Fortune Brands Home & Security, Inc. reported third-quarter 2022 earnings before charges/gains of $1.79 per share, which surpassed the Zacks Consensus Estimate of $1.70 by 5.3%. On a year-over-year basis, the bottom line increased 20.1%.

In the third quarter, Fortune Brands’ net sales were $2,053.7 million, increasing 3.4% from the year-ago quarter. The improvement was driven by solid performances across most segments. However, the top line missed the consensus estimate of $2,078 million by 1.2%.

Segmental Details

Cabinets’ quarterly net sales grew 20% year over year to $858.2 million. Results were driven by prices across all product categories.

Water Innovations net sales decreased 14% year over year to $635.1 million. This downside was induced by continued inventory destocking and softness in China.

Outdoors & Security’s net sales increased 6% year over year to $560.4 million on the back of favorable pricing across all product categories.

Costs & Expenses

In the third quarter, Fortune Brands’ cost of sales increased 2.4% year over year to $1,310.2 million. The metric represented 63.8% of net sales compared with 64.4% in the year-ago quarter. Selling, general and administrative expenses increased 3.8% to $415.3 million, accounting for 20.2% of the net sales compared with 20.1% a year ago.

Operating income before charges/gains increased 14.2% to $334.9 million. Operating margin before charges/gains was 16.3%, up 150 basis points year over year. Interest expenses increased 60.7% to $33.1 million.

Balance Sheet

While exiting the third quarter of 2022, Fortune Brands’ cash and cash equivalents were $345.3 million, down 26.8% from $471.5 million at the end of the fourth quarter of 2021. Its long-term debt increased 20.7% to $2,786.9 million from $2,309.8 million recorded at the end of the fourth-quarter 2021.

In the first nine months of 2022, net cash generated from operating activities was $288.8 million compared with $430.8 million generated in the year-ago period. Capital expenditure amounted to $175.1 million, up from $113.0 million in the year-ago period. Its free cash flow was $122.4 million compared with $352.1 million free cash flow in the year-ago period.

In the first nine months of 2022, Fortune Brands rewarded its shareholders with a dividend payout of $109.8 million, up 1.8% year over year. The amount spent on purchasing treasury stock totaled $531.1 million, up 110%.

Outlook

For 2022, Fortune Brands lowered its full-year outlook due to more-than-anticipated channel inventory reductions and headwinds related to slowing new construction and R&R activity.

FBHS expects sales to decrease 4.5-5.5% compared to 6.5-7.5% stated earlier, from the previous year’s level on the back of its expectation of U.S. home products’ market growth of 3-5% and global home products’ market growth of 2-4%. Earnings before charges/gains are adjusted to $6.20-$6.30 per share from the earlier issued projection of $6.36-$6.50.

For 2022, cash flow from operations is anticipated to be $640.9-$715.9 million compared with $881-$951 million projected earlier, while capital expenditures are likely to be $250-$275 million compared with $300-$330 million projected earlier.

Management anticipates a free cash flow generation of $400-$450 million compared with the previous projection of $590-$630 million.

Zacks Rank and Stocks to Consider

FBHS currently carries a Zacks Rank #4 (Sell).

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