Business and Operations Highlights:
- 3Q 2022 sales of $2.1 billion, an increase of 3 percent
versus a year ago
- 3Q 2022 earnings per share (EPS) of $1.57, an increase of 8
percent versus a year ago; EPS before charges / gains of $1.79, an
increase of 20 percent versus a year ago
- Full-year guidance updated to reflect a softening market
environment
- Separation into two world-class companies progressing well
ahead of schedule
Fortune Brands Home & Security, Inc. (NYSE: FBHS, the
“Company”, or “Fortune Brands”), an industry-leading home and
security products company, today announced third quarter 2022
results.
“Our team delivered impressive third quarter results, including
20 percent EPS growth and margin improvement across all of our
segments,” said Nicholas Fink, Chief Executive Officer, Fortune
Brands. “Our sales grew 3 percent over an exceptionally strong 3Q
2021, reflecting the power of our brands. As anticipated, U.S.
demand for housing softened in the quarter as housing affordability
weighed on the consumer. The Company’s strong results demonstrate
our ability to outgrow the market, achieve margin progress and
invest for the future in a focused manner while facing a
challenging environment.”
Fink continued, “We are taking proactive measures to drive
market outperformance and profitability as we finish 2022 and begin
2023, while maintaining investment in our highest priority
strategic initiatives. We have consistently distinguished ourselves
by making the right moves during challenging times. Today’s
environment is no different. We remain confident in the long-term
fundamental demand for housing and will be primed to capture
opportunities for value creation. Finally, I am pleased to report
that our progress toward separating into two public companies is
continuing well ahead of schedule. Our teams are working hard to
complete the transaction this year.”
Third Quarter 2022
For the third quarter of 2022, sales were $2.1 billion, an
increase of 3 percent over the third quarter of 2021. Earnings per
share were $1.57, compared to $1.45 in the prior-year quarter, an
increase of 8 percent. EPS before charges / gains were $1.79,
compared to $1.49 the same quarter last year, an increase of 20
percent. Operating income was $281.2 million, compared to $286.6
million in the prior-year quarter, a decrease of 2 percent.
Operating income before charges / gains was $334.9 million,
compared to $293.3 million the same quarter last year, up 14
percent. Operating margin was 13.7 percent, compared to 14.4
percent in the third quarter of 2021. Operating margin before
charges / gains was 16.3 percent, compared to 14.8 percent in the
third quarter of 2021.
For each segment in the third quarter of 2022, compared to the
prior-year quarter:
- Water Innovations sales decreased 14 percent and also decreased
14 percent adjusting for FX and acquisitions. Results were impacted
by continued inventory destocking and softness in China.
Importantly, U.S. point-of-sale grew approximately 5 percent in the
quarter. Operating margin before charges / gains was 24.7 percent,
up 210 basis points in the period over last year.
- Outdoors & Security sales increased 6 percent, or 5 percent
adjusting for FX and acquisitions driven by price across all
product categories. Operating margin before charges / gains was
16.1 percent, up 50 basis points in the period over last year.
- Cabinet sales increased 20 percent, driven by price across all
product categories. Operating margin before charges / gains was
13.8 percent, up 410 basis points in the period over last
year.
Balance Sheet and Liquidity
At the end of the quarter, net debt was $3.0 billion and net
debt to EBITDA was 2.2x. The Company had $345 million in cash and
$537 million of availability under its revolving credit
facility.
The Company has repurchased approximately $75 million in common
stock since the end of the second quarter, including approximately
$36 million during the third quarter. Year-to-date, the Company has
purchased approximately $580 million in common stock.
Annual Outlook Update
The Company now anticipates delivering 2022 full-year sales
growth in the range of 4.5 percent to 5.5 percent relative to a
global home products market growing at 2 percent to 4 percent and a
U.S. home products market growing at 3 percent to 5 percent.
The Company now expects EPS before charges / gains for the full
year to be in the range of $6.20 to $6.30.
The Company now expects to generate free cash flow of
approximately $400 million to $450 million.
“Our teams continue to execute in a challenging environment, as
demonstrated by our progress on margin and on strategic
priorities,” said Patrick Hallinan, Chief Financial Officer,
Fortune Brands. “We are facing increasing headwinds in response to
slowing new construction and R&R activity coupled with greater
than expected channel inventory reductions. In response, we are
taking actions across the business to adjust to current market
conditions. We remain committed to our long-term margin journey. We
are already taking actions to prioritize margins and cash
generation in anticipation of a softer market in 2023, while
continuing to pursue our highest priority strategic initiatives.
Our balance sheet is strong, and our focus will be on maintaining
this strength. We fully maintain our confidence in the long-term
fundamental opportunity of housing.”
Update on Separation into Two World-Class
Companies
Please visit www.fbhs.com/separation-updates for more
information about the progress of the separation, as well as
information about our upcoming Investor Day on December 6,
2022.
About Fortune Brands
Fortune Brands Home & Security, Inc. (NYSE: FBHS),
headquartered in Deerfield, IL., is a Fortune 500 company, part of
the S&P 500 Index and a leader in the home products industry.
With trusted brands and market leadership positions in each of its
three operating segments, Water Innovations, Outdoors &
Security, and Cabinets, Fortune Brands’ 28,000 associates work with
a purpose to fulfill the dreams of home.
The Company’s growing portfolio of complementary businesses and
innovative brands includes Moen and the House of Rohl within Water
Innovations; outdoor living and security products from Therma-Tru,
LARSON, Fiberon, Master Lock and SentrySafe; and MasterBrand
Cabinets’ wide-ranging offerings from MANTRA, Diamond, Omega and
many more. Visit www.FBHS.com to learn more about FBHS, its brands
and how the Company is accelerating its environmental, social and
governance (ESG) commitments.
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
This press release contains certain “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”),
regarding general business strategies, market potential,
anticipated future financial performance, the potential of our
brands, the housing market, the timing of the completion of the
intended spin-off transaction, and other matters. Statements
preceded by, followed by or that otherwise include the words
“believes”, “positioned”, “expects”, “estimates”, “plans”, “look
to”, “outlook”, “intend”, 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, including but not limited to include
the expected benefits and costs of the intended spin-off
transaction, the tax-free nature of the spin-off, the expected
timing of the completion of the spin-off transaction and the
transaction terms; general business and economic conditions; our
reliance on the North American repair and remodel and new home
construction activity levels; our reliance on key customers and
suppliers; our ability to maintain our strong brands and to develop
innovative products while maintaining our competitive positions;
our ability to improve organizational productivity and global
supply chain efficiency; our ability to obtain raw materials and
finished goods in a timely and cost-effective manner; the impact of
sustained inflation, including global commodity and energy
availability and price volatility; the impact of trade-related
tariffs and risks with uncertain trade environments or changes in
government and industry regulatory standards; our ability to
attract and retain qualified personnel and other labor constraints;
the uncertainties relating to the impact of COVID-19 on the
Company’s business and results, our ability to achieve the
anticipated benefits of our strategic initiatives, our ability to
successfully execute our acquisition strategy and integrate
businesses that we have and may acquire; and the other factors
discussed in our securities filings, including in Item 1A of our
Annual Report on Form 10-K for the year ended December 31, 2021 and
our report on Form 10-Q for the quarter ended June 30, 2022, 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 charges / gains,
EBITDA before charges / gains, net debt, net debt to EBITDA before
charges / gains, and free cash flow, sales adjusted for foreign
exchange, and organic increase in sales. 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,
2022
2021
% Change
2022
2021
% Change
Net sales (GAAP) Net sales (GAAP) Water Innovations
$
635.1
$
741.4
(14
)
Water Innovations
$
1,928.6
$
2,057.6
(6
)
Outdoors & Security
560.4
528.4
6
Outdoors & Security
1,662.4
1,525.4
9
Cabinets
858.2
716.5
20
Cabinets
2,491.0
2,110.4
18
Total net sales
$
2,053.7
$
1,986.3
3
Total net sales
$
6,082.0
$
5,693.4
7
Quarter operating income Before
charges & gains GAAP
Three Months Ended September
30,
Three Months Ended September
30,
Operating income (loss) before charges/gains (a)
2022
2021
% Change
Operating income (loss)
2022
2021
% Change
Water Innovations
$
156.9
$
167.7
(6
)
Water Innovations
$
152.7
$
166.5
(8
)
Outdoors & Security
90.1
82.4
9
Outdoors & Security
70.6
80.4
(12
)
Cabinets
118.6
69.3
71
Cabinets
100.9
67.2
50
Corporate expenses
(30.7
)
(26.1
)
18
Corporate expenses
(43.0
)
(27.5
)
56
Total operating income before charges/gains
$
334.9
$
293.3
14
Total operating income (GAAP)
$
281.2
$
286.6
(2
)
Earnings per share before charges/gains (b)
Diluted EPS (GAAP) Diluted
$
1.79
$
1.49
20
Diluted EPS
$
1.57
$
1.45
8
EBITDA before charges/gains (c)
$
385.8
$
341.8
13
Net income (GAAP)
$
204.2
$
202.1
1
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)
2022
2021
% Change
Operating income (loss)
2022
2021
% Change
Water Innovations
$
468.6
$
486.1
(4
)
Water Innovations
$
462.7
$
483.3
(4
)
Outdoors & Security
238.8
223.2
7
Outdoors & Security
223.3
211.7
5
Cabinets
290.7
220.7
32
Cabinets
243.3
214.2
14
Corporate expenses
(93.8
)
(77.4
)
21
Corporate expenses
(110.6
)
(79.3
)
39
Total operating income before charges/gains
$
904.3
$
852.6
6
Total operating income (GAAP)
$
818.7
$
829.9
(1
)
Earnings per share before charges/gains (b)
Diluted EPS (GAAP) Diluted
$
4.76
$
4.41
8
Diluted EPS
$
4.37
$
4.26
3
EBITDA before charges/gains (c)
$
1,050.3
$
995.0
6
Net income (GAAP)
$
577.1
$
597.1
(3
)
(a) (b) (c) For definitions of Non-GAAP measures, see
Definitions of Terms page
FORTUNE BRANDS HOME
& SECURITY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
(GAAP) (In millions) (Unaudited)
September 30,
December 31,
2022
2021
Assets Current assets Cash and cash equivalents
$
345.3
$
471.5
Accounts receivable, net
936.1
885.7
Inventories
1,502.3
1,193.8
Other current assets
223.9
193.5
Total current assets
3,007.6
2,744.5
Property, plant and equipment, net
1,097.7
1,009.5
Goodwill
2,546.2
2,465.1
Other intangible assets, net of accumulated amortization
1,375.9
1,383.8
Other assets
388.2
333.3
Total assets
$
8,415.6
$
7,936.2
Liabilities and equity Current liabilities
Short-term debt
$
600.3
$
400.0
Accounts payable
672.6
764.9
Other current liabilities
775.0
806.2
Total current liabilities
2,047.9
1,971.1
Long-term debt
2,786.9
2,309.8
Deferred income taxes
222.7
176.0
Other non-current liabilities
328.0
414.5
Total liabilities
5,385.5
4,871.4
Stockholders' equity
3,030.1
3,064.8
Total equity
3,030.1
3,064.8
Total liabilities and equity
$
8,415.6
$
7,936.2
FORTUNE BRANDS HOME & SECURITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In
millions) (Unaudited)
Nine Months Ended September 30,
2022
2021
Operating activities Net income
$
577.1
$
597.1
Depreciation and amortization
142.4
141.4
Recognition of actuarial losses
0.4
1.1
Non-cash lease expense
33.8
31.8
Deferred taxes
34.9
9.6
Loss on equity investments
-
2.9
Asset impairment charge
26.0
-
Other non-cash items
44.7
40.3
Changes in assets and liabilities, net
(570.5
)
(393.4
)
Net cash provided by operating activities
$
288.8
$
430.8
Investing activities Capital expenditures
$
(175.1
)
$
(113.0
)
Proceeds from the disposition of assets
8.1
1.7
Cost of acquisitions, net of cash acquired
(214.0
)
5.2
Net cash used in investing activities
$
(381.0
)
$
(106.1
)
Financing activities Increase in debt, net
$
679.4
$
55.0
Proceeds from the exercise of stock options
0.6
32.6
Treasury stock purchases
(531.1
)
(252.9
)
Dividends to stockholders
(109.8
)
(107.9
)
Other items, net
(48.0
)
(11.9
)
Net cash used in financing activities
$
(8.9
)
$
(285.1
)
Effect of foreign exchange rate changes on cash
$
(26.0
)
$
1.0
Net (decrease) increase in cash and cash equivalents
$
(127.1
)
$
40.6
Cash, cash equivalents and restricted cash* at beginning of period
476.1
425.0
Cash, cash equivalents and restricted cash* at end of period
$
349.0
$
465.6
FREE CASH
FLOW Nine Months Ended September 30, 2022 Full
Year
2022
2021
Approximation
Free cash flow**
$
122.4
$
352.1
$ 400.0 - 450.0
Add: Capital expenditures
175.1
113.0
250.0 - 275.0
Less: Proceeds from the disposition of assets
8.1
1.7
8.1
Proceeds from the exercise of stock options
0.6
32.6
1.0
Cash flow from operations (GAAP)
$
288.8
$
430.8
$ 640.9 - 715.9
*Restricted cash of $1.4 million and $2.3 million is
included in Other current assets and Other assets, respectively, as
of September 30, 2022. Restricted cash of $1.2 million and $3.7
million is included in Other current assets and Other assets,
respectively, as of September 30, 2021. ** 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
disposition of assets including property, plant and equipment, and
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. CONDENSED CONSOLIDATED
STATEMENTS OF INCOME (GAAP) (In millions, except per share
amounts) (Unaudited)
Three Months Ended September
30, Nine Months Ended September 30,
2022
2021
% Change
2022
2021
% Change
Net sales
$
2,053.7
$
1,986.3
3
$
6,082.0
$
5,693.4
7
Cost of products sold
1,310.2
1,280.0
2
3,895.9
3,637.2
7
Selling, general and administrative expenses
415.3
400.2
4
1,259.4
1,166.3
8
Amortization of intangible assets
16.8
15.9
6
48.9
48.5
1
Asset impairment charge
-
-
-
26.0
-
NM
Restructuring charges
30.2
3.6
739
33.1
11.5
188
Operating income
281.2
286.6
(2
)
818.7
829.9
(1
)
Interest expense
33.1
20.6
61
85.4
63.2
35
Other (income) expense, net
(2.1
)
(1.3
)
(62
)
(3.6
)
0.7
(614
)
Income before taxes
250.2
267.3
(6
)
736.9
766.0
(4
)
Income tax
46.0
65.2
(29
)
159.8
168.9
(5
)
Net income
$
204.2
$
202.1
1
$
577.1
$
597.1
(3
)
Diluted earnings per common share Net income
$
1.57
$
1.45
8
$
4.37
$
4.26
3
Diluted average number of shares outstanding
130.1
139.7
(7
)
132.0
140.2
(6
)
DILUTED EPS BEFORE
CHARGES/GAINS RECONCILIATION For the three months
ended September 30, 2022, diluted EPS before charges/gains is net
income calculated on a diluted per-share basis, excluding $53.7
million ($40.4 million after tax or $0.32 per diluted share) of
restructuring and other charges/gains, the impact for actuarial
losses associated with our defined benefit plans of $0.4 million
and a tax benefit of $12.5 million ($0.10 per diluted share).
For the nine months ended September 30, 2022, diluted EPS
before charges/gains is net income calculated on a diluted
per-share basis, excluding $59.6 million ($43.7 million after tax
or $0.33 per diluted share) of restructuring and other
charges/gains, asset impairment charges of $26.0 million ($19.6
million after tax or $0.15 per diluted share), the impact for
actuarial losses associated with our defined benefit plans of $0.4
million and a tax benefit of $12.5 million ($0.09 per diluted
share). For the three months ended September 30, 2021,
diluted EPS before charges/gains is net income calculated on a
diluted per-share basis, excluding $6.7 million ($5.1 million after
tax or $0.03 per diluted share) of restructuring and other charges,
the impact from actuarial losses associated with our defined
benefit plans of $1.1 million ($0.8 million after tax or $0.01 per
diluted share) and a tax benefit of $0.1 million. For the
nine months ended September 30, 2021, diluted EPS before
charges/gains is net income calculated on a diluted per-share basis
excluding $22.7 million ($17.0 million after tax or $0.12 per
diluted share) of restructuring and other charges, loss on equity
investments of $4.5 million ($3.4 million net of tax or $0.02 per
diluted share), the impact from actuarial losses associated with
our defined benefit plans of $1.1 million ($0.8 million or $0.01
per diluted share), and a net tax expense of $0.1 million.
Three Months Ended September
30,
Nine Months Ended September
30,
2022
2021
% Change
2022
2021
% Change
Earnings per common share - Diluted Diluted EPS
before charges/gains (b)
$
1.79
$
1.49
20
$
4.76
$
4.41
8
Restructuring and other (charges)/gains
(0.32
)
(0.03
)
967
(0.33
)
(0.12
)
175
Asset impairment charge (d)
-
-
-
(0.15
)
-
NM
Loss on equity investments (e)
-
-
-
-
(0.02
)
(100
)
Defined benefit plan actuarial losses
-
(0.01
)
(100
)
-
(0.01
)
(100
)
Tax items
0.10
-
NM
0.09
-
NM
Diluted EPS (GAAP)
$
1.57
$
1.45
8
$
4.37
$
4.26
3
(b) (d) (e) 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,
2022
2021
% Change
2022
2021
% Change
EBITDA BEFORE CHARGES/GAINS (c)
$
385.8
$
341.8
13
$
1,050.3
$
995.0
6
Depreciation*
$
(31.6
)
$
(30.2
)
5
$
(93.1
)
$
(89.0
)
5
Amortization of intangible assets
(16.8
)
(15.9
)
6
(48.9
)
(48.5
)
1
Restructuring and other (charges)/gains
(53.7
)
(6.7
)
701
(59.6
)
(22.7
)
163
Interest expense
(33.1
)
(20.6
)
61
(85.4
)
(63.2
)
35
Asset impairment charge (d)
-
-
-
(26.0
)
-
NM
Loss on equity investments (e)
-
-
-
-
(4.5
)
(100
)
Defined benefit plan actuarial losses
(0.4
)
(1.1
)
(64
)
(0.4
)
(1.1
)
(64
)
Income taxes
(46.0
)
(65.2
)
(29
)
(159.8
)
(168.9
)
(5
)
Net income (GAAP)
$
204.2
$
202.1
1
$
577.1
$
597.1
(3
)
* Depreciation excludes accelerated depreciation expense of
($0.2) million and ($0.4) million for the three and nine months
ended September 30, 2022, respectively. Depreciation excludes
accelerated depreciation expense of ($0.1) million and ($3.9)
million for the three and nine months ended September 30, 2021,
respectively. Accelerated depreciation is included in restructuring
and other charges/gains.
CALCULATION OF NET
DEBT-TO-EBITDA BEFORE CHARGES/GAINS RATIO As of
September 30, 2022 Short-term debt **
$
600.3
Long-term debt **
2,786.9
Total debt
3,387.2
Less: Cash and cash equivalents **
345.3
Net debt (1)
$
3,041.9
For the twelve months ended September 30, 2022 EBITDA before
charges/gains (2) (c)
$
1,363.6
Net debt-to-EBITDA before charges/gains ratio (1/2)
2.2
** Amounts are per the Unaudited Condensed Consolidated
Balance Sheet as of September 30, 2022.
Three Months
Ended December 31, Nine Months Ended September 30,
Twelve Months Ended September 30,
2021
2022
2022
EBITDA BEFORE CHARGES/GAINS (c)
$
313.3
$
1,050.3
$
1,363.6
Depreciation***
$
(32.2
)
$
(93.1
)
$
(125.3
)
Amortization of intangible assets
(15.6
)
(48.9
)
(64.5
)
Restructuring and other (charges)/gains
(5.4
)
(59.6
)
(65.0
)
Interest expense
(21.1
)
(85.4
)
(106.5
)
Asset impairment charge (d)
-
(26.0
)
(26.0
)
Defined benefit plan actuarial (losses)/gains
0.2
(0.4
)
(0.2
)
Income taxes
(63.9
)
(159.8
)
(223.7
)
Net income (GAAP)
$
175.3
$
577.1
$
752.4
*** Depreciation excludes accelerated depreciation
expense of ($0.4) million for the nine months ended September 30,
2022 and ($0.1) million for the three months ended December 31,
2021. Accelerated depreciation is included in restructuring and
other charges/gains. (c) (d) (e) For definitions of
Non-GAAP measures, see Definitions of Terms page
FORTUNE
BRANDS HOME & SECURITY, INC. (In millions, except per
share amounts) (Unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
2022
2021
% Change
2022
2021
% Change
Net sales (GAAP) Water Innovations
$
635.1
$
741.4
(14
)
$
1,928.6
$
2,057.6
(6
)
Outdoors & Security
560.4
528.4
6
1,662.4
1,525.4
9
Cabinets
858.2
716.5
20
2,491.0
2,110.4
18
Total net sales
$
2,053.7
$
1,986.3
3
$
6,082.0
$
5,693.4
7
Operating income (loss) Water Innovations
$
152.7
$
166.5
(8
)
$
462.7
$
483.3
(4
)
Outdoors & Security
70.6
80.4
(12
)
223.3
211.7
5
Cabinets
100.9
67.2
50
243.3
214.2
14
Corporate expenses
(43.0
)
(27.5
)
56
(110.6
)
(79.3
)
39
Total operating income (GAAP)
$
281.2
$
286.6
(2
)
$
818.7
$
829.9
(1
)
OPERATING INCOME BEFORE
CHARGES/GAINS RECONCILIATION Operating income
(loss) before charges/gains (a) Water Innovations
$
156.9
$
167.7
(6
)
$
468.6
$
486.1
(4
)
Outdoors & Security
90.1
82.4
9
238.8
223.2
7
Cabinets
118.6
69.3
71
290.7
220.7
32
Corporate expenses
(30.7
)
(26.1
)
18
(93.8
)
(77.4
)
21
Total operating income before charges/gains (a)
334.9
293.3
14
904.3
852.6
6
Restructuring and other (charges)/gains (1) (2)
(53.7
)
(6.7
)
701
(59.6
)
(22.7
)
163
Asset impairment charge (d)
-
-
-
(26.0
)
-
NM
Total operating income (GAAP)
$
281.2
$
286.6
(2
)
$
818.7
$
829.9
(1
)
(1) Restructuring charges are costs incurred to implement
significant cost reduction initiatives and include workforce
reduction costs by segment these charges. Restructuring charges
totaled $30.2 million and $33.1 million for the three months and
nine months ended September 30, 2022, respectively. Restructuring
charges totaled $3.6 million and $11.5 million for the three months
and nine months ended September 30, 2021, respectively. (2)
"Other charges/gains" represent charges 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. In total, we recognized other charges of $4.1 million
and $0.9 million for the three and nine months ended September 30,
2022, respectively, and other charges of $1.7 million and $5.9
million for the three and nine months ended September 30, 2021,
respectively.In our Water Innovations segment, other charges also
include an acquisition-related inventory step-up expense for
Aqualisa Holdings (International) Ltd. ("Aqualisa") of $1.3 million
classified in cost of products sold for the three and nine months
ended September 30, 2022.In our Outdoors & Security segment,
other charges also include an acquisition-related inventory step-up
expense for Solar Innovations LLC and an affiliated entity
(together, "Solar") of $0.7 million classified in cost of products
sold for the nine months ended September 30, 2022, and $1.0 million
and $2.1 million classified in selling, general and administrative
for a compensation arrangement with the former owner of Solar for
the three and nine months ended September 30, 2022, respectively.
Other charges also includes an acquisition-related inventory
step-up expense for Larson of $3.4 million classified in cost of
products sold for the nine months ended September 30, 2021.In our
Cabinets segment, other charges also include expenditures of $3.7
million for the three and nine months ended September 30, 2022
incurred directly by Cabinets and related to the separation of FBHS
and our Cabinets segment. These charges include accounting and
other similar services related to our separation activities. In
addition, $0.6 million of Cabinets public company expenses are
included in our Corporate expenses before charges and gains, but
included in our Cabinets segment GAAP operating income.At
Corporate, other charges also include expenditures of $12.3 million
and $16.7 million for the three and nine months ended September 30,
2022, respectively, incurred directly by Corporate for banking,
legal, accounting and other similar services directly related to
the separation of FBHS and its Cabinets business. Other charges
also include expenditures of $1.1 million for the three and nine
months ended September 30, 2022 for banking, legal, accounting and
other similar services directly related to the acquisition of
Aqualisa. Other charges also include $1.4 million of external costs
directly related to evaluation of acquisition targets during the
three and nine months ended September 30, 2021. These costs include
expenditures for accounting, tax and other similar services. Also,
for the nine months ended September 30, 2021, other charges include
$0.3 million for banking, legal, accounting and other similar
services directly related to the acquisition of Larson classified
in selling, general and administrative expenses and a pre-tax
charge of $0.2 million for a loss on sale of a Corporate asset.
(a) (d) For
definitions of Non-GAAP measures, see Definitions of Terms page
FORTUNE BRANDS HOME & SECURITY, INC.
Reconciliation of Income Statements - GAAP to before
charges/gains information Three Months Ended
September 30, (In millions, except per share amounts)
(Unaudited)
Before charges/gains
adjustments Defined benefit plan actuarial
losses Restructuring Before GAAP and other Tax items
(1) charges/gains (unaudited) charges (Non-GAAP)
2022
Third Quarter Net sales
$
2,053.7
-
-
-
Cost of products sold
1,310.2
(5.4
)
-
-
Selling, general & administrative expenses
415.3
(18.1
)
-
-
Amortization of intangible assets
16.8
-
-
-
Restructuring charges
30.2
(30.2
)
-
-
Operating income
281.2
53.7
-
-
334.9
Interest expense
33.1
-
-
-
Other (income) expense, net
(2.1
)
-
(0.4
)
-
Income before taxes
250.2
53.7
0.4
-
304.3
Income tax
46.0
13.3
-
12.5
Net income
204.2
40.4
0.4
(12.5
)
232.5
Diluted average number of shares
outstanding
130.1
130.1
Diluted EPS
$
1.57
$
1.79
2021
Net Sales
$
1,986.3
-
-
-
Cost of products sold
1,280.0
(1.0
)
-
-
Selling, general & administrative expenses
400.2
(2.1
)
-
-
Amortization of intangible assets
15.9
-
-
-
Restructuring charges
3.6
(3.6
)
-
-
Operating income
286.6
6.7
-
-
293.3
Interest expense
20.6
-
-
-
Other (income) expense, net
(1.3
)
-
(1.1
)
-
Income before taxes
267.3
6.7
1.1
-
275.1
Income tax
65.2
1.6
0.3
0.1
Net income
202.1
5.1
0.8
(0.1
)
$
207.9
Diluted average number of shares
outstanding
139.7
139.7
Diluted EPS
$
1.45
$
1.49
(1) Tax items for the three months ended
September 30, 2022 were for reserves established relating to the
Tax Cuts and Jobs Act of 2017 (the "Tax Act") that are now being
reversed.
FORTUNE BRANDS HOME & SECURITY, INC.
Reconciliation of Income Statements - GAAP to before
charges/gains information Nine Months Ended September
30, (In millions, except per share amounts)
(Unaudited)
Before charges/gains
adjustments Defined benefit plan actuarial
losses Restructuring Asset Loss on Before GAAP and
other impairment equity Tax items (1) charges/gains
(Unaudited) charges charge investments (Non-GAAP)
2022
Year to Date Net sales
$
6,082.0
-
-
-
-
-
Cost of products sold
3,895.9
(2.2
)
-
-
-
-
Selling, general & administrative expenses
1,259.4
(24.3
)
-
-
-
-
Amortization of intangible assets
48.9
-
-
-
-
-
Asset impairment charge
26.0
-
-
(26.0
)
-
-
Restructuring charges
33.1
(33.1
)
-
-
-
-
Operating income
818.7
59.6
-
26.0
-
-
904.3
Interest expense
85.4
-
-
-
-
-
Other (income) expense, net
(3.6
)
-
(0.4
)
-
-
-
Income before taxes
736.9
59.6
0.4
26.0
-
-
822.9
Income taxes
159.8
15.9
-
6.4
-
12.5
Net income
$
577.1
43.7
0.4
19.6
-
(12.5
)
$
628.3
Diluted average number of shares outstanding
132.0
132.0
Diluted EPS
$
4.37
$
4.76
2021
Net sales
$
5,693.4
-
-
-
-
-
Cost of products sold
3,637.2
(8.3
)
-
-
-
-
Selling, general & administrative expenses
1,166.3
(2.9
)
-
-
-
-
Amortization of intangible assets
48.5
-
-
-
-
-
Restructuring charges
11.5
(11.5
)
-
-
-
-
Operating income
829.9
22.7
-
-
-
-
852.6
Interest expense
63.2
-
-
-
-
-
Other (income) expense, net
0.7
-
(1.1
)
-
(4.5
)
-
Income before taxes
766.0
22.7
1.1
-
4.5
-
794.3
Income taxes
168.9
5.7
0.3
-
1.1
(0.1
)
Net income
$
597.1
17.0
0.8
-
3.4
0.1
$
618.4
Diluted average number of shares
outstanding
140.2
140.2
Diluted EPS
$
4.26
$
4.41
(1) Tax items for the nine months ended
September 30, 2022 were for reserves established relating to the
Tax Cuts and Jobs Act of 2017 (the "Tax Act") that are now being
reversed. Tax items for the nine months ended September 30, 2021
represent foreign exchange movement related to the impact of the
Tax Cuts and Jobs Act of 2017 (the "Tax Act") recorded in earlier
periods.
FORTUNE BRANDS HOME & SECURITY,
INC. BEFORE CHARGES/GAINS OPERATING MARGIN TO OPERATING
MARGIN (Unaudited)
Three Months Ended,
September 30, 2022 September 30, 2021 Change
WATER INNOVATIONS Before charges/gains operating
margin
24.7%
22.6%
210 bps
Restructuring & other (charges)/gains
(0.7%)
(0.1%)
Operating margin
24.0%
22.5%
150 bps
OUTDOORS & SECURITY
Before charges/gains operating margin
16.1%
15.6%
50 bps
Restructuring & other (charges)/gains
(3.5%)
(0.4%)
Operating margin
12.6%
15.2%
(260) bps
CABINETS
Before charges/gains operating margin
13.8%
9.7%
410 bps
Restructuring & other (charges)/gains
(2.0%)
(0.3%)
Operating margin
11.8%
9.4%
240 bps
TOTAL COMPANY
Before charges/gains operating margin
16.3%
14.8%
150 bps
Restructuring & other (charges)/gains
(2.6%)
(0.4%)
Operating margin
13.7%
14.4%
(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/gains, 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 FULL YEAR 2022 GUIDANCE
DILUTED EPS BEFORE CHARGES/GAINS TO GAAP DILUTED EPS
(Unaudited)
Twelve Months Ending December 31,
2022 December 31, 2021 % Change Diluted
EPS before charges/gains - full year range
$ 6.20 - 6.30
$ 5.73
8 - 10
Diluted EPS before charges/gains (b)
$ 6.25
$ 5.73
9
Restructuring and other (charges)/gains
(0.52)
(0.17)
Asset impairment charge (d)
(0.15)
-
Loss on equity investments (e)
-
(0.02)
Defined benefit plan actuarial losses
(0.01)
-
-
-
Tax items
0.10
0.09
Diluted EPS - (GAAP)
$ 5.67
$ 5.63
1
Diluted EPS - (GAAP) - full year range
$ 5.62 - 5.72
$ 5.63
0 - 2
For the twelve months ended December 31, 2021,
diluted EPS before charges/gains is net income calculated on a
diluted per-share basis excluding $28.1 million ($22.9 million
after tax or $0.17 per diluted share) of restructuring and other
charges/gains, including costs for banking, legal, accounting and
other similar services directly related to the separation of FBHS
and its Cabinets business and $2.2 million of mark-to-market
expense classified in the other expense, net associated with the
acquisition of the remaining outstanding shares of Flo, which
occurred in January 2022, loss on equity investments of $4.5
million ($3.4 million net of tax or $0.02 per diluted share), the
impact from actuarial losses associated with our defined benefit
plans of $1.0 million ($0.7 million net of tax) and a net tax
expense of $0.2 million. In addition, we have excluded from this
reconciliation the one-time external costs that are contingent on
the separation between FBHS and its Cabinets business occurring,
for which the timing is unknown. We estimate that these expenses
will be in the range of $0.28 to $0.32 per diluted share and will
be excluded from our diluted EPS before charges and gains.
(b) (d) (e) For definitions of Non-GAAP measures, see Definitions
of Terms page
FORTUNE BRANDS HOME & SECURITY,
INC. RECONCILIATION OF PERCENTAGE CHANGE IN OUTDOORS &
SECURITY NET SALES EXCLUDING FX IMPACT AND ACQUISITIONS NET SALES
TO PERCENTAGE CHANGE IN OUTDOORS & SECURITY NET SALES
(GAAP) (Unaudited)
Three Months EndedSeptember 30,
2022 % Change OUTDOORS & SECURITY
Percentage change in Outdoors & Security net sales excluding
FX impact and acquisitions (organic)
5%
Acquisitions net sales
2%
FX impact
(1%)
Percentage change in Outdoors & Security net sales
(GAAP)
6%
Outdoors & Security net sales excluding FX impact and
acquisitions (organic) net sales is Outdoors & Security net
sales derived in accordance with GAAP, excluding the impact of FX
on net sales and Solar net sales. Management uses this measure to
evaluate the overall performance of the Outdoors & 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.
FORTUNE BRANDS HOME & SECURITY, INC.
RECONCILIATION OF PERCENTAGE CHANGE IN WATER INNOVATIONS NET
SALES EXCLUDING FX IMPACT AND ACQUISITIONS TO PERCENTAGE CHANGE IN
WATER INNOVATIONS NET SALES (GAAP) (Unaudited)
Three Months Ended September
30, 2022
% Change
WATER INNOVATIONS
Percentage change in Water Innovations net sales excluding FX
impact and acquisitions (organic)
(14%)
Acquisitions net sales
1%
FX impact
(1%)
Percentage change in Water Innovations net sales (GAAP)
(14%)
Water Innovations net sales excluding FX impact and
acquisitions (organic) is Water Innovations net sales derived in
accordance with GAAP, excluding the impact of FX on net sales and
Aqualisa net sales. Management uses this measure to evaluate the
overall performance of the Water Innovations 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 (loss) before charges/gains is operating income derived in
accordance with GAAP, excluding restructuring and other
charges/gains and asset impairment charges. Operating income (loss)
before charges/gains is a measure not derived in accordance with
GAAP. Management uses this measure to evaluate the returns
generated by the Company 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) Diluted
EPS before charges/gains is net income calculated on a diluted
per-share basis, excluding restructuring and other charges/gains,
asset impairment charges, defined benefit plan actuarial losses,
loss on equity investments 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.
(c) EBITDA before charges/gains is net income derived in
accordance with GAAP, excluding depreciation, amortization of
intangible assets, restructuring and other charges/gains, asset
impairment charges, interest expense, defined benefit plan
actuarial losses, loss on equity investments 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 the Company. 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. (d) Asset impairment charges
for the and nine months ended September 30, 2022, represent a
pre-tax impairment charge of $26.0 million related to an
indefinite-lived tradename in our Cabinets segment. (e) Loss
on equity investments is related to our investment in Flo
Technologies.
Definitions of Terms: GAAP Measures
In the first quarter of 2022, our Plumbing segment was
renamed “Water Innovations” in order to better align with our key
brands and organizational purpose. The Plumbing segment name change
is to the name only and had no impact on the Company’s historical
financial position, results of operations, cash flow or segment
level results previously reported. In 2018, our Water
Innovations segment entered into a strategic partnership with, and
acquired non-controlling equity interests in, Flo Technologies,
Inc. ("Flo"), a U.S. manufacturer of comprehensive water monitoring
and shut-off systems with leak detection technologies. In January
2020, we entered into an agreement to acquire the remaining
outstanding shares of Flo in a multi-phase transaction. As part of
this agreement, we acquired a majority of Flo’s outstanding shares
during 2020 and entered into a forward contract to purchase all
remaining shares of Flo during the first quarter of 2022 for a
price based on a multiple of Flo’s 2021 sales and adjusted earnings
before interest and taxes. On January 30, 2022, we made a final
cash payment of $16.7 million to the legacy minority shareholders
to acquire such shares which is reflected within Other financing,
net in our consolidated statements of cash flows. In January
2022, we acquired 100% of the outstanding equity of Solar a leading
producer of wide-opening exterior door systems and outdoor
enclosures, for a purchase price of $61.6 million, net of cash
acquired. The purchase price is subject to a final post-closing
working capital adjustment. We financed the transaction using cash
on hand and borrowings under our revolving credit facility. The
results of Solar are reported as part of the Outdoors &
Security segment. Its complementary product offerings support the
segment’s outdoor living strategy. Solar's net sales and operating
income for the three and nine months ended September 30, 2022 were
not material to the Company. We have not included pro forma
financial information as the transaction is immaterial to our
condensed consolidated statements of comprehensive income. The fair
value allocated to assets acquired and liabilities assumed as of
January 31, 2022 was $61.6 million, which includes $21.0 million of
goodwill. Goodwill includes expected sales and cost synergies and
is expected to be deductible for income tax purposes. On
April 28, 2022, the Company announced that its Board of Directors
authorized the Company to develop a plan to separate the Company
into two independent, publicly-traded companies via a tax-free
spin-off of the MasterBrand Cabinets, Inc. business into a separate
standalone publicly-traded company (the "Spin-Off"). On April 28,
2022, the Company stated it expected the Spin-Off to be completed
approximately twelve months from the announcement date, subject to
a number of conditions including the approval by the Company’s
Board of Directors and the effectiveness of a registration
statement on Form 10 to be filed with the SEC. In July 2022,
we acquired 100% of the outstanding equity of Aqualisa, a leading
U.K. manufacturer of shower products known for premium, innovative,
smart digital shower systems, for a purchase price of $156.0
million, net of cash acquired of $4.8 million. The results of
Aqualisa are reported as part of the Water Innovations segment. Its
product offerings will enable us to continue to leverage growing
trends in water management and connected products. We financed the
transaction with borrowings under our existing credit facilities.
We have not included pro forma financial information as it is
immaterial to our condensed consolidated statements of
comprehensive income. The fair value allocated to assets acquired
and liabilities assumed as of July 29, 2022 was $156.0 million.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221026005085/en/
INVESTOR CONTACT: Matthew Skelly 847-484-4573
Investor.Questions@FBHS.com
MEDIA CONTACT: Darwin Minnis 847-484-4204
Media.Relations@FBHS.com
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