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Fortune Brands (FBHS) Gains From Product Demand Despite Woes

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Fortune Brands Home & Security, Inc. (FBHS - Free Report) , which is based in Deerfield, IL, manufactures and provides various home and security products. Products offered by the company are mainly used in the kitchen and bath cabinetry, plumbing and accessories, entry door systems, and security products applications. The company presently carries a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past three months, the company’s shares have gained 10.2% as compared with the industry’s growth of 22.5%.

 

Zacks Investment ResearchImage Source: Zacks Investment Research

 

There are a number of factors that are influencing Fortune Brands’ prospects. A brief discussion on important factors and earnings estimates is discussed below:

Financial Performance and Projections: The company delivered better-than-expected results for the second quarter of 2021. Its earnings beat estimates by 30.8%, whereas its sales surpassed the same by 7.9%. On a year-over-year basis, the company’s earnings increased 67.9% on the back of sales and margin growth.

Solid product offerings, focus on innovation and improving construction activities in the United States are anticipated to be beneficial for Fortune Brands in the quarters ahead. For 2021, the company expects year-over-year sales growth of 20-22%. Earnings for the year are predicted to be $5.45-$5.65 per share. Notably, the sales growth projection is above the previously mentioned 12.5-14.5%, whereas, the earnings projection is above $4.85-$5.05 stated earlier.

Capital Allocation: The company effectively uses its capital for acquisitions, rewarding shareholders and boosting organic prospects. For making acquisitions, Fortune Brands used $5.2 million (net of cash acquired) in the first quarter of 2021.

In December 2020, the company acquired LARSON Manufacturing, which has been boosting its foothold in the doors and decking market. In the first quarter of 2021, the LARSON buyout expanded the Outdoors & Security segment’s sales by 32%.

Regarding rewards to shareholders, the company paid out dividends of $36 million in the first quarter of 2021, reflecting an increase from $33.5 million in the year-ago quarter. Also, it bought back shares worth $54.1 million as compared with $150 million used for share buyback in the year-ago quarter. Exiting the first quarter, the company was left to buy back $408.4 million worth of shares under its previously approved share buyback program.

International Operations & Peers: Fortune Brands carries out its operations in multiple countries, including the United States, Canada, South America, China, Europe, Mexico and Southeast Asia. International diversification has exposed it to unfavorable movements in foreign currencies, geopolitical issues, local competitive pressure and macroeconomic challenges.

Also, the company competes with companies with the same line of businesses or product manufacturing. Three such companies are Stanley Black & Decker, Inc. (SWK - Free Report) , Allegion plc (ALLE - Free Report) and Masco Corporation (MAS - Free Report) . Earnings surprise for the last reported quarter was 22.27% for Stanley Black, 17.65% for Allegion and 34.85% for Masco.

Earnings Estimate Revisions: Fortune Brands’ earnings estimates have increased in the past 60 days. Currently, the Zacks Consensus Estimate for earnings is pegged at $1.37 for the second quarter, up 8.7% from the 60-day-ago figure.

In addition, the consensus estimate for 2021 has moved 13.1% north to $5.63 in the past 60 days and increased 13% to $6.25 for 2022.

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