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Fortune Brands' Fiberon Buyout to Aid Outdoor Living Business

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Fortune Brands Home & Security, Inc. (FBHS - Free Report) has announced yesterday that it is going to acquire North Carolina-based Fiberon, LLC. The transaction value is estimated to be approximately $470 million.

Fiberon, LLC, founded in 1997, has evolved into one of the leading manufacturers and suppliers of non-wood decking, fencing, and railing products, meant for use in outdoor living applications. The firm has 475 associates and operates through offices in New London, North Carolina and Meridian, ID. Sales generated in 2017 were approximately $200 million.

Details of Buyout

Per the agreement, Fortune Brands will integrate Fiberon with its Doors & Security segment. This segment came into existence in the ongoing quarter, after the company combined its Doors and Security business segments into one. Annual sales and operating margin of the segment will be $1.2 billion and 16%, respectively.

The Fiberon buyout will complement Doors & Security segment’s existing door brand — Therma-Tru — as well as enhance its growth opportunities in the outdoor living space. Therma-Tru is a leading name among the makers of advanced material doors.

It’s worth noting that Fiberon’s main area of operation — manufacturing of capped composite products (non-wood) — is gaining popularity, driven by the demand for long-lasting and low maintenance wood-alternative products. The market for capped composite products (non-wood) is rising annually by 10%.

Fortune Brands anticipates the Fiberon buyout to boost earnings by 5-6 cents per share in 2019 as well as add approximately 9-10 cents per share to 2020-earnings.

Subject to regulatory approvals, the company anticipates completing the buyout in the coming month (or 30 days).

Fortune Brands’ Capital Allocation Strategies

The company follows a sound capital-allocation strategy by investing money in acquiring businesses as well as focusing on rewarding shareholders handsomely through dividend payments and share buybacks.

Acquisition of brands, including Shaws of England and Victoria + Albert brands, by Fortune Brands’ Global Plumbing Group in 2017 has added vigor to its revenue generation capabilities. By 2021, the company anticipates generating more than $3 billion revenues from its Global Plumbing Group.

Zacks Rank & Key Picks

With a market capitalization of nearly $7.7 billion, Fortune Brands currently carries a Zacks Rank #3 (Hold). The company stands to gain from its solid product portfolio, efforts to launch products, and commitment toward rewarding shareholders through dividend payments and share buybacks. However, higher cost of sales and high debt levels remain concerns. We believe that the company’s inorganic initiatives will help in building a positive sentiment for the stock.

The company’s earnings estimates, in the past 30 days, have been increased by five brokerage firms for 2018, while the same for 2019 has been raised by six. Currently, the Zacks Consensus Estimate is pegged at $3.65 for 2018 and $4.13 for 2019, reflecting growth of 0.6% and 1.2% from the respective 30-day-ago tallies.

Fortune Brands Home & Security, Inc. Price and Consensus
 

Fortune Brands Home & Security, Inc. Price and Consensus | Fortune Brands Home & Security, Inc. Quote

Further, the company’s share price has grown 0.5% in the past month. This improvement, however, came in below 5.2% growth recorded by the industry it belongs to.



Some better-ranked stocks in the Zacks Industrial Products sector are Altra Industrial Motion Corp. (AIMC - Free Report) , Chart Industries, Inc. (GTLS - Free Report) and Barnes Group Inc. (B - Free Report) . While Altra Industrial Motion sports a Zacks Rank #1 (Strong Buy), both Chart Industries and Barnes Group carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for each of these stocks improved for the current year and the next year. The average positive earnings surprise for the last four quarters was 4.01% for Altra Industrial Motion, 29.36% for Chart Industries and 6.88% for Barnes Group.

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