Fortune Brands Innovations, Inc. (NYSE: FBIN or “Fortune Brands” or the “Company”), an industry-leading home, security and commercial building products company, today announced second quarter 2023 results and increased its full-year 2023 sales, EPS before charges / gains and free cash flow guidance.
“Our Company continued to leverage its core strengths in brand, innovation and channel excellence and delivered very strong margin results in the quarter amid a dynamic macro environment,” said Fortune Brands Chief Executive Officer Nicholas Fink. “We also took concrete steps to position the Company for future growth, including completing a highly attractive acquisition of leading, innovative brands which will accelerate our larger growth strategy, particularly in the differentiated connected home and luxury markets.”
Fink continued, “Looking forward, we are well prepared to respond to any short-term macro challenges, while further positioning ourselves as a forward-thinking leader in a market supported by long-term growth drivers and secular tailwinds.”
Second Quarter 2023 Results ($ in millions, except per share amounts) Unaudited | ||||
NET SALES | OPERATING INCOME | OPERATING MARGIN | EPS | |
Q2 2023 Reported | $1,164 | $152.6 | 13.1% | $0.80 |
Change versus prior year | (7%) | (30%) | (440 bps) | (27%) |
Q2 2023 Before charges / gains | $1,164 | $197.8 | 17.0% | $1.07 |
Change versus prior year | (7%) | (11%) | (60 bps) | (4%) |
For each segment in the second quarter of 2023, compared to the prior-year quarter:
- Water Innovations sales decreased 5 percent, primarily due to lower sales volumes, partially offset by price. Excluding the impact of the Aqualisa acquisition and FX, sales decreased 6 percent. Operating margin was 23.0 percent. Operating margin before charges / gains was 23.2 percent.
- Outdoors sales decreased 14 percent, driven by lower sales volumes, partially offset by price. Operating margin was 16.3 percent, a 90 bps increase over Q2 2022. Operating margin before charges / gains was 16.4 percent, an 80 bps increase over Q2 2022.
- Security sales increased 2 percent, driven by increased distribution, price and continued growth in the commercial safety business. Operating margin was -0.2 percent. Operating margin before charges / gains was 15.6 percent.
Emtek, Schaub, Yale and August Acquisition
On June 20, 2023, the Company completed its acquisition of the Emtek and Schaub premium and luxury door and cabinet hardware business, and the U.S. and Canadian Yale and August residential smart locks business from ASSA ABLOY (collectively, the “Acquisition”). The purchase price was $800 million, or approximately $700 million net of tax benefits, on a cash-free, debt-free basis, subject to customary adjustments. The net purchase price of $700 million equates to approximately 7.8x 2022 adjusted EBITDA before synergies. Results from the Acquisition were immaterial to Fortune Brands’ 2023 Q2 results.
For the second half of 2023, the Acquisition is expected to generate net sales of $190 million to $210 million and earnings per share of $0.04 to $0.06, inclusive of approximately $0.08 unfavorable EPS impact from purchase price amortization, or $0.12 to $0.14 excluding purchase price amortization.
By the end of 2026, the Acquisition is expected to generate net sales of $500 million to $550 million, earnings per share of $0.45 to $0.55, $65 million to $85 million of run-rate sales synergies and $10 million to $20 million of run-rate cost synergies. For more information on the Acquisition, please visit ir.fbin.com/quarterly-results.
Balance Sheet and Cash Flow
At the end of the quarter, net debt was $2.6 billion and net debt to EBITDA before charges / gains was 2.9x. The Company had $682 million in cash and full availability under its $1.25 billion revolving credit facility. Cash flow from operations was $428 million while free cash flow was $358 million for the quarter, reflecting the favorable impact of the Company’s working capital and inventory reduction efforts.
Annual Outlook
The Company is increasing full-year EPS before charges / gains guidance to a range of $3.75 to $3.90, reflecting the impact of the Acquisition and improved market conditions. The mid-point of this guidance represents a $0.13 increase over the mid-point of the Company’s initial 2023 guidance provided during its fourth quarter 2022 earnings call. In addition, the Company upwardly revised its market outlook, full-year sales and free cash flow guidance, reflecting the impact of the Acquisition as well as the Company’s outperformance and a stronger than anticipated single family new construction market.
“We took decisive actions in the first half of 2023, while still maintaining investments in our key strategic priorities, and delivered impressive results amid a volatile operating environment,” said Fortune Brands Chief Financial Officer David Barry. “Our updated guidance reflects our confidence in the Company’s strong financial position as we continue to position Fortune Brands for future shareholder value creation opportunities by prioritizing above-market sales growth, margin preservation and enhancement and cash generation.”
The Company now expects:
Prior Guidance | Updated | |
MARKET | ||
Global market | -6.5% to -8.5% | -5.5% to -7.5% |
U.S. market | -6.5% to -8.5% | -5.5% to -7.5% |
U.S. R&R | -4% to -6% | -4% to -6% |
U.S. SFNC | -18% to -22% | -12% to -14% |
China market | -15% to -20% | -15% to -20% |
FINANCIAL METRICS | ||
Net sales | -5% to -7% | 0% to -2% |
Net sales [organic] | -5% to -7% | -4% to -6% |
Operating margin | 16% to 17% | 16% to 16.5% |
EPS before charges / gains | $3.65 to $3.85 | $3.75 to $3.90 |
Cash flow from operations | - | ~$855 million |
Free cash flow | ~$475 million | ~$575 million |
Cash conversion | ~100% | ~120% |
For more information on the Company's guidance, please visit ir.fbin.com/quarterly-results.
For certain forward-looking non-GAAP measures (as used in this press release, EPS before charges / gains and cash conversion), the Company is unable to provide a reconciliation to the most comparable GAAP financial measure because the information needed to reconcile these measures is unavailable due to the inherent difficulty of forecasting the timing and/or amount of various items that have not yet occurred, including the high variability and low visibility with respect to gains and losses associated with our defined benefit plans and restructuring and other charges, which are excluded from EPS before charges / gains and cash conversion. Additionally, estimating such GAAP measures and providing a meaningful reconciliation consistent with the Company’s accounting policies for future periods requires a level of precision that is unavailable for these future periods and cannot be accomplished without unreasonable effort. Forward-looking non-GAAP measures are estimated consistent with the relevant definitions and assumptions.
Conference Call Details
Today at 5:00 p.m. ET, Fortune Brands will host an investor conference call to discuss results. A live internet audio webcast of the conference call will be available on the Fortune Brands website at ir.fbin.com/upcoming-events. It is recommended that listeners log on at least 10 minutes prior to the start of the call. A recorded replay of the call will be made available on the Company’s website shortly after the call has ended.
About Fortune Brands Innovations
Fortune Brands Innovations, Inc. (NYSE: FBIN), headquartered in Deerfield, Ill., is a brand, innovation and channel leader focused on exciting, supercharged categories in the home products, security and commercial building markets. The Company’s growing portfolio of brands includes Moen, House of Rohl, Aqualisa, Emtek, Therma-Tru, Larson, Fiberon, Master Lock, SentrySafe, Yale and August. To learn more about FBIN, its brands and environmental, social and governance (ESG) commitments, visit www.FBIN.com.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This press release contains forward-looking statements that are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include all statements that are not historical statements of fact and those regarding our intent, belief or expectations for our business, operations, financial performance or financial condition in addition to statements regarding our general business strategies, the market potential of our brands, trends in the housing market, the potential impact of costs, including material and labor costs, the potential impact of inflation, expected capital spending, expected pension contributions, the expected impact of acquisitions, dispositions and other strategic transactions including the expected benefits and costs of the separation (the “Separation”) of MasterBrand, Inc. (“MasterBrand”) and the tax-free nature of the Separation, the anticipated impact of recently issued accounting standards on our financial statements, and other matters that are not historical in nature. Statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “projects,” “estimates,” “plans,” “outlook,” “positioned” 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 current expectations, estimates, assumptions and projections of our management about our industry, business and future financial results, available at the time this press release is issued. 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, including but not limited to: (i) our reliance on the North American and Chinese home improvement, repair and remodel and new home construction activity levels, (ii) the housing market, downward changes in the general economy, unfavorable interest rates or other business conditions, (iii) the competitive nature of consumer and trade brand businesses, (iv) our ability to execute on our strategic plans and the effectiveness of our strategies in the face of business competition, (v) our reliance on key customers and suppliers, including wholesale distributors and dealers and retailers, (vi) risks associated with our ability to improve organizational productivity and global supply chain efficiency and flexibility, (vii) risks associated with global commodity and energy availability and price volatility, as well as the possibility of sustained inflation, (viii) delays or outages in our information technology systems or computer networks, (ix) risks associated with doing business globally, including changes in trade-related tariffs and risks with uncertain trade environments, (x) risks associated with the disruption of operations, (xi) our inability to obtain raw materials and finished goods in a timely and cost-effective manner, (xii) risks associated with entering into potential strategic acquisitions and joint ventures and related integration activities, (xiii) impairments in the carrying value of goodwill or other acquired intangible assets, (xiv) risk of increases in our defined benefit-related costs and funding requirements, (xv) the uncertainties relating to the impact of COVID-19 on the Company’s business, financial performance and operating results, (xvi) our ability to attract and retain qualified personnel and other labor constraints, (xvii) the effect of climate change and the impact of related changes in government regulations and consumer preferences, (xviii) risks associated with environmental, social and governance matters, (xix) changes in government and industry regulatory standards, (xx) future tax law changes or the interpretation of existing tax laws, (xxi) our ability to secure and protect our intellectual property rights, (xxii) potential liabilities and costs from claims and litigation, (xxiii) our ability to achieve the expected benefits of the Separation of MasterBrand, (xxiv) the risk that we may be required to indemnify MasterBrand in connection with the Separation or that MasterBrand’s indemnities to us may not be sufficient to hold us harmless for the full amount of liabilities for which MasterBrand has been allocated responsibility, (xxv) the potential that the Separation fails to qualify as tax-free for U.S. federal income tax purposes and (xxvi) unanticipated difficulties or expenditures relating to the transaction, including, without limitation, difficulties that result in the failure to realize expected synergies, efficiencies and cost savings from the transaction within the expected time period (if at all). These and other factors are discussed in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022. We undertake no obligation to, and expressly disclaim any such obligation to, update or clarify any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or changes to future results over time or otherwise, except as required by law.
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 from continuing operations before charges / gains, operating income before charges / gains, operating margin before charges / gains, EBITDA before charges / gains, net debt, net debt to EBITDA before charges / gains, sales excluding the impact of FX and acquisitions, and free cash flow. These non-GAAP 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 applicable most closely comparable GAAP measures, and reasons for the Company’s use of these measures, are presented in the attached pages.
| FORTUNE BRANDS INNOVATIONS, INC. | |||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||||||
| Thirteen Weeks Ended | Three Months Ended | Twenty-Six Weeks Ended | Six Months Ended | ||||||||||||||||||||||||
| Net sales (GAAP) | July 1, 2023 | June 30, 2022 | $ Change | % Change | July 1, 2023 | June 30, 2022 | $ Change | % Change | |||||||||||||||||||
| Water | $ | 617.1 | $ | 650.0 | $ | (32.9 | ) | (5 | ) | $ | 1,211.3 | $ | 1,293.6 | $ | (82.3 | ) | (6 | ) | |||||||||
| Outdoors | 375.6 | 437.2 | (61.6 | ) | (14 | ) | 665.5 | 780.8 | (115.3 | ) | (15 | ) | |||||||||||||||
| Security | 171.0 | 168.2 | 2.8 | 2 | 326.9 | 321.2 | 5.7 | 2 | |||||||||||||||||||
| Total net sales | $ | 1,163.7 | $ | 1,255.4 | $ | (91.7 | ) | (7 | ) | $ | 2,203.7 | $ | 2,395.6 | $ | (191.9 | ) | (8 | ) | |||||||||
| RECONCILIATIONS OF GAAP OPERATING INCOME TO OPERATING INCOME BEFORE CHARGES/GAINS | |||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||||||
| Thirteen Weeks Ended | Three Months Ended | Twenty-Six Weeks Ended | Six Months Ended | ||||||||||||||||||||||||
| July 1, 2023 | June 30, 2022 | $ Change | % Change | July 1, 2023 | June 30, 2022 | $ Change | % Change | ||||||||||||||||||||
| WATER | |||||||||||||||||||||||||||
| Operating income (GAAP) | $ | 142.1 | $ | 160.7 | $ | (18.6 | ) | (12 | ) | $ | 270.5 | $ | 310.0 | $ | (39.5 | ) | (13 | ) | |||||||||
| Restructuring charges | 1.1 | 0.9 | 0.2 | 22 | 1.3 | 0.9 | 0.4 | 44 | |||||||||||||||||||
| Other charges/(gains) | |||||||||||||||||||||||||||
| Cost of products sold | - | - | - | - | 0.1 | - | 0.1 | 100 | |||||||||||||||||||
| Selling, general and administrative expenses | - | - | - | - | - | 0.8 | (0.8 | ) | (100 | ) | |||||||||||||||||
| Operating income before charges/gains (a) | $ | 143.2 | $ | 161.6 | $ | (18.4 | ) | (11 | ) | $ | 271.9 | $ | 311.7 | ||||||||||||||
