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Why Is Fortune Brands Home & Security (FBHS) Up 10.2% Since Last Earnings Report?

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It has been about a month since the last earnings report for Fortune Brands Home & Security (FBHS - Free Report) . Shares have added about 10.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Fortune Brands Home & Security due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Fortune Brands Q2 Earnings & Revenues Beat Estimates

Fortune Brands reported second-quarter 2020 earnings before charges/gains of 94 cents per share, surpassing the Zacks Consensus Estimate of 59 cents. On a year-over-year basis, the bottom line decreased 8.7% due to a decline in sales.

Fortune Brands’ net sales were $1,375.8 million, decreasing 8.7% from the year-ago figure. The decline was attributable to weaker performances across Cabinets, and Doors & Security segments. The top line beat the consensus estimate of $1,316 million.

Segmental Details

Cabinets’ sales declined 15% year over year to $538.7 million. Results were affected by a softer market for premium products, which more than offset the solid demand for value products.

Plumbing sales remained relatively flat at $504.8 million. Impressive sales performance in the United States and China were partially offset by forex woes.

Doors & Security’s sales fell 9% to $332.3 million due to lower sales of security products.

Costs & Expenses

In the second quarter, Fortune Brands’ cost of sales decreased 8% year over year to $892.9 million. It represented 64.9% of net sales compared with 64.3% in the year-ago quarter. Selling, general and administrative expenses decreased 14% to $276.2 million, and represented 20.1% of the net sales compared with 21.3% a year ago.

Operating income before charges/gains decreased 7% to $196.7 million. Operating margin before charges/gains climbed 20 basis points to 14.3%. Interest expenses decreased 9% to $22.2 million.

Balance Sheet

Exiting the second quarter, Fortune Brands’ cash and cash equivalents were $398.4 million, up 2.7% from $387.9 million at the end of 2019. Its long-term debt climbed 10.4% to $2,245.9 million sequentially.

In the first six months of 2020, net cash generated by operating activities was $260.5 million compared with $112 million generated in the year-ago comparable period. Capital expenditure amounted to $42.3 million, down from $54.9 million in the year-ago period.

Outlook

On uncertainties, regarding the impacts of the coronavirus outbreak on financial and operating results, the company has now suspended its guidance for 2020.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 26.16% due to these changes.

VGM Scores

Currently, Fortune Brands Home & Security has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Fortune Brands Home & Security has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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