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Fortune Brands (FBHS) Prices $900M Senior Notes Offering

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Fortune Brands Home & Security, Inc. (FBHS - Free Report) recently announced that on Mar 22, 2022, it priced a public offering of senior unsecured notes worth $900 million in aggregate principal amount. Notably, the offering was closed on Mar 25.

The company’s shares gained 3.2% yesterday to eventually close the trading session at $80.45.

Inside the Headlines

The first tranche comprises $450 million notes that carry an interest rate of 4.000% and are scheduled to mature on Mar 25, 2032. The notes have been priced at 99.902% of the principal amount. Interest rates on the notes will be paid semi-annually on Mar 25 and Sep 25, starting from Sep 25, 2022.

Another tranche consists of $450 million notes, carrying an interest rate of 4.500% due on Mar 25, 2052. The notes have been priced at 97.808% of the principal amount. Interest rates on these notes will also be paid semi-annually on Mar 25 and Sep 25, commencing from Sep 25 this year.

Fortune Brands received net proceeds of approximately $880.1 million in aggregate from the offering after deducting underwriting discounts, commissions and estimated offering expenses. The company stated that the transaction proceeds will be used for paying down part of borrowings under its term loan facility and for meeting general corporate purposes.

Debt Profile

Fortune Brands has a highly leveraged balance sheet. Its long-term debt increased roughly 8.9% (CAGR) in the last five years (2017-2021).

Exiting fourth-quarter 2021, the company had long-term debt of $2,309.8 million. In the quarter, its interest expenses increased 8% year over year to $21.1 million. Although the current notes offering will help pay down a share of its term loan, we believe it will also add to Fortune Brands’ existing debt balance. An unwarranted rise in debt levels can inflate its financial obligations and hurt profitability.

Zacks Rank, Price Performance and Estimate Revisions

Fortune Brands, with approximately $10.3 billion market capitalization, currently carries a Zacks Rank #3 (Hold). The company is likely to benefit from a solid product portfolio, healthy Fiberon business and acquisitions in the quarters ahead. Apart from its high debt level, rising costs and expenses remain concerning for the company.

In the past 60 days, the Zacks Consensus Estimate for earnings decreased 0.4% to $6.40 for 2022 and 0.8% to $7.12 for 2023. Earnings estimates for the first quarter of 2022 have been stable at $1.24 per share.

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In the past three months, the stock has lost 24.7% compared with the industry’s decline of 21.4%.

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Some better-ranked stocks from the Zacks Retail-Wholesale sector are discussed below.

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Capri Holdings Limited (CPRI - Free Report) presently carries a Zacks Rank #2. Its earnings surprise in the last reported quarter was 32.14%.

CPRI’s earnings estimates have been stable for fiscal 2022 (ending March 2022) in the past 30 days. Its shares have lost 12.3% in the past three months.