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Actionable news in FBHS: FORTUNE BRANDS HOME & SECURITY Inc,

Fortune Brands Reports Solid Third Quarter Results; Confirms 2015 Annual Sales and EPS Outlook

DEERFIELD, Ill.--(BUSINESS WIRE)--Fortune Brands Home & Security, Inc. (NYSE: FBHS), an industry-leading home and security products company, today announced third quarter 2015 results from continuing operations and confirmed its 2015 annual outlook for earnings per share.

“We continue to see positive signs and look for similar market conditions in the fourth quarter, and are building our momentum heading into 2016.”

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“As we expected, the rate of growth for the home products market accelerated in the third quarter and our teams again delivered profit growth that was right on plan,” said Chris Klein, chief executive officer, Fortune Brands. “We continue to anticipate similar new construction activity in the fourth quarter. Based on that market assumption and our solid execution, we are maintaining our expectations for our core business for the remainder of 2015.”

Third Quarter 2015

For the third quarter of 2015, sales were $1.24 billion, an increase of 17 percent over the third quarter of 2014. Earnings per share were $0.61, compared to $0.52 in the prior-year quarter. EPS before charges/gains were $0.64, compared to $0.52 the same quarter last year. Operating income was $160.3 million, compared to $129.5 million in the prior-year quarter. Operating income before charges/gains was $167.7 million, compared to $131.3 million the same quarter last year, up 28 percent.

“In the third quarter, sales increased 22 percent for the U.S. businesses. Importantly, operating margin before charges/gains for the total company grew 110 basis points to 13.5 percent, with solid performance across all operating segments,” Klein said.

For each segment in the third quarter of 2015, compared to the prior-year quarter:

  • Cabinet sales increased 33 percent from the prior year. Excluding the impact of the Norcraft acquisition, sales increased 10 percent, with the dealer channel growing 11 percent and in-stock cabinet and vanities increasing strong double digits. Cabinet operating margin before charges/gains grew 250 basis points to 10.6 percent.
  • Plumbing sales increased 5 percent, with growth across the U.S. wholesale and retail channels and China. Excluding the impact of Canadian currency, plumbing sales increased 8 percent.
  • Door sales were up 8 percent with growth in both the wholesale and retail channels.
  • Security sales increased 2 percent driven by SentrySafe and Master Lock U.S. retail. Sales were partially offset by the impact of Canadian currency and the European market.

“Cash was $351 million and net debt to EBITDA fell to 1.7 times at the end of the quarter after opportunistic share repurchases,” said Lee Wyatt, chief financial officer, Fortune Brands. “We are well positioned to continue using our balance sheet and strong cash flow to drive incremental shareholder value through acquisitions and share repurchases.”

Annual Outlook for 2015

The Company’s 2015 annual outlook continues to be based on a U.S. home products market growth assumption of 6 to 7 percent. Based on the Company’s expectation to continue outperforming the market, the acquisition of Norcraft and the impact of foreign currency, the Company expects full-year 2015 net sales growth in the range of 14 to 15 percent.

The Company confirms its expectations for 2015 EPS before charges/gains to be in the range of $2.05 to $2.07, which compares to 2014 EPS before charges/gains of $1.74.

“The third quarter home products market improved at an increasing rate, as we had expected,” said Klein. “We continue to see positive signs and look for similar market conditions in the fourth quarter, and are building our momentum heading into 2016.”

The Company expects to generate free cash flow of approximately $300 million for the full year 2015. The expected free cash flow is net of anticipated capital expenditures of approximately $135 million, as the Company invests in incremental capacity and infrastructure to support multi-year growth.

About Fortune Brands

Fortune Brands Home & Security, Inc. (NYSE: FBHS), headquartered in Deerfield, Ill., creates products and services that help fulfill the dreams of homeowners and help people feel more secure. The Company’s trusted brands include MasterBrand cabinets, Moen faucets, Therma-Tru entry door systems, and Master Lock and SentrySafe security products. Fortune Brands holds market leadership positions in all of its segments. Fortune Brands is part of the S&P MidCap 400 Index. For more information, please visit www.FBHS.com&index=1&md5=273b35443c5bb688041d81d33c67cd94">www.FBHS.com.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This press release contains certain “forward-looking statements” regarding business strategies, market potential, future financial performance, the potential of our categories and brands, potential effects of past actions on future performance, the impact of acquisitions, expected free cash flow and capital expenditures, and other matters. Statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “projects,” “estimates,” “plans,” “outlook,” “look,” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” and “could” are generally forward-looking in nature and not historical facts. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is based on the current plans and expectations of our management. Although we believe that these statements are based on reasonable assumptions, they are subject to numerous factors, risks and uncertainties that could cause actual outcomes and results to be materially different from those indicated in such statements. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including but not limited to: (i) our reliance on the North American home improvement, repair and new home construction activity levels, (ii) the North American and global economies, (iii) risk associated with entering into potential strategic acquisitions and integrating acquired companies, (iv) our ability to remain competitive, innovative and protect our intellectual property, (v) our reliance on key customers and suppliers, (vi) the cost and availability associated with our supply chains and the availability of raw materials, (vii) risk of increases in our postretirement benefit-related costs and funding requirements, (viii) compliance with tax, environmental and federal, state, and international laws and industry regulatory standards, and (ix) the risk of doing business internationally. These and other factors are discussed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission. The forward-looking statements included in this release are made as of the date hereof, and except as required by law, we undertake no obligation to update, amend or clarify any forward-looking statements to reflect events, new information or circumstances occurring after the date of this release.

Use of Non-GAAP Financial Information

This press release includes measures not derived in accordance with generally accepted accounting principles (“GAAP”), such as diluted earnings per share before charges/gains, organic cabinet sales, plumbing sales excluding the impact of Canadian currency, operating income before charges/gains, operating margin and free cash flow. These measures should not be considered in isolation or as a substitute for any measure derived in accordance with GAAP and may also be inconsistent with similar measures presented by other companies. Reconciliations of these measures to the most closely comparable GAAP measures, and reasons for the Company’s use of these measures, are presented in the attached pages.

FORTUNE BRANDS HOME & SECURITY, INC.
(In millions, except per share amounts)
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2015 2014 % Change 2015 2014 % Change
Net Sales (GAAP)
Cabinets $ 603.3 $ 452.6 33 $ 1,565.3 $ 1,331.4 18
Plumbing 364.4 345.9 5 1,056.0 995.9 6
Doors 123.8

114.4

8 324.6 304.5 7
Security 147.3 144.8 2 408.8 342.2 19
Total Net Sales $ 1,238.8 $

1,057.7

17 $ 3,354.7 $ 2,974.0 13
Operating Income Before Charges/Gains (a)
Cabinets $ 63.7 $ 36.5 75 $ 134.6 $ 102.8 31
Plumbing 81.5 76.0 7 221.4 201.3 10
Doors 16.7 12.1 38 30.7 21.7 41
Security 20.9 20.6 1 50.6 43.8 16
Corporate Expenses (15.1 ) (13.9 ) (9 ) (45.9 ) (42.6 ) (8 )
Total Operating Income Before Charges/Gains $ 167.7 $ 131.3 28 $ 391.4 $ 327.0 20
Earnings Per Share Before Charges/Gains (b)
Diluted - Continuing Operations $ 0.64 $ 0.52 23 $ 1.51 $ 1.30 16
EBITDA Before Charges/Gains (c) $ 198.8 $ 153.7

29

$ 469.5 $ 388.9 21
(a) (b) (c) For definitions of Non-GAAP measures, see Definitions of Terms page
FORTUNE BRANDS HOME & SECURITY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (GAAP)
(In millions)
(Unaudited)
September 30, December 31,
2015 2014
Assets
Current assets
Cash and cash equivalents $ 350.6 $ 191.9
Accounts receivable, net 557.0 458.9
Inventories 540.4 462.2
Other current assets 175.4 122.8
Current assets of discontinued operations - 63.3
Total current assets 1,623.4 1,299.1
Property, plant and equipment, net 606.3 539.8
Goodwill 1,800.8 1,467.8
Other intangible assets, net of accumulated amortization 982.2 656.5
Other assets 69.5 72.4
Non-current assets of discontinued operations - 17.3
Total assets $ 5,082.2 $ 4,052.9
Liabilities and Equity
Current liabilities
Current portion of long-term debt $ 3.8 $ 26.3
Accounts payable 353.6 333.8
Other current liabilities 420.3 322.0
Current liabilities of discontinued operations - 17.5
Total current liabilities 777.7 699.6
Long-term debt 1,337.6 643.7
Deferred income taxes 266.0 150.6
Other non-current liabilities 296.6 292.5
Non-current liabilities of discontinued operations - 3.4
Total liabilities 2,677.9 1,789.8
Stockholders' equity

2,401.6

2,259.5
Noncontrolling interests 2.7 3.6
Total equity 2,404.3 2,263.1
Total liabilities and equity $ 5,082.2 $ 4,052.9
FORTUNE BRANDS HOME & SECURITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Nine Months Ended September 30,
2015 2014
Operating Activities
Net income $ 227.5 $ 113.9
Depreciation and amortization 81.8 73.2
Recognition of actuarial losses 8.9 1.7
Deferred taxes (22.7 ) 5.6
Pretax loss on sale of discontinued operation 16.9 83.2
Pretax other noncash items 21.2 24.8
Changes in assets and liabilities, net (69.5 ) (192.2 )
Net cash provided by operating activities $ 264.1 $ 110.2
Investing Activities
Capital expenditures, net of proceeds from asset sales $ (84.4 ) $ (82.1 )
Proceeds from sale of discontinued operations 12.2 130.0
Cost of acquisitions, net of cash (652.8 ) (118.5 )
Other investing activities - (7.0 )
Net cash used by investing activities $ (725.0 ) $ (77.6 )
Financing Activities

Increase in debt, net

$

668.9

$

327.3

Proceeds from the exercise of stock options 22.6 23.1
Treasury stock purchases (15.7 ) (411.4 )
Dividends to stockholders (67.1 ) (58.5 )
All other, net 21.8 22.2
Net cash provided (used) by financing activities $ 630.5 $ (97.3 )
Effect of foreign exchange rate changes on cash (10.9 ) (1.6 )
Net increase (decrease) in cash and cash equivalents $ 158.7 $ (66.3 )
Cash and cash equivalents at beginning of period 191.9 241.4
Cash and cash equivalents at end of period $ 350.6 $ 175.1

FREE CASH FLOW

Nine Months Ended September 30, 2015 Full Year
2015 2014 Approximation
Free Cash Flow* $ 217.4 $ 51.2 $ 300.0
Add:
Capital expenditures 86.9 82.3 135.0
Less:
Proceeds from the sale of assets 2.4 0.2 2.4
Proceeds from the exercise of stock options 22.7 23.1 25.0
Transaction costs for Norcraft acquisition 15.1 - 15.1
Cash Flow From Operations (GAAP) $ 264.1 $ 110.2 $ 392.5
* Free cash flow is cash flow from operations calculated in accordance with U.S. generally accepted accounting principles ("GAAP") less net capital expenditures (capital expenditures less proceeds from the sale of assets including property, plant and equipment) plus proceeds from the exercise of stock options. It additionally excludes payments of transaction costs related to the Norcraft acquisition. Free cash flow does not include adjustments for certain non-discretionary cash flows such as mandatory debt repayments. Free cash flow is a measure not derived in accordance with GAAP. Management believes that free cash flow provides investors with helpful supplemental information about the Company's ability to fund internal growth, make acquisitions, repay debt and related interest, pay dividends and repurchase common stock. This measure may be inconsistent with similar measures presented by other companies.
FORTUNE BRANDS HOME & SECURITY, INC.
CONSOLIDATED STATEMENT OF INCOME (GAAP)
(In millions, except per share amounts)
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2015 2014 % Change 2015 2014 % Change
Net Sales $ 1,238.8 $ 1,057.7 17 $ 3,354.7 $ 2,974.0 13
Cost of products sold 804.3 689.7 17 2,192.9 1,948.9 13
Selling, general
and administrative expenses 265.7 234.9 ...

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