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Fortune Brands (FBHS) Completes Fiberon Buyout for $470M

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Fortune Brands Home & Security, Inc. (FBHS - Free Report) has announced yesterday that is successfully completed the acquisition of North Carolina-based Fiberon, LLC for $470 million. The transaction was earlier announced on Aug 23.

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

As noted, Fortune Brands funded the acquisition through borrowings and available cash. The Fiberon business has been integrated with the company’s Doors & Security segment. This segment, which came into existence in the ongoing quarter, is a combination of Doors and Security business segments earlier. Annual sales and operating margin of the segment are anticipated to be $1.2 billion and 16%, respectively.

The Fiberon buyout complements Doors & Security segment’s existing door brand — Therma-Tru — as well as enhances 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 to 2020 earnings.

Fortune Brands’ Capital-Allocation Strategies

The company follows a sound capital-allocation strategy by investing 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 Global Plumbing Group.

Zacks Rank & Key Picks

With a market capitalization of nearly $7.9 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.

In the past 60 days, the company’s earnings estimates for 2018 have been increased by four brokerage firms and decreased by one. Further, estimates for 2019 were increased by seven firms. Currently, the Zacks Consensus Estimate for earnings is pegged at $3.64 for 2018 and $4.13 for 2019, reflecting growth of 0.6% and 1.5% from the respective 60-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 3.4% in the past month, roughly in line with 3.8% growth recorded by the industry it belongs to.



Some better-ranked stocks in the Zacks Industrial Products sector are Colfax Corporation (CFX - Free Report) , Chart Industries, Inc. (GTLS - Free Report) and Barnes Group Inc. (B - Free Report) . While Colfax 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 7.91% for Colfax, 29.36% for Chart Industries and 6.88% for Barnes Group.

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