Fortune Brands Home & Security, Inc. , yesterday, has priced an offering of $600 million worth of senior unsecured notes due to expire on Sep 21, 2023. Subject to customary closing conditions, this offering is anticipated to close on Sep 21, 2018.

Per the company, senior notes offered have been priced at 99.969% of the principal amount. Further, these notes carry a coupon rate of 4%, which will be paid semi-annually on Mar 21 and Sep 21. The first interest payment will be made on Mar 21, 2019.

Ratings of the issuance are expected to be ‘Baa3 (stable)’ by Moody's Investors Service and ‘BBB+ (stable)’ by Standard & Poor’s Ratings Services.

Fortune Brands intends to use net proceeds from the issuance of these senior notes for repaying dues under the existing revolving credit facility.

Fortune Brands’ High Debt Profile

The company has a highly leveraged balance sheet. Its long-term debt has increased roughly 33.9% (CAGR) in the last five years (2013-2017), with total debt/total equity increasing from 13.2% in 2013 to 58% in 2017. The trajectory continued in 2018 as well.

Exiting the second quarter of 2018, the company’s debt balance was at $1.8 billion, reflecting growth of 16.6% from the last-reported quarter. Its total debt/total equity in the second quarter end was 98.6% versus 80.1% in the first quarter and way higher than 58% at the end of 2017.

Although the current notes offering will help in repaying debts under revolving credit facility, we believe that it will also add to the company’s existing debt balance. Unwarranted rise in debt levels, in turn, can inflate its financial obligations and hurt profitability.

Zacks Rank & Stocks to Consider

With a market capitalization of $7.9 billion, Fortune Brands presently carries a Zacks Rank #3 (Hold). The company stands to gain from solid product portfolio, shareholder-friendly policy and buyouts. Recently, it completed the acquisition of North Carolina-based Fiberon, LLC. This buyout has become part of the company’s Doors & Security segment and is likely to increase growth opportunities in the outdoor living space.

However, the company currently faces headwinds from rising costs and expenses. Moreover, huge debt remains a problem. It’s worth mentioning here that the company funded the Fiberon buyout with borrowings and available cash.

Over the past month, Fortune Brands’ shares have declined 0.9%, as against 3.3% decrease recorded by the industry.




Furthermore, the stock’s earnings estimates are currently pegged at $3.64 for 2018 and $4.14 for 2019, reflecting decline of 0.3% and growth of 0.2% from respective 30-day-ago tallies.

Fortune Brands Home & Security, Inc. Price and Consensus