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Fortune Brands (FBHS) Q1 Earnings & Revenues Beat Estimates

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Fortune Brands Home & Security, Inc. (FBHS - Free Report) reported first-quarter 2022 earnings before charges/gains of $1.31 per share, which surpassed the Zacks Consensus Estimate of $1.24 by 5.7%. On a year-over-year basis, the bottom line decreased 3.7% due to increasing cost of sales.

In the first quarter, Fortune Brands’ net sales were $1,917.3 million, increasing 8% from the year-ago figure. The improvement was driven by solid segmental performances. Also, the top line beat the consensus estimate of $1,872 million by 2.4%.

Segmental Details

Cabinets’ quarterly net sales grew 13% year over year to $777.1 million. Results were driven by continued strong demand for Fortune Brands’ products.

Water innovations net sales increased 4% year over year to $643.6 million. Results were driven by an impressive performance across the business.

Outdoors & Security’s net sales increased 8% to $496.6 million on the back of solid sales growth for decking, doors and security products and a positive contribution from the LARSON buyout.

FBHS also announced its intention to split into two publicly traded companies. Fortune Brands’ existing cabinets business will be recognised as a standalone publicly traded company and it will approximately take 12 months to complete the process. Also, FBHS renamed its Global Plumbing Group to Water Innovations, effective first-quarter 2022.

Costs & Expenses

In the first quarter, Fortune Brands’ cost of sales increased 10% year over year to $1,237.8 million. The metric represented 64.6% of net sales compared with 63.6% in the year-ago quarter. Selling, general and administrative expenses increased 10% to $409.5 million, accounting for 21.4% of the net sales compared with 21% a year ago.

Operating income before charges/gains decreased 5% to $249.6 million. Operating margin before charges/gains were 13%, down 180 basis points year over year. Interest expenses increased 2% to $21.8 million.

Balance Sheet

Exiting the first quarter 2022, Fortune Brands’ cash and cash equivalents were $378.2 million, down 19.8% from $471.5 million at the end of the previous quarter. Its long-term debt increased 45.8% to $3,367.9 million sequentially.

In the first three months of 2022, net cash used in operating activities was $183.1 million compared with $69.2 million used in the year-ago quarter. Capital expenditure amounted to $60.8 million, up from $25.4 million in the year ago quarter. In the reported quarter, its free cash outflow was $235.7 million compared with $82.3 million in the year-ago quarter.

In the first three months of 2022, Fortune Brands rewarded its shareholders with a dividend payout of $37.2 million, up 3.3% year over year. The amount spent on purchasing treasury stock totaled $377.1 million, up 597%.

Outlook

Fortune Brands anticipates benefiting from strength in its housing end market and a firm focus on product innovation in the quarters ahead.

For 2022, FBHS expects sales to increase 5.5-7.5% from the previous year’s level, based on its anticipation of U.S. home products market growth of 4-6%. Earnings before charges/gains are adjusted to $6.40-$6.60 per share from the earlier issued projection of $6.35-$6.55.

For 2022, cash flow from operations is anticipated to be $973-$1,108 million, while capital expenditures are likely to be $375-$425 million. Management anticipates a free cash flow generation of $615-$700 million.

Zacks Rank and Stocks to Consider

With a market capitalization of $10.1 billion, FBHS currently carries a Zacks Rank #4 (Hold).

Some better-ranked companies from the retail-wholesale sectors are discussed below.

AutoNation, Inc. (AN - Free Report) sports a Zacks Rank #1 (Strong Buy), currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

AN’s earnings surprise in the last four quarters was 27.4%, on average. In the past 60 days, AutoNation’s earnings estimates have increased 18.2% for 2022. AN’s shares have gained 6.6% in the past three months.

FIGS, Inc. (FIGS - Free Report) has a Zacks Rank #2 (Buy), currently. FIGS delivered a trailing four-quarter earnings surprise of 258.7%, on average.

Earnings estimates for FIGS have increased 16.7% for 2022 in the past 60 days. The stock has declined 27.7% in the past three months.

Dollar Tree, Inc. (DLTR - Free Report) carries a Zacks Rank of 2, currently. DTLR’s earnings surprise in the last four quarters was 11.76%, on average.

In the past 60 days, DTLR’s earnings estimates have increased 7.2% for 2022. The stock has grown 27.4% in the past three months.