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Why Is Fortune Brands Home & Security (FBHS) Down 12.3% Since Last Earnings Report?

It has been about a month since the last earnings report for Fortune Brands Home & Security (FBHS). Shares have lost about 12.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Fortune Brands Home & Security due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Fortune Brands' Earnings Beat, Revenues Miss in Q4

Fortune Brands reported fourth-quarter 2019 earnings before charges/gains of $1 per share, surpassing the Zacks Consensus Estimate of 97 cents. On a year-over-year basis, the bottom line improved 16%, backed by sales growth.

In 2019, the company’s earnings before charges/gains were $3.60 per share, increasing 8% from the year-ago figure of $3.34.

Fortune Brands’ net sales were $1,470.5 million, increasing 4% from the year-ago figure. The rise was driven by healthy growth in Plumbing and Doors & Security segments. However, the top line missed the consensus estimate of $1,481 million.

Net sales in 2019 were $5,764.6 million, increasing 5% year over year, driven by solid momentum in Plumbing and Doors & Security segments.

Segmental Details

Cabinets’ sales decreased 5% year over year to $590.8 million. Growth in sales of value products was offset by weakness in premium products.

Plumbing sales jumped 12% to $548.4 million on the back of impressive performance in China and the United States.

Doors & Security’s sales increased 8% to $331.3 million, backed by robust sales growth of composite decking along with solid operating performance in security products.

Costs & Expenses

In the fourth quarter, Fortune Brands’ cost of sales before charges/gains increased 2% year over year to $938.7 million. It represented 63.8% of net sales compared with 64.7% in the year-ago quarter. Selling, general and administrative expenses jumped 1% to $312.4 million, and represented 21.2% of the net sales compared with 21.7% a year ago.

Operating income before charges/gains increased 37% to $192.5 million. Operating margin before charges/gains climbed 320 basis points to roughly 13.1%. Interest expenses decreased 4% to $22.4 million.

Balance Sheet

Exiting the fourth quarter, Fortune Brands’ cash and cash equivalents were $387.9 million, up 47.5% from $262.9 million at the end of the 2018. Its long-term debt decreased 1.3% to $1,784.6 million.

In 2019, net cash provided by operating activities were $637.2 million, reflecting 5.5% increase year over year. Capital expenditure amounted to $131.8 million, down from $150.1 million.

Outlook

For 2020, Fortune Brands anticipates moderate growth in markets while seeks to focus on operational improvements. The company expects the U.S. home products market to grow 4-6% in the year and the global market to grow 3-5%.

Sales for the year are expected to increase 5-6% from 2019. Earnings before charges/gains are estimated to be $3.83-$4.03 per share, reflecting year-over-year growth of 9.2% at the mid-point.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

At this time, Fortune Brands Home & Security has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision looks promising. Notably, Fortune Brands Home & Security has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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