Fortune Brands Home & Security, Inc. reported better-than-expected bottom-line results for third-quarter 2017, beating estimates by 1.2%. The quarterly results benefited from healthy sales growth driven by rise in new construction and spending on repair and remodeling activities. However, it was negatively impacted by hurricanes and labor constraints.

Earnings, excluding the impact of charges/gains, were 83 cents per share, above the Zacks Consensus Estimate of 82 cents. Also, the figure grew 3.8% from the year-ago quarter’s tally of 80 cents.

Revenues Up, Lags Estimates

The quarter’s revenues of $1.35 billion increased roughly 5% from the year-ago quarter but lagged the Zacks Consensus Estimate of $1.38 billion. Revenues were driven by healthy sales growth in the Cabinet, Plumbing, Doors and Security segments.

The company’s segmental results are discussed below:

Sales at Cabinet increased 2% to $614.2 million, led by improving growth in in-stock cabinets and vanities.

Plumbing sales increased 12% to $438.3 million on the back of high single-digit growth in organic growth and healthy contributions from acquired assets.

The company’s Global Plumbing Group recorded solid organic growth. It also added two new brands — a premium sink brand, Shaws of England, and U.K.-based premium free-standing tub brand, Victoria + Albert — during the quarter.

Doors sales grew 7% to $138.5 million, backed by strength witnessed in both the retail and wholesale networks.

Sales at the Security segment inched up 1% to $157.6 million.

Margins Improve

Fortune Brands’ cost of sales in the quarter grew 5% year over year, representing 62.4% of net sales compared with 62.6% in the year-ago quarter. Selling, administrative, and research and development expenses, as a percentage of net sales came in at 22%.

Adjusted operating income increased 7% year over year driven by operating income growth in Plumbing, Doors and Security segments. Adjusted operating margin expanded 20 basis points (bps) to roughly 14.9%.

Balance Sheet & Cash Flow

Exiting the third quarter, Fortune Brands’ cash and cash equivalents balance was $277.1 million, up 9.7% from $252.7 million in the previous quarter. Its long-term debt was $1,462.2 million, reflecting sequential increase of 5.1%.

In the first nine months of 2017, the company’s net cash generation from operating activities totaled $352.6 million, down from $380.6 million in the year-ago period. Capital spending amounted to $95.5 million. Also, the company used $173.7 million to purchase treasury stocks while paid dividends of $82.7 million during the period.

Outlook

Fortune Brands expects the positive momentum to continue in 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 6-7% versus 6-8% predicted earlier. The revision was due to the impact of hurricanes on the company’s segmental businesses.

The company has revised its earnings guidance to $3.05-$3.11 per share from the earlier projection of $3.04-$3.12.

On a segmental basis, Cabinets segment’s sales are likely to grow in the mid-single digit range in the fourth quarter. Sales in the Doors segment will increase in mid-single digits in 2017. Security sales are predicted to increase in mid-single digits in the fourth quarter while register growth of 3% or more for the full year. Plumbing segment will benefit from new brands additions in the Global Plumbing Group. As noted by the company, Shaws of England and Victoria + Albert brands are anticipated to generate combined revenues of $45 million annually. The company remains on track to generate roughly $2.5 billion revenues from its Plumbing business by 2020.

Cash flow from operations is predicted to be roughly $575 million (up from $560 million expected earlier) while capital expenditures will likely be in the $150-$155 million range (up from $135-$140 million expected earlier). Free cash flow is anticipated to be approximately $450 million.

Fortune Brands Home & Security, Inc. Price and Consensus