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Fortune Brands Home & Security, Inc. (FBHS - Free Report) kept its earnings streak alive in second-quarter 2017. Earnings before charges/gains came in at 92 cents per share, surpassing the Zacks Consensus Estimate of 87 cents by 5.7%. Also, the bottom line grew 12.2% from the year-ago quarter’s tally of 82 cents.

Net sales in the quarter were $1.365 billion, marginally below the Zacks Consensus Estimate of $1.39 billion. On a year-over-year basis, the top line increased 5% on the back of healthy sales growth in the Cabinet, Plumbing and Doors segments.  

Segmental Revenues

Fortune Brands reports its revenues under the segments discussed below:

Sales at Cabinet grew 1% to $653.4 million in the second quarter, led by improving growth in in-stock cabinets and vanities.
Plumbing sales increased 15% to $434.8 million on the back of improving focus on product innovations and marketing.
Doors sales grew 4% to $133.5 million in the quarter, backed by strength witnessed at both the retail and wholesale networks.
Sales at the Security segment decreased 2% to $143.7 million in the quarter.

Margins

In the quarter, Fortune Brands’ cost of sales increased 3% year over year, representing 62.2% of net sales compared with 63.4% in the year-ago quarter. Selling, administrative, and research and development expenses, as a percentage of total revenue came in at 21.4%.

Adjusted operating income improved about 12% year over year while adjusted operating margin expanded 100 basis points (bps) to roughly 15.8%. The solid margin growth was driven by robust performance across all operating segments.

Balance Sheet & Cash Flow

Exiting the second quarter, Fortune Brands had cash and cash equivalents of approximately $252.7 million, up from $210.8 million in the previous quarter. The company’s long-term debt decreased 6.7% sequentially to $1,391.9 million.

In the first half of 2017, Fortune Brands generated net cash of $171.2 million from its operating activities, increasing 3.8% from the year-ago period. Capital expenditure totaled $59.5 million. Also, the company used $32.7 million to purchase treasury stocks while paid dividends of $55.3 million.

Outlook

Fortune Brands expects the positive momentum to continue through 2017. It anticipates the U.S. home products market to grow 6–7% in the year while the global market is expected to rise 5–6%. Management predicts sales growth to be in a band of 6–8% in the year.

The company has revised its earnings guidance to $3.04–$3.12 per share from the earlier projection of $3.00–$3.12. The mid-point now stands at $3.08 versus $3.06 predicted earlier.

On a segmental basis, Cabinets segment’s sales are likely to grow in the mid-single digit range while sales in the Doors segment will increase in the mid to high-single digit range. Security sales are predicted to increase roughly 4%. Plumbing segment will benefit from product innovations and marketing.

Cash flow from operations is predicted to be roughly $560 million (down from $565 million expected earlier) while capital expenditures will likely be in the $135–$140 million range. Free cash flow is anticipated to be approximately $450 million.

Zacks Rank & Key Picks

With a market capitalization of $10.2 billion, Fortune Brands Home & Security carries a Zacks Rank #2 (Buy). Other stocks worth considering in the industry include Ituran Location and Control Ltd. (ITRN - Free Report) , Lakeland Industries, Inc. (LAKE - Free Report) and Allegion PLC (ALLE - Free Report) . All these stocks carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ituran Location and Control’s earnings estimates for 2017 represent year-over-year growth of 32.68%.

Lakeland Industries pulled off an average positive earnings surprise of 49.26% in the last four quarters. Also, earnings estimates for year ending Jan 2018 and Jan 2019 improved in the last 60 days.

Allegion PLC’s earnings estimates for 2017 and 2018 improved in the last 60 days. It delivered an average positive earnings surprise of 1.95%.

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