Highlights:
- Q3 2023 sales were $1.3 billion, an increase of 5 percent
over Q3 2022. Organic sales were $1.1 billion, a decrease of 4
percent versus Q3 2022
- Q3 2023 earnings per share (EPS) were $1.07, a decrease of 2
percent versus a year ago; EPS before charges / gains were $1.19,
an increase of 3 percent versus Q3 2022
- Company raises mid-point of full-year 2023 non-GAAP EPS
guidance
- Company continues to generate strong operating and free cash
flow
- Recently acquired brands performing above expectations;
integration progressing well
Fortune Brands Innovations, Inc. (NYSE: FBIN or “Fortune Brands”
or the “Company”), an industry-leading home, security and
commercial building products company, today announced third quarter
2023 results.
“Our solid sales and margin results reflect the concrete and
proactive measures we have taken, which have allowed us to continue
outperforming in a tough market, while also accelerating investment
in our most critical strategic initiatives,” said Fortune Brands
Chief Executive Officer Nicholas Fink. “The actions we took over
the past year to better leverage the strength of our organization
and sharpen our focus on our leading brands, meaningful innovation,
and advantaged channel relationships are driving our results.
Fortune Brands Innovations is stronger, more agile, and more
aligned than it has ever been. We continue to be confident in our
mid- to long-term outlook, which has only been bolstered by the
current supply-demand imbalance in the core housing market.”
Third Quarter 2023
Results
($ in millions, except per share amounts; Change compared to
prior year)
Unaudited
Total Company Results
Reported Net Sales
Operating Income
Operating Margin
EPS
Q3 2023 GAAP
$1,261
$196.5
15.6%
$1.07
Change
5%
2%
(50 bps)
(2%)
Reported Net Sales
Operating Income Before
Charges / Gains
Operating Margin Before
Charges / Gains
EPS Before Charges /
Gains
Q3 2023 Non-GAAP
$1,261
$219.9
17.4%
$1.19
Change
5%
2%
(70 bps)
3%
Segment Results Compared to Prior
Year
Water Innovations sales increased primarily due to the Emtek and
Schaub acquisition. Water Innovations organic sales decreased due
to lower sales volumes. Outdoors sales decreased due to lower sales
volumes in the door business. Security sales increased driven by
the U.S. and Canadian Yale and August residential smart locks
acquisition as well as increased distribution, price and continued
growth in the commercial safety and international businesses.
Net Sales
Change
Operating Margin
Change
Operating Margin Before
Charges/Gains
Change
Reported
Organic
Reported
Organic
Water Innovations
$688
$610
8%
(4%)
23.9%
(10 bps)
24.2%
(50 bps)
Outdoors
$366
$366
(9%)
(9%)
14.2%
250 bps
14.8%
(170 bps)
Security
$207
$166
32%
6%
8.2%
(660 bps)
16.8%
170 bps
Balance Sheet and Cash
Flow
The Company exited the quarter with a strong balance sheet, and
due to its strong cash flow, repurchased $30 million of shares in
the quarter while also deleveraging following the recent
acquisition. As of October 25, 2023, the Company has repurchased
$150 million of shares in 2023.
As of the end of the third quarter 2023:
Net debt
$2.4 billion
Net debt to EBITDA before charges /
gains
2.6x
Cash
$453.4 million
Amount available under revolving credit
facility
$1.09 billion
Annual Outlook
The Company is updating its full-year 2023 guidance to reflect
current expectations for 2023.
“Our revised financial guidance continues to reflect our
expectation of outperformance, both organically and from our recent
acquisitions, as well as the impact from the dynamic external
environment,” said Fortune Brands Chief Financial Officer David
Barry. “As we position Fortune Brands for future shareholder value
creation opportunities, we continue to prioritize above-market
sales growth, margin preservation and enhancement and cash
generation, and our financial results and expectations reflect our
commitment to these priorities.”
Revised Full-Year 2023 Guidance
Guidance from Q2 2023
Guidance from Q3 2023
MARKET
Global market
-7.5% to -5.5%
-7.5% to -5.5%
U.S. market
-7.5% to -5.5%
-7.5% to -5.5%
U.S. R&R
-6% to -4%
-6% to -4%
U.S. SFNC
-14% to -12%
-12% to -10%
China market
-20% to -15%
-20% to -18%
TOTAL COMPANY FINANCIAL METRICS
Net sales
-2% to 0%
-2% to -1%
Net sales [organic]
-6% to -4%
-6% to -5%
Operating margin
16% to 16.5%
Around 16%
EPS before charges / gains
$3.75 to $3.90
$3.80 to $3.90
Cash flow from operations
Around $855 million
Around $905 million
Free cash flow
Around $575 million
Around $630 million
Cash conversion
Around 120%
Around 130%
SEGMENT FINANCIAL METRICS
Water Innovations sales
-2% to 0%
-1% to 0%
Water Innovations sales [organic]
-6% to -4%
-6% to -5%
Water Innovations operating margin
Around 23.5%
Around 23%
Outdoors sales
-8% to -6%
-11% to -9%
Outdoors operating margin
13.5% to 14.5%
13% to 13.5%
Security sales
13% to 15%
14% to 15%
Security sales [organic]
-1% to 1%
0% to 1%
Security operating margin
14% to 14.5%
14.5% to 15%
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 strategic
acquisitions and joint ventures, including difficulties integrating
acquired companies and the inability to achieve the expected
financial results and benefits of transactions, (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, net debt, net debt to EBITDA before
charges / gains, sales excluding the impact of acquisitions
(organic sales), free cash flow and cash conversion. 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
Thirty-Nine Weeks
Ended
Nine Months Ended
Net sales (GAAP)
September 30, 2023
September 30, 2022
$ Change
% Change
September 30, 2023
September 30, 2022
$ Change
% Change
Water
$
688.0
$
635.1
$
52.9
8
$
1,899.2
$
1,928.7
$
(29.5
)
(2
)
Outdoors
366.4
403.6
(37.2
)
(9
)
1,031.9
1,184.4
(152.5
)
(13
)
Security
206.8
156.8
50.0
32
533.8
478.0
55.8
12
Total net sales
$
1,261.2
$
1,195.5
$
65.7
5
$
3,464.9
$
3,591.1
$
(126.2
)
(4
)
RECONCILIATIONS OF GAAP
OPERATING INCOME TO OPERATING INCOME BEFORE CHARGES/GAINS
(In millions)
(Unaudited)
Thirteen Weeks Ended
Three Months Ended
Thirty-Nine Weeks
Ended
Nine Months Ended
September 30, 2023
September 30, 2022
$ Change
% Change
September 30, 2023
September 30, 2022
$ Change
% Change
WATER
Operating income
(GAAP)
$
164.2
$
152.7
$
11.5
8
$
434.7
$
462.7
$
(28.0
)
(6
)
Restructuring charges
-
2.9
(2.9
)
(100
)
1.3
3.8
(2.5
)
(66
)
Other charges/(gains)
Cost of products sold
0.1
1.3
(1.2
)
(92
)
0.3
1.3
(1.0
)
(77
)
Selling, general and
administrative expenses
-
-
-
-
-
0.8
(0.8
)
(100
)
Amortization of inventory step-up
(f)
2.0
-
2.0
100
2.0
Operating income before
charges/gains (a)
$
166.3
$
156.9
$
9.4
6
$
438.3
$
468.6
$
(30.3
)
(6
)
OUTDOORS
Operating income
(GAAP)
$
52.0
$
47.4
$
4.6
10
$
126.2
$
154.6
$
(28.4
)
(18
)
Restructuring charges
-
17.7
(17.7
)
(100
)
3.1
18.4
(15.4
)
(84
)
Other charges/(gains)
-
Cost of products sold
1.4
-
1.4
100
(0.4
)
(5.4
)
5.1
(94
)
Selling, general and
administrative expenses
0.1
0.3
(0.2
)
(67
)
-
-
-
-
Solar compensation (e)
0.8
1.0
(0.2
)
(20
)
2.1
2.1
-
-
Operating income before
charges/gains (a)
54.3
66.4
$
(12.1
)
(18
)
131.0
169.7
$
(38.7
)
(23
)
SECURITY
Operating income
(GAAP)
$
17.0
$
23.2
$
(6.2
)
(27
)
$
37.8
$
68.7
$
(30.9
)
(45
)
Restructuring charges
3.7
0.5
3.2
640
23.8
0.5
23.3
4,660
Other charges/(gains)
Cost of products sold
5.1
-
5.1
100
12.7
-
12.7
100
Amortization of inventory step-up
(f)
8.9
-
8.9
NM
8.9
-
8.9
100
Operating income before
charges/gains (a)
$
34.7
$
23.7
$
11.0
46
$
83.2
$
69.2
$
14.0
20
CORPORATE
Corporate expense
(GAAP)
$
(36.7
)
$
(30.6
)
$
(6.1
)
20
$
(117.7
)
$
(94.0
)
$
(23.7
)
25
Restructuring charges
-
(0.5
)
0.5
(100
)
0.7
(0.5
)
1.2
(240
)
Other charges/(gains)
-
-
Selling, general and
administrative expenses
0.1
0.4
(0.3
)
(75
)
0.2
0.6
(0.4
)
(67
)
ASSA transaction expenses (d)
1.2
-
1.2
NM
18.7
-
18.7
100
General and administrative
expenses before charges/gains (a)
$
(35.4
)
$
(30.7
)
$
(4.7
)
15
$
(98.1
)
$
(93.9
)
$
(4.2
)
4
TOTAL COMPANY
Operating income
(GAAP)
$
196.5
$
192.7
$
3.8
2
$
481.0
$
592.0
$
(111.0
)
(19
)
Restructuring charges
3.7
20.6
(16.9
)
(82
)
28.9
22.2
6.7
30
Other charges/(gains)
Cost of products sold
6.6
1.3
5.3
408
12.6
(4.1
)
16.8
(410
)
Selling, general and
administrative expenses
0.2
0.7
(0.5
)
(71
)
0.2
1.4
(1.3
)
(93
)
Solar compensation (e)
0.8
1.0
(0.2
)
(20
)
2.1
2.1
-
-
ASSA transaction expenses (d)
1.2
-
1.2
100
18.7
-
18.7
100
Amortization of inventory step-up
(f)
10.9
-
10.9
100
10.9
-
10.9
100
Operating income before
charges/gains (a)
$
219.9
$
216.3
$
3.6
2
$
554.4
$
613.6
$
(59.2
)
(10
)
NM - Not Meaningful
(a) (d) (e) (f) For definitions
of Non-GAAP measures, see Definitions of Terms page
FORTUNE BRANDS INNOVATIONS, INC. CONDENSED
CONSOLIDATED BALANCE SHEETS (GAAP) (In millions)
(Unaudited)
September 30,
December 31,
2023
2022
Assets Current assets Cash and cash equivalents
$
453.4
$
642.5
Accounts receivable, net
578.6
521.8
Inventories
930.0
1,021.3
Other current assets
187.7
274.8
Total current assets
2,149.7
2,460.4
Property, plant and equipment, net
929.2
783.7
Goodwill
1,904.2
1,640.7
Other intangible assets, net of accumulated amortization
1,400.0
1,000.8
Other assets
235.0
235.3
Total assets
$
6,618.1
$
6,120.9
Liabilities and equity Current liabilities
Short-term debt
$
-
$
599.2
Accounts payable
570.4
421.6
Other current liabilities
621.7
523.9
Total current liabilities
1,192.1
1,544.7
Long-term debt
2,829.3
2,074.3
Deferred income taxes
125.5
136.9
Other non-current liabilities
252.2
278.1
Total liabilities
4,399.1
4,034.0
Stockholders' equity
2,219.0
2,086.9
Total equity
2,219.0
2,086.9
Total liabilities and equity
$
6,618.1
$
6,120.9
FORTUNE BRANDS INNOVATIONS, INC. CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions)
(Unaudited)
Thirty-Nine WeeksEnded Nine
MonthsEnded September 30, 2023 September 30, 2022
Operating activities Net income
$
323.2
$
577.1
Depreciation and amortization
111.5
142.4
Recognition of actuarial (gains)/losses
(2.4
)
0.4
Non-cash lease expense
23.9
33.8
Deferred taxes
(11.5
)
34.9
Other non-cash items
27.3
44.7
Changes in assets and liabilities, net
363.6
(544.5
)
Net cash provided by operating activities
$
835.6
$
288.8
Investing activities Capital expenditures
$
(175.7
)
$
(175.1
)
Proceeds from the disposition of assets
2.8
8.1
Cost of acquisitions, net of cash acquired
(784.1
)
(214.0
)
Net cash used in investing activities
$
(957.0
)
$
(381.0
)
Financing activities Increase in debt, net
$
155.1
$
679.4
Proceeds from the exercise of stock options
8.8
0.6
Treasury stock purchases
(120.1
)
(531.1
)
Dividends to stockholders
(87.8
)
(109.8
)
Other items, net
(16.6
)
(48.0
)
Net cash provided by financing activities
$
(60.6
)
$
(8.9
)
Effect of foreign exchange rate changes on cash
$
(7.7
)
$
(26.0
)
Net increase (decrease) in cash and cash equivalents
$
(189.7
)
$
(127.1
)
Cash, cash equivalents and restricted cash* at beginning of period
648.3
476.1
Cash, cash equivalents and restricted cash* at end of period
$
458.6
$
349.0
FREE CASH
FLOW Thirty-Nine WeeksEnded Nine Months
Ended 2023 Full Year September 30, 2023
September 30, 2022 Estimate Cash flow from
operations (GAAP)
$
835.6
$
288.8
$
880.0-930.0
Less: Capital expenditures
175.7
175.1
250.0-300.0
Free cash flow**
$
659.9
$
113.7
$
630.0
*Restricted cash of $3.1 million and $2.1 million is
included in Other current assets and Other assets, respectively, as
of September 30, 2023 and 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. ** Free cash flow is
cash flow from operations calculated in accordance with U.S.
generally accepted accounting principles ("GAAP") less capital
expenditures. 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 INNOVATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (GAAP) (In
millions, except per share amounts) (Unaudited)
Thirteen WeeksEnded Three MonthsEnded
Thirty-NineWeeks Ended Nine MonthsEnded September
30,2023 September 30,2022 % Change September
30,2023 September 30,2022 % Change Net
sales
$
1,261.2
$
1,195.5
5
$
3,464.9
$
3,591.1
(4
)
Cost of products sold
721.1
716.6
1
2,048.4
2,130.5
(4
)
Selling, general and administrative expenses
321.1
253.1
27
862.6
810.7
6
Amortization of intangible assets
18.8
12.5
50
44.0
35.7
23
Restructuring charges
3.7
20.6
(82
)
28.9
22.2
30
Operating income
196.5
192.7
2
481.0
592.0
(19
)
Interest expense
33.3
33.0
1
87.9
85.3
3
Other (income), net
(9.4
)
(2.8
)
236
(20.9
)
(5.2
)
302
Income from continuing operations before income taxes
172.6
162.5
6
414.0
511.9
(19
)
Income tax
36.1
21.1
71
89.8
100.0
(10
)
Income from continuing operations, net of tax
$
136.5
$
141.4
(3
)
$
324.2
$
411.9
(21
)
Income (loss) from discontinued operations, net of
tax
-
62.8
(100
)
(1.0
)
165.2
(101
)
Net income
$
136.5
$
204.2
(33
)
$
323.2
$
577.1
(44
)
Net income attributable to Fortune Brands
$
136.5
$
204.2
(33
)
$
323.2
$
577.1
(44
)
Diluted earnings per common share Continuing
operations
$
1.07
$
1.09
(2
)
$
2.53
$
3.12
(19
)
Discontinued operations
$
-
$
0.48
(100
)
$
-
$
1.25
(100
)
Diluted EPS attributable to Fortune Brands
$
1.07
$
1.57
(32
)
$
2.53
$
4.37
(42
)
Diluted average number of shares outstanding
127.8
130.1
(2
)
127.9
132.0
(3
)
FORTUNE BRANDS INNOVATIONS, INC. (In
millions) (Unaudited)
RECONCILIATIONS OF
INCOME FROM CONTINUING OPERATIONS, NET OF TAX TO EBITDA BEFORE
CHARGES/GAINS Thirteen WeeksEnded Three
MonthsEnded Thirty-Nine WeeksEnded Nine
MonthsEnded September 30, 2023 September 30, 2022
% Change September 30, 2023 September 30, 2022
% Change Income from continuing operations, net of
tax
$
136.5
$
141.4
(3
)
$
324.2
$
411.9
(21
)
Depreciation *
$
21.0
$
20.8
1
$
59.6
$
61.0
(2
)
Amortization of intangible assets
18.8
12.5
50
44.0
35.7
23
Restructuring charges
3.7
20.6
(82
)
28.9
22.2
30
Other charges/(gains)
6.8
2.0
240
12.8
(2.7
)
(574
)
ASSA transaction expenses (d)
1.2
-
NM
18.7
-
NM
Solar compensation (e)
0.8
1.0
(20
)
2.1
2.1
-
Amortization of inventory step-up (f)
10.9
-
NM
10.9
-
NM
Interest expense
33.3
33.0
1
87.9
85.3
3
Defined benefit plan actuarial (gains)/losses
(2.4
)
0.3
(900
)
(2.4
)
0.3
(900
)
Income taxes
36.1
21.1
71
89.8
100.0
(10
)
EBITDA before charges/gains (c)
$
266.7
$
252.7
6
$
676.5
$
715.8
(5
)
* Depreciation excludes accelerated depreciation expense of
$5.7 million for the thirteen weeks ended September 30, 2023, and
$7.9 million for the thirty-nine weeks ended September 30, 2023.
Accelerated depreciation is included in restructuring and other
charges/gains.
CALCULATION OF NET DEBT-TO-EBITDA
BEFORE CHARGES/GAINS RATIO As of September 30,
2023 Short-term debt **
$
-
Long-term debt **
2,829.3
Total debt
2,829.3
Less: Cash and cash equivalents **
453.4
Net debt (1)
$
2,375.9
For the twelve months ended September 30, 2023 EBITDA before
charges/gains (2) (c)
$
912.5
Net debt-to-EBITDA before charges/gains ratio (1/2)
2.6
** Amounts are per the Unaudited Condensed Consolidated
Balance Sheet as of September 30, 2023.
Three Monthsended Thirty-NineWeeks Ended
TwelveMonthsEnded December 31,2022
September 30,2023 September 30, 2023 Income
from continuing operations, net of tax
$
128.2
$
324.2
$
452.4
Depreciation***
$
21.9
$
59.6
$
81.5
Amortization of intangible assets
12.6
44.0
56.6
Restructuring charges
10.2
28.9
39.1
Other charges/(gains)
0.3
12.8
13.1
ASSA transaction expenses (d)
3.4
18.7
22.1
Solar compensation (e)
-
2.1
2.1
Amortization of inventory step-up (f)
-
10.9
10.9
Interest expense
33.8
87.9
121.7
Defined benefit plan actuarial gains
(1.6
)
(2.4
)
(4.0
)
Income taxes
27.2
89.8
117.0
EBITDA before charges/gains (c)
$
236.0
$
676.5
$
912.5
*** Depreciation excludes accelerated
depreciation expense of $7.9 million for the thirty-nine weeks
ended September 30, 2023, and $0.1 million for the three months
ended December 31, 2022. Accelerated depreciation is included in
restructuring and other charges/gains. NM - Not Meaningful
(c) (d) (e) (f) For definitions of Non-GAAP measures, see
Definitions of Terms page
RECONCILIATION OF DILUTED EPS
FROM CONTINUING OPERATIONS BEFORE CHARGES/GAINS For the
thirteen weeks ended September 30, 2023, the diluted EPS before
charges/gains is calculated as income from continuing operations on
a diluted per-share basis, excluding $3.7 million ($2.8 million
after tax or $0.02 per diluted share) of restructuring charges,
$6.8 million ($5.2 million after tax or $0.03 per diluted share) of
other charges/gains, $1.2 million ($0.9 million after tax or $0.01
per diluted share) of expenses directly related to our ASSA
transaction, $0.8 million ($0.6 million after tax) related to the
compensation agreement with the former owner of Solar, $10.9
million ($8.3 million after tax or $0.07 per diluted share) of
amortization of inventory step-up related to acquisition of the
ASSA businesses and the impact from actuarial gains associated with
our defined benefit plans of $2.4 million ($1.8 million after tax
or $0.01 per diluted share). For the thirty-nine weeks ended
September 30, 2023, the diluted EPS before charges/gains is
calculated as income from continuing operations on a diluted
per-share basis, excluding $28.9 million ($22.0 million after tax
or $0.17 per diluted share) of restructuring charges, $12.8 million
($9.9 million after tax or $0.08 per diluted share) of other
charges/gains, $18.7 million ($14.3 million after tax or $0.11 per
diluted share) of expenses directly related to our ASSA
transaction, $2.1 million ($1.6 million after tax or $0.01 per
diluted share) related to the compensation agreement with the
former owner of Solar and $10.9 million ($8.3 million after tax or
$0.07 per diluted share) of amortization of inventory step-up
related to acquisition of the ASSA businesses and the impact from
actuarial gains associated with our defined benefit plans of $2.4
million ($1.8 million after tax or $0.01 per diluted share).
For the three months ended September 30, 2022, the diluted
EPS before charges/gains is calculated as income from continuing
operations on a diluted per-share basis, excluding $20.6 million
($15.5 million after tax or $0.12 per diluted share) of
restructuring charges, $2.0 million ($1.5 million after tax or
$0.01 per diluted share) of other charges/gains, $1.0 million ($0.7
million after tax) related to the compensation agreement with the
former owner of Solar, a tax benefit of $8.4 million ($0.06 per
diluted share) and the impact from actuarial losses associated with
our defined benefit plans of $0.3 million. For the
nine months ended September 30, 2022, the diluted EPS before
charges/gains is calculated as income from continuing operations on
a diluted per-share basis, excluding $22.2 million ($16.7 million
after tax or $0.13 per diluted share) of restructuring charges,
($2.7) million (($3.4) million after tax or ($0.03) per diluted
share) of other gains, $2.1 million ($1.6 million after tax or
$0.01 per diluted share) related to the compensation agreement with
the former owner of Solar, a tax benefit of $8.4 million ($0.06 per
diluted share) and the impact from actuarial losses associated with
our defined benefit plans of $0.3 million.
Thirteen WeeksEnded Three MonthsEnded
Thirty-NineWeeks Ended Nine MonthsEnded September
30,2023 September 30,2022 % Change September
30,2023 September 30,2022 % Change
Earnings per common share (EPS) - Diluted Diluted EPS
from continuing operations (GAAP)
$
1.07
$
1.09
(2
)
$
2.53
$
3.12
(19
)
Restructuring charges
0.02
0.12
(83
)
0.17
0.13
42
Other charges/(gains)
0.03
0.01
200
0.08
(0.03
)
(500
)
ASSA transaction expenses (d)
0.01
-
NM
0.11
-
NM
Solar compensation (e)
-
-
-
0.01
0.01
-
Amortization of inventory step-up (f)
0.07
-
NM
0.07
-
NM
Defined benefit plan actuarial (gains)
(0.01
)
-
NM
(0.01
)
-
NM
Tax items
-
(0.06
)
(100
)
-
(0.06
)
(100
)
Diluted EPS from continuing operations before charges/gains
(b)
$
1.19
$
1.16
3
$
2.96
$
3.17
(7
)
NM - Not Meaningful (b) (d) (e) (f) For definitions
of Non-GAAP measures, see Definitions of Terms page
FORTUNE
BRANDS INNOVATIONS, INC. (In millions, except per share
amounts) (Unaudited)
Thirteen
WeeksEnded Three MonthsEnded Thirty-NineWeeks
Ended Nine MonthsEnded September 30,2023
September 30,2022 % Change September 30,2023
September 30,2022 % Change Net sales (GAAP)
Water
$
688.0
$
635.1
8
$
1,899.2
$
1,928.7
(2
)
Outdoors
366.4
403.6
(9
)
1,031.9
1,184.4
(13
)
Security
206.8
156.8
32
533.8
478.0
12
Total net sales
$
1,261.2
$
1,195.5
5
$
3,464.9
$
3,591.1
(4
)
Operating income (loss) Water
$
164.2
$
152.7
8
$
434.7
$
462.7
(6
)
Outdoors
52.0
47.4
10
126.2
154.6
(18
)
Security
17.0
23.2
(27
)
37.8
68.7
(45
)
Corporate expenses
(36.7
)
(30.6
)
20
(117.7
)
(94.0
)
25
Total operating income (GAAP)
$
196.5
$
192.7
2
$
481.0
$
592.0
(19
)
OPERATING INCOME BEFORE
CHARGES/GAINS RECONCILIATION Total operating
income (GAAP)
$
196.5
$
192.7
2
$
481.0
$
592.0
(19
)
Restructuring charges (1)
3.7
20.6
(82
)
28.9
22.2
30
Other charges/(gains) (2)
6.8
2.0
240
12.8
(2.7
)
(574
)
ASSA transaction expenses (d)
1.2
-
NM
18.7
-
NM
Solar compensation (e)
0.8
1.0
(20
)
2.1
2.1
-
Amortization of inventory step-up (f)
10.9
-
100
10.9
-
NM
Operating income (loss) before charges/gains (a)
$
219.9
$
216.3
2
$
554.4
$
613.6
(10
)
Water
$
166.3
$
156.9
6
$
438.3
$
468.6
(6
)
Outdoors
54.3
66.4
(18
)
131.0
169.7
(23
)
Security
34.7
23.7
46
83.2
69.2
20
Corporate expenses
(35.4
)
(30.7
)
15
(98.1
)
(93.9
)
4
Total operating income before charges/gains (a)
$
219.9
216.3
2
554.4
613.6
(10
)
(1) Restructuring charges, which
include costs incurred for significant cost reduction initiatives
and workforce reduction costs by segment, totaled $3.7 million and
$28.9 million for the thirteen weeks ended and thirty-nine weeks
ended September 30, 2023, respectively, and $20.6 million and $22.2
million for the three and nine months ended September 30, 2022,
respectively. (2) Other charges/gains represent costs that
are directly related to restructuring initiatives but cannot be
reported as restructuring costs under GAAP. These costs can include
losses from disposing of inventories, trade receivables allowances
from discontinued product lines, accelerated depreciation due to
the closure of facilities, and gains or losses from selling
previously closed facilities. During the thirteen weeks and
thirty-nine weeks ended September 30, 2023, total other charges
were $19.7 million and $44.5 million, respectively. For the three
and nine months ended September 30, 2022, total charges were $3.0
million and total other income was ($0.6) million, respectively.
NM - Not Meaningful (a) (d) (e) (f) For
definitions of Non-GAAP measures, see Definitions of Terms page
FORTUNE BRANDS INNOVATIONS, INC.
OPERATING MARGIN TO BEFORE CHARGES/GAINS OPERATING MARGIN
(Unaudited)
Thirteen Weeks Ended Three Months
Ended September 30, 2023 September 30, 2022
Change WATER Operating margin
23.9%
24.0%
(10) bps Restructuring charges
-
0.5%
Other charges/(gains)
Cost of products sold
-
0.2%
Amortization of inventory step-up (f)
0.3%
-
Before charges/gains operating margin
24.2%
24.7%
(50) bps
OUTDOORS
Operating margin
14.2%
11.7%
250 bps Restructuring charges
-
4.5%
Other charges/(gains)
Cost of products sold
0.4%
-
Selling, general and administrative expenses
-
0.1%
Solar compensation (e)
0.2%
0.2%
Before charges/gains operating margin
14.8%
16.5%
(170) bps
SECURITY
Operating margin
8.2%
14.8%
(660) bps Restructuring charges
1.8%
0.3%
Other charges/(gains)
Cost of products sold
2.5%
-
Amortization of inventory step-up (f)
4.3%
-
Before charges/gains operating margin
16.8%
15.1%
170 bps
TOTAL COMPANY
Operating margin
15.6%
16.1%
(50) bps Restructuring charges
0.3%
1.7%
Other charges/(gains)
Cost of products sold
0.4%
0.1%
Selling, general and administrative expenses
-
0.1%
Solar compensation (e)
0.1%
0.1%
ASSA transaction expenses (d)
0.1%
-
Amortization of inventory step-up (f)
0.9%
-
Before charges/gains operating margin
17.4%
18.1%
(70) bps Operating margin is calculated as the
operating income in accordance with GAAP, divided by the GAAP net
sales. The before charges/gains operating margin is calculated as
the operating income, excluding restructurings and other
charges/gains, Solar compensation arrangement, ASSA transaction
expenses and amortization of inventory step-up associated with the
acquisition of the ASSA business, divided by the GAAP net sales.
This before charges/gains operating margin is not a measure derived
in accordance with GAAP. Management uses this measure to evaluate
the returns generated by the Company and its business segments.
Management believes that this measure provides investors with
helpful supplemental information about the Company's underlying
performance from period to period. However, this measure may not be
consistent with similar measures presented by other companies.
(d) (e) (f) For definitions of Non-GAAP
measures, see Definitions of Terms page
FORTUNE
BRANDS INNOVATIONS, INC. RECONCILIATION OF GAAP NET SALES TO
ORGANIC NET SALES EXCLUDING THE IMPACT OF ACQUISITIONS
(Unaudited)
Thirteen Weeks Ended
Three Months Ended
September 30,2023 September 30,2022 % Change
WATER Net sales (GAAP)
$
688.0
$
635.1
8%
Impact of Aqualisa Acquisition
3.8
-
Impact of Emtek and Schaub Acquisition
74.5
-
Organic net sales excluding impact of acquisitions
$
609.7
$
635.1
(4%)
OUTDOORS
Net sales (GAAP)
$
366.4
$
403.6
(9%)
Organic net sales
$
366.4
$
403.6
(9%)
SECURITY
Net sales (GAAP)
$
206.8
$
156.8
32%
Impact of Yale and August Acquisition
41.0
-
Organic net sales excluding impact of an acquisition
$
165.8
$
156.8
6%
TOTAL COMPANY
Net sales (GAAP)
$
1,261.2
$
1,195.5
5%
Impact of Aqualisa Acquisition
3.8
-
Impact of Emtek and Schaub Acquisition
74.5
-
Impact of Yale and August Acquisition
41.0
-
Organic net sales excluding impact of acquisitions
$
1,141.9
$
1,195.5
(4%)
Reconciliation of GAAP Net sales to organic net sales
excluding the impact of acquisitions on net sales is net sales
derived in accordance with GAAP excluding impact of the
acquisitions of Aqualisa and Emtek and Schaub in our Water segment,
and the acquisition of Yale and August in our Security segment on
net sales. Management uses this measure to evaluate the overall
performance of its segments 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
calculated as operating income derived in accordance with GAAP,
excluding restructuring, other charges/gains, ASSA transaction
expenses, amortization of inventory step-up associated with
acquisition of the ASSA businesses and charges for a compensation
arrangement with the former owner of Solar. 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 earnings per share from continuing operations
before charges/gains is calculated as income from continuing
operations on a diluted per-share basis, excluding restructuring
and other charges/gains, ASSA transaction expenses, amortization of
inventory step-up associated with acquisition of the ASSA
businesses, charges for a compensation arrangement with the former
owner of Solar, actuarial gains/losses associated with our defined
benefit plans and tax items. This measure is not in accordance with
GAAP. Management uses this measure to evaluate the Company's
overall performance and believes it provides investors with helpful
supplemental information about the Company's underlying performance
from period to period. However, this measure may not be consistent
with similar measures presented by other companies.
(c) EBITDA before charges/gains is calculated as
income from continuing operations, net of tax in accordance with
GAAP, excluding depreciation, amortization of intangible assets,
restructuring and other charges/gains, ASSA transaction expenses,
amortization of inventory step-up associated with acquisition of
the ASSA businesses, charges for a compensation arrangement with
the former owner of Solar, actuarial gains/losses associated with
our defined benefit plans, 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 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) At Corporate, other charges also include expenditures of
$1.2 million and $18.7 million for the thirteen weeks and
thirty-nine weeks ended September 30, 2023, respectively, for
external banking, legal, accounting, and other similar services
directly related to our ASSA transaction. (e) In
Outdoors, other charges include charges for a compensation
arrangement with the former owner of Solar classified in selling,
general and administrative expenses of $0.8 million and $2.1
million for the thirteen weeks and thirty-nine weeks ended
September 30, 2023, respectively. For the three months and nine
months ended September 30, 2022, other charges for a compensation
agreement with the former owner of Solar classified in selling,
general and administrative expenses of $1.0 million and $2.1
million, respectively. (f) For the thirteen and thirty-nine
weeks ended September 30, 2023, the amortization of inventory
step-up associated with the acquisition of the ASSA business was
$2.0 million and $8.9 million for the Water segment and Security
segment, respectively.
Additional
Information: In January 2023, the Board of Directors of
the Company approved a change to the Company’s fiscal year end from
December 31 to a 52-or 53-week fiscal year ending on the Saturday
closest but not subsequent to December 31, effective as of the
commencement of the Company’s fiscal year on January 1, 2023. This
change was made in order to align the Company’s fiscal year with
that of its operating businesses and to align the Company’s
reporting calendar with how the Company evaluates its businesses.
There was no material impact to any of our previously disclosed
financial information. In February 2023, we
publicly announced an internal reorganization to separate our
Outdoors & Security segment under separate leadership to drive
innovation, accelerate product development, and enhance investments
and business processes. In conjunction with the reorganization, we
changed how our chief operating decision maker evaluates and
allocates the resources for the combined business. Separate
reporting for the new Outdoors and Security segments began in the
first quarter of 2023 and historical financial segment information
has been restated to conform to the new segment presentation.
On December 14, 2022, the Company completed
the previously announced spin-off of its Cabinets business,
MasterBrand, Inc. ("MasterBrand") (the "Spin-off"), in a tax-free
transaction to the Company and our stockholders for U.S. federal
income tax purposes, creating two independent, publicly traded
companies. In addition, the Company's name changed from "Fortune
Brands Home & Security, Inc." to "Fortune Brands Innovations,
Inc." and its stock ticker changed from "FBHS" to "FBIN" each of
which became effective subsequent to the completion of the
Spin-off. The operating results of the Cabinets business are
reported as discontinued operations for all periods presented.
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. 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, 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
Innovations, a leading producer of wide-opening exterior door
systems and outdoor enclosures, for a purchase price of $61.6
million, net of cash acquired of $4.8 million. 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 segment. Its complementary product offerings support the
segment’s outdoor living strategy. 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 our diluted 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231025873808/en/
INVESTOR AND MEDIA CONTACT: Leigh Avsec 847-484-4211
Investor.Questions@fbhs.com
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