raised its earnings guidance to $3.00–$3.12 per share from the earlier projection of $2.95–$3.05. At mid-point, the revised projection represents 11.3% growth over the year-ago tally of $2.75.  

Also, the company anticipates the U.S. home products market to grow 6–7% in 2017 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.

Cash flow from operations is predicted to be roughly $565 million while capital expenditures will likely be in the $135–$140 million range. Free cash flow is anticipated to be approximately $450 million.

Zacks Rank & Key Picks

With a market capitalization of $10.1 billion, Fortune Brands Home & Security carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry include Ituran Location and Control Ltd. (ITRN - Free Report) , Alarm.com Holdings, Inc. (ALRM - Free Report) and Allegion PLC (ALLE - Free Report) . While Ituran Location and Control sports a Zacks Rank #1 (Strong Buy), both Alarm.com Holdings and Allegion carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ituran Location and Control’s earnings estimates for 2017 represent year-over-year growth of 28.76%.

Alarm.com Holdings’ financial performance was impressive in the last four quarters, with an average positive earnings surprise of 40.56%. Also, earnings estimates for 2017 and 2018 improved in the last 60 days.

Allegion PLC’s earnings estimates for 2017 and 2018 represent year-over-year growth of 9.58% and 11.27%, respectively.

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