Highlights from continuing operations:
- Q3 2017 sales increased 5 percent
year-over-year to $1.35 billion
- GAAP EPS $0.83; EPS before
charges/gains increased 3 cents to $0.83, reflecting solid
execution against strong prior year comp
- Global Plumbing Group (GPG)
continues to drive organic growth above market, plus incremental
growth with additional premium brands
- Company narrows full-year 2017 EPS
before charges/gains outlook to $3.05 - $3.10 on sales growth of 6
– 7 percent
Fortune Brands Home & Security, Inc. (NYSE: FBHS), an
industry-leading home and security products company, today
announced third quarter 2017 results and confirmed its 2017 annual
outlook for earnings per share.
“In the third quarter sales growth was solid, despite the
negative hurricane impact and continued labor constraints,” said
Chris Klein, chief executive officer, Fortune Brands. “Sales grew
across our company, and overall profit increased. In particular,
the GPG platform continues to grow significantly above market, and
we recently added two premium English bath brands to the portfolio.
Based on the current pace of market growth and our solid execution,
we continue to expect to deliver strong full-year results.”
Third Quarter 2017
For the third quarter of 2017, sales were $1.35 billion, an
increase of 5 percent over the third quarter of 2016. Earnings per
share were $0.83, compared to $0.77 in the prior-year quarter. EPS
before charges/gains were $0.83, compared to $0.80 the same quarter
last year. Operating income was $201.8 million, compared to $183.1
million in the prior-year quarter. Operating income before
charges/gains was $201.1 million, compared to $188.7 million the
same quarter last year, up 7 percent.
“Operating margin before charges/gains for the total company
grew to 14.9 percent as expected, and our results were solid
against the roughly ten cents of non-repeating benefit in our EPS
last year,” said Patrick Hallinan, chief financial officer, Fortune
Brands. “In the fourth quarter we continue to expect profitability
growth to accelerate, and we remain squarely on track to achieve
our near and long-term operating margin targets through our
disciplined focus on profitable growth.”
For each segment in the third quarter of 2017, compared to the
prior-year quarter:
- Plumbing sales increased 12 percent,
with growth in all channels. Organic sales increased high single
digits, and Canada and China sales grew double digits. Operating
margin before charges/gains was 22.2 percent.
- Cabinet sales increased 2 percent from
the prior year. Sales grew in all channels, with a return to growth
in premium, Canada and home center special order. Segment operating
margin before charges/gains was 11.3 percent and reflected a
non-repeating health-care benefit in the prior year.
- Door sales outpaced the market and were
up 7 percent driven by new construction activity in the wholesale
channel. Operating margin before charges/gains increased 90 basis
points to 18.2 percent.
- Security sales increased 5 percent in
the core business driven by strong international and safety sales,
but were up one percent as reported due to timing of sales and the
wind-down of select commercial product lines. Operating margin
before charges/gains increased 80 basis points to 17.8
percent.
During the quarter the Global Plumbing Group (GPG) strengthened
its platform as a multi -brand, -channel and -geography plumbing
business positioned for growth, with strong organic sales results
and solid performance from its expanded portfolio of brands.
Recently the GPG acquired Shaws of England, a premium sink brand,
and Victoria + Albert, a premium free-standing tub brand. Together
these new additions are expected to add approximately $45 million
in annualized revenue to the GPG, with strong margin accretive to
the overall portfolio. The acquisitions of Shaws of England and
Victoria + Albert broaden the overall GPG product and price point
offering with exceptional products known for their distinct
quality, craftsmanship and design.
"These latest additions to the GPG will leverage our strong
wholesaler and builder relationships in addition to our
distribution, supply chain and marketing capabilities in similar
fashion to Riobel, ROHL and Perrin & Rowe. We now have a
broader suite of premium plumbing brands with which we can create
an enhanced showroom presence, and penetrate other market segments,
such as hospitality. Victoria + Albert and Shaws align well with
the GPG growth strategy, and we are on track to reach our goal of
$2.5 billion in plumbing sales by 2020," said Klein.
Annual Outlook for 2017
The Company’s 2017 annual outlook continues to be based on a
U.S. home products market growth assumption of 6 to 7 percent and
an assumption of 5 to 6 percent growth for our total global market.
The Company now expects full-year 2017 sales growth in the range of
6 to 7 percent, which reflects the negative impact of hurricanes
across the segments.
The Company also narrowed its full-year 2017 EPS outlook before
charges/gains to a range of $3.05 to $3.10, versus a prior range of
$3.04 to $3.12.
The Company also expects to generate free cash flow of
approximately $450 million for the full-year 2017.
About Fortune Brands
Fortune Brands Home & Security, Inc. (NYSE: FBHS),
headquartered in Deerfield, Ill., creates products and services
that fulfill the dreams of homeowners and help people feel more
secure. The Company’s four operating segments are Cabinets,
Plumbing, Doors and Security. Its trusted brands include more than
a dozen core brands under MasterBrand Cabinets; Moen, ROHL and
Riobel under the Global Plumbing Group (GPG); Therma-Tru entry door
systems; and Master Lock and SentrySafe security products under The
Master Lock Company. Fortune Brands holds market leadership
positions in all of its segments. Fortune Brands is part of the
S&P 500 Index. For more information, please visit
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, and other
matters. Statements preceded by, followed by or that otherwise
include the words “believes,” “expects,” “estimates,” “plans,”
“look to,” “outlook,” 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 the factors
discussed in Item 1A of our Annual Report on Form 10-K for the year
ended December 31, 2016, 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, operating income
before charges/gains, operating margin before charge/gains 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)
Net Sales Three Months
Ended September 30, Nine Months Ended September 30,
2017 2016 % Change 2017
2016 % Change Net Sales (GAAP)
Net Sales (GAAP)
Cabinets $ 614.2 $ 602.1 2 Cabinets $
1,841.2 $ 1,797.2 2 Plumbing 438.3 391.1 12 Plumbing 1,251.5
1,108.0 13 Doors 138.5 129.2 7 Doors 374.2 351.3 7 Security
157.6 156.6 1 Security
433.9 426.8 2
Total Net Sales $ 1,348.6 $ 1,279.0
5
Total Net Sales $ 3,900.8 $
3,683.3 6
Current Quarter Operating
Income Before Charges & Gains
GAAP Three Months Ended September 30,
Three Months Ended September 30, Operating Income (loss)
Before Charges/Gains (a) 2017 2016
% Change Operating Income (loss) 2017
2016 % Change Cabinets $ 69.7 $ 74.8 (7
) Cabinets $ 69.7 $ 74.8 (7 ) Plumbing 97.4 84.9 15 Plumbing 97.3
84.0 16 Doors 25.2 22.3 13 Doors 25.1 22.3 13 Security 28.1 26.6 6
Security 27.7 22.9 21 Corporate: Corporate: General and
administrative expense (20.5 ) (20.5 ) - General and administrative
expense (20.5 ) (20.5 ) - Defined benefit plan income (b)
1.2 0.6 100 Defined
benefit plan income/(expense) (1) 2.5
(0.4 ) 725 Total Corporate Expenses (19.3 )
(19.9 ) 3 Total Corporate Expenses
(18.0 ) (20.9 ) 14
Total Operating Income Before Charges/Gains $ 201.1
$ 188.7 7
Total Operating Income
(GAAP) $ 201.8 $ 183.1 10
Earnings Per Share Before Charges/Gains (c)
Diluted EPS from Continuing Operations (GAAP)
Diluted - Continuing Operations $ 0.83 $ 0.80
4 Diluted EPS - Continuing Operations $ 0.83
$ 0.77 8
EBITDA
Before Charges/Gains (d) $ 233.3 $ 218.0
7
Income from Continuing Operations, net of
tax $ 129.6 $ 121.9 6
Year to Date Operating Income
Before Charges & Gains GAAP Nine
Months Ended September 30, Nine Months Ended September
30, Operating Income (loss) Before Charges/Gains
(a) 2017 2016 % Change
Operating Income (loss) 2017 2016
% Change Cabinets $ 205.4 $ 195.8 5 Cabinets $ 205.4
$ 194.0 6 Plumbing 273.4 244.5 12 Plumbing 270.8 242.6 12 Doors
55.8 46.1 21 Doors 55.8 46.1 21 Security 64.7 57.7 12 Security 56.4
44.7 26 Corporate: Corporate: General and administrative expense
(63.8 ) (61.2 ) (4 ) General and administrative expense (63.8 )
(61.3 ) (4 ) Defined benefit plan income (b) 3.2
2.1 52 Defined benefit plan
income (1) 4.5 0.2 2,150
Total Corporate Expenses (60.6 ) (59.1
) (3 ) Total Corporate Expenses (59.3 )
(61.1 ) 3
Total Operating Income Before
Charges/Gains $ 538.7 $ 485.0 11
Total Operating Income (GAAP) $ 529.1 $
466.3 13
Earnings Per Share Before
Charges/Gains (c) Diluted EPS From Continuing
Operations (GAAP) Diluted - Continuing Operations $ 2.28
$ 2.05 11 Diluted EPS -
Continuing Operations $ 2.22 $ 1.95 14
EBITDA Before Charges/Gains
(d) $ 634.8 $ 572.3 11
Income from Continuing Operations, net of tax $ 347.3
$ 308.0 13 (1) Corporate
expenses as derived in accordance with GAAP include the components
of defined benefit plan income/(expense) other than service cost
including actuarial gains and losses. (a) (b) (c) (d)
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, 2017
2016 Assets Current assets Cash
and cash equivalents $ 277.1 $ 251.5 Accounts receivable, net 594.7
550.7 Inventories 600.1 531.1 Other current assets 126.4
111.9
Total current assets 1,598.3 1,445.2
Property, plant and equipment, net 690.6 662.5 Goodwill 1,852.8
1,833.8 Other intangible assets, net of accumulated amortization
1,105.4 1,107.0 Other assets 102.2 80.0
Total
assets $ 5,349.3 $ 5,128.5
Liabilities and Equity Current liabilities
Accounts payable $ 392.5 $ 393.8 Other current liabilities
460.0 449.0
Total current liabilities 852.5
842.8 Long-term debt 1,462.2 1,431.1 Deferred income taxes
176.2 163.5 Other non-current liabilities 312.5 328.1
Total liabilities 2,803.4 2,765.5 Stockholders'
equity 2,544.3 2,361.5 Noncontrolling interests 1.6
1.5
Total equity 2,545.9 2,363.0
Total
liabilities and equity $ 5,349.3 $
5,128.5 FORTUNE BRANDS HOME & SECURITY,
INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions) (Unaudited)
Nine Months Ended September 30,
2017 2016 Operating Activities
Net income $ 344.7 $ 309.5 Depreciation
and amortization 96.3 89.7 Asset impairment charges 3.2 -
Recognition of actuarial (gains)
losses
(1.3 ) 1.9 Deferred taxes 8.1 (23.0 ) Loss on sale of product line
2.4 - Other noncash items 34.5 28.5 Changes in assets and
liabilities, net (135.3 ) (26.0 )
Net cash provided by operating activities $ 352.6
$ 380.6
Investing Activities
Capital expenditures $ (95.5 ) $ (106.1
) Proceeds from the sale of assets 0.2 2.3 Proceeds from sale of
product line 1.5 - Cost of acquisitions, net of cash (19.4 )
(230.5 )
Net cash used in investing
activities $ (113.2 ) $ (334.3 )
Financing Activities Increase in
debt, net $ 30.0 $ 414.0 Proceeds from the exercise of stock
options
25.8
24.8 Treasury stock purchases (173.7 ) (362.7 ) Dividends to
stockholders (82.7 ) (73.7 ) All other, net
(22.9
) (11.9 )
Net cash used in financing
activities $ (223.5 ) $ (9.5 )
Effect of foreign exchange rate changes on
cash 9.7 3.3
Net increase in cash and cash equivalents $
25.6 $ 40.1 Cash and cash equivalents at beginning of period
251.5 238.5
Cash and cash
equivalents at end of period $ 277.1 $
278.6
FREE CASH
FLOW
Nine Months Ended September 30, 2017 Full
Year 2017 2016
Approximation Free Cash Flow* $ 283.1 $ 301.6
$ 450.0 Add: Capital expenditures
95.5
106.1 150.0 - 155.0 Less: Proceeds from the sale of assets
0.2
2.3 - Proceeds from the exercise of stock options
25.8
24.8 25.0 -
30.0
Cash Flow From Operations (GAAP) $ 352.6
$ 380.6 $ 575.0 * 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, and the proceeds
from the exercise of stock options). 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, 2017 2016 %
Change 2017 2016 % Change
Net Sales $ 1,348.6 $ 1,279.0 5
$ 3,900.8 $ 3,683.3 6
Cost of products sold 841.6 801.0 5
2,461.3 2,352.8 5 Selling, general and administrative
expenses 297.3 284.5 4 877.7 831.4 6 Amortization of
intangible assets 7.5 7.3 3 23.6 20.4 16 Loss on sale of
product line - - - 2.4 - 100 Asset impairment charges - - -
3.2 - 100 Restructuring charges 0.4 3.1 (87 ) 3.5 12.4 (72 )
Operating Income 201.8 183.1
10 529.1 466.3
13 Interest expense 12.3 11.8 4 36.5 37.5 (3 )
Other expense (income), net 0.1 0.6 (83 ) 0.2 (0.1 ) 300
Income from continuing operations before income taxes
189.4 170.7 11 492.4
428.9 15 Income
taxes 59.8 48.8 23 145.1 120.9 20
Income from continuing
operations, net of tax $ 129.6 $ 121.9 6 $
347.3 $ 308.0 13
(Loss) Income from discontinued operations, net of tax - 1.5
(100 ) (2.6 ) 1.5 (273 )
Net income $ 129.6 $
123.4 5 $ 344.7 $ 309.5
11 Less: Noncontrolling interests 0.1 - 100 0.1 (0.1
) 200
Net income attributable to Fortune Brands
Home & Security $ 129.5 $ 123.4 5 $
344.6 $ 309.6 11
Earnings Per Common Share, Diluted:
Net Income from
continuing operations $ 0.83 $ 0.77 8 $ 2.22
$ 1.95 14
Diluted Average
Shares Outstanding 155.9 157.6 (1 )
156.2 158.1 (1 )
DILUTED EPS
BEFORE CHARGES/GAINS RECONCILIATION
For the
three months ended September 30, 2017, diluted EPS before
charges/gains is net income from continuing operations, net of tax
including the impact from noncontrolling interests calculated on a
diluted per-share basis excluding $0.6 million ($0.4 million after
tax) of restructuring and the impact from actuarial gains
associated with our defined benefit plans of $1.3 million ($0.9
million after tax). For the nine months ended September 30,
2017, diluted EPS before charges/gains is net income from
continuing operations, net of tax including the impact from
noncontrolling interests calculated on a diluted per-share basis
excluding $5.3 million ($3.8 million after tax or $0.02 per diluted
share) of restructuring and other charges, asset impairment charges
of $3.2 million ($3.2 million after tax or $0.02 per diluted
share), the loss on sale of product line of $2.4 million ($2.5
million after tax or $0.02 per diluted share) and the impact of
income from actuarial gains associated with our defined benefit
plans of $1.3 million ($0.9 million after tax). For the
three months ended September 30, 2016, diluted EPS before
charges/gains is income from continuing operations, net of tax and
including the impact from noncontrolling interests calculated on a
diluted per-share basis excluding $4.6 million ($3.3 million after
tax or $0.03 per diluted share) of net restructuring and other
charges, the impact of expense from actuarial losses associated
with our defined benefit plans of $1.0 million ($0.7 million after
tax) and expense related to a tax item of $0.5 million. For
the nine months ended September 30, 2016, diluted EPS before
charges/gains is income from continuing operations, net of tax and
including the impact from noncontrolling interests calculated on a
diluted per-share basis excluding $16.8 million ($11.7 million
after tax or $0.08 per diluted share) of restructuring and other
charges, the impact of the write off of prepaid debt issuance cost
of $1.3 million ($0.8 million after tax), expense related to tax
items of $1.6 million ($0.01 per diluted share), and actuarial
losses of $1.9 million ($1.3 million after tax or $0.01 per diluted
share).
Three Months Ended September
30, Nine Months Ended September 30, 2017
2016 % Change 2017 2016
% Change Earnings Per Common Share -
Diluted Diluted EPS Before Charges/Gains - Continuing
Operations (c) $ 0.83 $ 0.80 4 $ 2.28 $ 2.05 11
Restructuring and other charges - (0.03 ) 100 (0.02 ) (0.08 ) 75
Asset impairment charges - - - (0.02 ) - - Loss on sale of product
line - - - (0.02 ) - - Defined benefit plan actuarial
gains/(losses) - - - - (0.01 ) 100 Tax item - - - - (0.01 ) 100
Diluted EPS - Continuing Operations $ 0.83 $
0.77 8 $ 2.22 $ 1.95 14
RECONCILIATION OF
FULL YEAR 2017 EARNINGS GUIDANCE TO GAAP
The Company is targeting diluted EPS before charges/gains
from continuing operations to be in the range of $3.05 to $3.10 per
share. For the full year, on a GAAP basis, the Company is targeting
diluted EPS from continuing operations to be in the range of $2.99
to $3.04 per share. Reconciliation of non-GAAP diluted EPS guidance
to GAAP diluted EPS guidance cannot be provided without
unreasonable efforts on a forward-looking basis due to 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 the diluted EPS before
charges/gains. In addition, the Company's GAAP EPS range assumes
the Company incurs no additional gains or losses associated with
its defined benefit plans. (c) For definitions of
Non-GAAP measures, see Definitions of Terms page
FORTUNE
BRANDS HOME & SECURITY, INC. (In millions)
(Unaudited)
RECONCILIATION OF
EBITDA BEFORE CHARGES/GAINS TO NET INCOME
Three Months Ended September 30, Nine
Months Ended September 30, 2017 2016
% Change 2017 2016 %
Change
EBITDA BEFORE CHARGES/GAINS (d) $ 233.3
$ 218.0 7 $ 634.8
$ 572.3 11
Depreciation * $ (24.8 ) $ (22.6
) (10 ) $ (72.7 ) $ (66.8 ) (9 ) Amortization of intangible assets
(7.5 ) (7.3 ) (3 ) (23.6 ) (20.4 ) (16 ) Restructuring and other
charges (0.6 ) (4.6 ) 87 (5.3 ) (16.8 ) 68 Interest expense **
(12.3 ) (11.8 ) (4 ) (36.5 ) (37.5 ) 3 Loss on sale of product line
- - - (2.4 ) - (100 ) Asset impairment charges - - - (3.2 ) - (100
) Defined benefit plan actuarial gains/(losses) 1.3 (1.0 ) 230 1.3
(1.9 ) 168 Income taxes (59.8 ) (48.8 )
(23 ) (145.1 ) (120.9 ) (20 )
Income from continuing operations, net tax $ 129.6
$ 121.9 6 $ 347.3
$ 308.0 13 * Depreciation excludes
accelerated depreciation of ($2.5) million for the nine months
ended September 30, 2016. Accelerated depreciation is included in
restructuring and other charges. ** Interest expense includes the
write-off of prepaid debt issuance costs of ($1.3) million for the
nine months ended September 30, 2016. (d) For
definitions of Non-GAAP measures, see Definitions of Terms page
FORTUNE BRANDS HOME & SECURITY, INC.
Reconciliation of Income Statement - GAAP to Before
Charges/Gains Information Three Months Ended September
30, $ in millions, except per share amounts (unaudited)
Before
Charges/Gains adjustments
Restructuring
Defined benefit
Before GAAP and other
plan actuarial
Tax Item Charges/Gains
(unaudited)
charges
(gains)/losses
(Non-GAAP)
2017
THIRD QUARTER Net Sales $ 1,348.6 - - -
Cost of products sold 841.6 (0.3 ) 0.7 - Selling, general &
administrative expenses 297.3 0.1 0.6 - Amortization of intangible
assets 7.5 - - - Restructuring charges 0.4 (0.4 )
- - Operating Income
201.8 0.6 (1.3 ) - 201.1 Interest expense 12.3 - - - Other
expense, net 0.1 - -
-
Income from continuing operations before
income taxes
189.4 0.6 (1.3 ) - 188.7 Income taxes 59.8 0.2
(0.4 )
-
Income from continuing operations, net of
tax
$
129.6
0.4
(0.9
)
-
$
129.1
Income from discontinued operations, net
of tax
-
-
-
-
Net Income $ 129.6
-
-
-
Less: Noncontrolling interests 0.1 -
- - Net Income
attributable to Fortune Brands Home & Security, Inc. $
129.5
0.4
(0.9
)
-
$
129.0
Income from continuing operations, net of
tax
less noncontrolling interests
$
129.5
0.4
(0.9
)
-
$
129.0
Diluted Average Shares Outstanding 155.9 155.9
Diluted EPS - Continuing Operations 0.83 0.83
2016
Net Sales $ 1,279.0 - - - Cost of products sold 801.0
(1.6 ) (0.7 ) - Selling, general & administrative expenses
284.5 0.1 (0.3 ) - Amortization of intangible assets 7.3 - - -
Restructuring charges 3.1 (3.1 ) -
- Operating Income 183.1 4.6 1.0 -
188.7 Interest expense 11.8 - - - Other expense, net
0.6 - - - Income
from continuing operations before income taxes 170.7 4.6 1.0 -
176.3 Income taxes 48.8 1.3 0.3
(0.5 ) Income from continuing
operations, net of tax $ 121.9 3.3 0.7
0.5 $ 126.4 Income from discontinued
operations, net of tax 1.5 - -
- Net Income 123.4 -
- - Less:
Noncontrolling interests - - -
- Net Income attributable to Fortune
Brands Home & Security, Inc. $ 123.4 3.3
0.7 0.5 $ 127.9 Income from
continuing operations, net of tax less noncontrolling interests $
121.9 3.3 0.7 0.5
$ 126.4 Diluted Average Shares Outstanding 157.6 157.6
Diluted EPS - Continuing Operations 0.77 0.80
FORTUNE BRANDS HOME & SECURITY, INC. Reconciliation
of Income Statement - GAAP to Before Charges/Gains Information
Nine Months Ended September 30, $ in millions, except per
share amounts (unaudited)
Before Charges/Gains adjustments
Restructuring
Defined benefit plan
Asset Write-off of Loss on sale Before GAAP and other
actuarial
impairment Tax Items Prepaid Debt of product line Charges/Gains
(unaudited) charges
(gains)/losses
charges Issuance
Costs (Non-GAAP)
2017
YEAR TO DATE Net Sales $ 3,900.8 - - - - - -
Cost of products sold 2,461.3 (1.2 ) 0.7 - - - - Selling, general
& administrative expenses 877.7 (0.6 ) 0.6 - - - - Amortization
of intangible assets 23.6 - - - - - - Loss on sale of product line
2.4 - - - - - (2.4 ) Asset impairment charges 3.2 - - (3.2 ) - - -
Restructuring charges 3.5 (3.5 ) -
- -
- - Operating Income 529.1 5.3
(1.3 ) 3.2 - - 2.4 538.7 Interest expense 36.5 - - - - - -
Other expense, net 0.2 - -
- -
-
-
Income from continuing operations before income taxes 492.4
5.3 (1.3 ) 3.2 - - 2.4 502.0 Income taxes 145.1
1.5 (0.4 ) -
- - (0.1 )
Income from continuing operations, net of tax $ 347.3
3.8 (0.9 ) 3.2
- - 2.5 $
355.9 Loss from discontinued operations, net of tax
(2.6 ) - - -
- - -
Net Income 344.7 -
- - -
- - Less: Noncontrolling
interests 0.1 - -
- - -
- Net Income attributable to Fortune
Brands Home & Security, Inc. $ 344.6 3.8
(0.9 ) 3.2 -
- 2.5 $ 353.2
Income from continuing operations, net of tax less noncontrolling
interests $ 347.2 3.8 (0.9 )
3.2 - -
2.5 $ 355.8 Diluted Average Shares
Outstanding 156.2 156.2 Diluted EPS - Continuing Operations
2.22 2.28
2016 Net Sales $ 3,683.3 - - - - - -
Cost of products sold 2,352.8 (4.3 ) (1.3 ) - - - - Selling,
general & administrative expenses 831.4 (0.1 ) (0.6 ) - - - -
Amortization of intangible assets 20.4 - - - - - - Restructuring
charges 12.4 (12.4 ) -
- - -
- Operating Income 466.3 16.8 1.9 - - -
- 485.0 Interest expense 37.5 - - - - (1.3 ) - Other income,
net (0.1 ) - - -
- -
- Income from continuing operations before income taxes
428.9 16.8 1.9 - - 1.3 - 448.9 Income taxes 120.9
5.1 0.6 -
(1.6 ) 0.5 -
Income from continuing operations, net of tax $ 308.0
11.7 1.3 -
1.6 0.8 -
$ 323.4 Income from discontinued operations, net of
tax 1.5 - -
- - -
- Net Income 309.5 -
- - -
- - Less:
Noncontrolling interests (0.1 ) - -
- -
- - Net Income attributable to
Fortune Brands Home & Security, Inc. $ 309.6 11.7
1.3 - 1.6
0.8 - $ 325.0
Income from continuing operations, net of tax less
noncontrolling interests $ 308.1 11.7
1.3 - 1.6
0.8 - $ 323.5 Diluted
Average Shares Outstanding 158.1 158.1 Diluted EPS -
Continuing Operations 1.95 2.05
FORTUNE BRANDS HOME &
SECURITY, INC. (In millions, except per share amounts)
(Unaudited)
Three Months Ended September 30,
Nine Months Ended September 30, 2017
2016 % Change 2017 2016
% Change Net Sales (GAAP)
Cabinets $ 614.2 $
602.1 2 $ 1,841.2 $ 1,797.2 2 Plumbing 438.3 391.1 12 1,251.5
1,108.0 13 Doors 138.5 129.2 7 374.2 351.3 7 Security 157.6
156.6 1 433.9
426.8 2
Total Net
Sales $ 1,348.6 $ 1,279.0 5
$ 3,900.8 $ 3,683.3 6
Operating Income (loss)
Cabinets $ 69.7 $ 74.8 (7 ) $
205.4 $ 194.0 6 Plumbing 97.3 84.0 16 270.8 242.6 12 Doors 25.1
22.3 13 55.8 46.1 21 Security 27.7 22.9 21 56.4 44.7 26 Corporate:
General and administrative expense (20.5 ) (20.5 ) - (63.8 ) (61.3
) (4 ) Defined benefit plan income/(expense) (1) 2.5
(0.4 ) 725 4.5
0.2 2,150 Total Corporate expenses
(18.0 ) (20.9 ) 14 (59.3
) (61.1 ) 3
Total Operating
Income (GAAP) $ 201.8 $ 183.1 10
$ 529.1 $ 466.3 13
OPERATING INCOME BEFORE CHARGES/GAINS
RECONCILIATION
Operating Income (loss) Before
Charges/Gains (a)
Cabinets $
69.7 $ 74.8 (7 ) $ 205.4 $ 195.8 5 Plumbing 97.4 84.9 15 273.4
244.5 12 Doors 25.2 22.3 13 55.8 46.1 21 Security 28.1 26.6 6 64.7
57.7 12 Corporate: General and administrative expense (20.5 ) (20.5
) - (63.8 ) (61.2 ) (4 ) Defined benefit plan income (b) 1.2
0.6 100 3.2
2.1 52 Total Corporate expenses
(19.3 ) (19.9 ) 3 (60.6 )
(59.1 ) (3 )
Total Operating Income
Before Charges/Gains (a) 201.1
188.7 7 538.7
485.0 11 Restructuring and other
charges (2) (3) (0.6 ) (4.6 ) 87 (5.3 ) (16.8 ) 68 Asset impairment
charge - - - (3.2 ) - (100 ) Loss on sale of product line - - -
(2.4 ) - (100 ) Defined benefit plan actuarial gains/(losses) (4)
1.3 (1.0 ) 230 1.3
(1.9 ) 168
Total Operating
Income (GAAP) $ 201.8 $ 183.1 10
$ 529.1 $ 466.3 13
(1) Corporate expenses as derived in accordance with GAAP
include the components of defined benefit plan expense other than
service cost including actuarial gains and losses. (2)
Restructuring charges are costs incurred to implement significant
cost reduction initiatives and include workforce reduction costs.
(3) "Other charges" represent charges or
gains directly related to restructuring initiatives that cannot be
reported as restructuring under GAAP. Such costs may include losses
on disposal of inventories, trade receivables allowances from
exiting product lines, accelerated depreciation resulting from the
closure of facilities, and gains or losses on the sale of
previously closed facilities. For Corporate, other
charges incurred represent external costs directly related to the
acquisition of Norcraft and primarily include expenditures for
banking, legal, accounting and other similar
services. In addition, it includes estimated acquisition
related inventory step-up expense in our Plumbing segment of $0.5
million for the three months ended September 30, 2016, and $0.9
million for the nine months ended September 30, 2017.
(4) Represents actuarial gains or losses associated with our
defined benefit plans. Actuarial gains or losses in a period
represent the difference between actual and actuarially assumed
experience, principally related to liability discount rates and
plan asset returns, as well as other actuarial assumptions
including compensation rates, turnover rates, and health care cost
trend rates. The Company recognizes actuarial gains or losses
immediately in operating income to the extent they cumulatively
exceed a “corridor.” The corridor is equal to the greater of 10% of
the fair value of plan assets or 10% of a plan’s projected benefit
obligation. Actuarial gains or losses are determined at required
remeasurement dates which occur at least annually in the fourth
quarter. Remeasurements due to plan amendments and settlements may
also occur in interim periods during the year. Our operating income
before charges/gains reflects our expected rate of return on
pension plan assets which in a given period may materially differ
from our actual return on plan assets. Our liability discount rates
and plan asset returns are based upon difficult to predict
fluctuations in global bond and equity markets that are not
directly related to the Company’s business. We believe that the
exclusion of actuarial gains or losses from operating income before
charges/gains provides investors with useful supplemental
information regarding the underlying performance of the business
from period to period that may be considered in conjunction with
our operating income as measured on a GAAP basis. We present this
supplemental information because such actuarial gains or losses may
create volatility in our operating income that does not necessarily
have an immediate corresponding impact on operating cash flow or
the actual compensation and benefits provided to our employees. The
table below sets forth additional supplemental information on the
Company’s historical actual and expected rate of return on plan
assets, as well as discount rates used to value its defined benefit
obligations: ($ In millions) Year Ended Year Ended December
31, 2016 December 31, 2015
% $
% $ Actual return on plan assets 10.0%
$46.6 (2.1)% ($18.2) Expected return on plan assets 6.6% 37.2 6.8%
40.2 Discount rate at December 31: Pension benefits 4.3% 4.6%
Postretirement benefits 3.4% 4.1% (a) (b) For
definitions of Non-GAAP measures, see Definitions of Terms page
FORTUNE BRANDS HOME & SECURITY,
INC. BEFORE CHARGES/GAINS OPERATING MARGIN TO
OPERATING MARGIN (Unaudited)
Three Months Ended September 30, 2017
2016 Change
CABINETS
Before Charges/Gains Operating Margin 11.3 %
12.4 % (110) bps
Operating Margin 11.3 %
12.4 % (110) bps
PLUMBING
Before Charges/Gains Operating Margin 22.2 % 21.7 % 50 bps
Restructuring & Other Charges - (0.2 %)
Operating Margin 22.2 %
21.5 % 70 bps
DOORS
Before Charges/Gains
Operating Margin 18.2 % 17.3 % 90 bps Restructuring & Other
Charges (0.1 %) -
Operating Margin 18.1 % 17.3 %
80 bps
SECURITY
Before Charges/Gains Operating
Margin 17.8 % 17.0 % 80 bps Restructuring & Other Charges
(0.2 %) (2.4 %)
Operating
Margin 17.6 % 14.6 % 300 bps
FBHS
Before Charges/Gains Operating Margin 14.9 % 14.8 % 10 bps
Restructuring & Other Charges - (0.4 %) Defined benefit plan
actuarial gains/(losses) 0.1 % (0.1 %)
Operating Margin 15.0 % 14.3 %
70 bps Operating margin is calculated as
operating income derived in accordance with GAAP divided by GAAP
Net Sales. Before charges/gains operating margin is operating
income derived in accordance with GAAP excluding restructuring and
other charges and for FBHS, the impact of income and expense from
actuarial gains or losses associated with out defined benefit plans
recorded in the Corporate segment, divided by GAAP net sales.
Before charges/gains operating margin is a measure not derived in
accordance with GAAP. Management uses this measure to evaluate the
returns generated by FBHS and its business segments. Management
believes this measure provides investors with helpful supplemental
information regarding the underlying performance of the Company
from period to period. This measure may be inconsistent with
similar measures presented by other companies.
FORTUNE BRANDS HOME & SECURITY, INC.
RECONCILIATION OF PERCENTAGE CHANGE IN SECURITY NET SALES
EXCLUDING NON-CORE BUSINESSES TO PERCENTAGE CHANGE IN NET SALES
(GAAP) (Unaudited) Three Months
Ended September 30, 2017 SECURITY
Percentage change in Security Net Sales
excluding Non-Core Businesses
5%
Impact of Non-Core Businesses
(4%)
Percentage change in Security Net Sales (GAAP)
1%
Security net sales excluding non-core
businesses is net sales derived in accordance with GAAP excluding
the non-core businesses of the Security segment. Management uses
this measure to evaluate the overall performance of the Security
segment and believes this measure provides investors with helpful
supplemental information regarding the underlying performance of
the segment from period to period. This measure may be inconsistent
with similar measures presented by other companies.
Definitions of Terms: Non-GAAP Measures
(a) Operating income before charges/gains is operating
income derived in accordance with GAAP excluding restructuring and
other charges, the impact of income and expense from actuarial
gains or losses associated with our defined benefit plans, asset
impairment charges, the loss on the sale of product line and tax
items. Operating income before charges/gains is a measure not
derived in accordance with GAAP. Management uses this measure to
evaluate the returns generated by FBHS and its business segments.
Management believes this measure provides investors with helpful
supplemental information regarding the underlying performance of
the Company from period to period. This measure may be inconsistent
with similar measures presented by other companies. (b)
Defined benefit plan income includes the components of defined
benefit plan expense other than service costs. It further excludes
actuarial gains or losses. (c) Diluted EPS before
charges/gains is income from continuing operations, net of tax,
less noncontrolling interests calculated on a diluted per-share
basis excluding restructuring and other charges, the impact of
income and expense from actuarial gains or losses associated with
our defined benefit plans, asset impairment charges, the loss on
the sale of product line and tax items. Diluted EPS before
charges/gains is a measure not derived in accordance with GAAP.
Management uses this measure to evaluate the overall performance of
the Company and believes this measure provides investors with
helpful supplemental information regarding the underlying
performance of the Company from period to period. This measure may
be inconsistent with similar measures presented by other companies.
(d) EBITDA before charges/gains is income from continuing
operations, net of tax, derived in accordance with GAAP excluding
restructuring and other charges, the impact of income and expense
from actuarial gains or losses associated with our defined benefit
plans, depreciation, asset impairment charges, the loss on sale of
product line, amortization of intangible assets, interest expense,
and income taxes. EBITDA before charges/gains is a measure not
derived in accordance with GAAP. Management uses this measure to
assess returns generated by FBHS. Management believes this measure
provides investors with helpful supplemental information about the
Company's ability to fund internal growth, make acquisitions and
repay debt and related interest. This measure may be inconsistent
with similar measures presented by other companies.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171025006274/en/
Fortune Brands Home & Security, Inc.INVESTOR and MEDIA
CONTACT:Brian Lantz847-484-4574brian.lantz@FBHS.com
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