Fortune Brands Raises Profit Outlook as Margins Widen
Second-quarter net sales fell 4.1% to $1.154 billion, deepening the first quarter’s decline.
Fortune Brands Innovations (FBIN), the home-products maker, widened its adjusted operating margin to 20.4% in the second quarter as cost control and tariff refunds outweighed weaker sales. The margin expanded 390 basis points from a year earlier and 930 basis points from the first quarter.
EPS before charges and gains rose 35% from a year earlier to $1.35, reversing a 19.7% first-quarter decline. The result increased $0.82 sequentially even as the year-over-year sales contraction accelerated from 2.1% in the prior quarter.
GAAP results reflected a newly disclosed $229.3 million asset impairment charge concentrated in Outdoors. Fortune Brands posted a loss of $0.19 a share, compared with earnings of $0.83 a share a year earlier and $0.20 in the first quarter. The charge reduced EPS by $1.44 and pushed the companywide GAAP operating margin to negative 0.8%.
Water sales declined 6.5% to $605.0 million, though the segment’s adjusted operating margin expanded 390 basis points to 29.5%. China accounted for 1.1 percentage points of the sales decline; excluding China, Water sales fell 5.4%.
Outdoors sales fell 3.8% to $364.5 million, or 1.5% excluding Fiberon, while its adjusted operating margin increased 240 basis points to 15.2%. Security provided the company’s only segment growth: sales rose 3.8% to $184.4 million and adjusted operating margin increased 1,200 basis points to 26.8%, reversing the segment’s first-quarter sales decline.
Fortune Brands reiterated its full-year sales forecast for a low-single-digit decline and raised its adjusted EPS outlook to $3.22 to $3.52 from $3.00 to $3.30. The forecast incorporates a $0.52-a-share net tariff-refund benefit, partly offset by new execution investments. Adjusted operating-margin guidance rose to 14.0% to 15.0%, reflecting an anticipated $81 million operating-income benefit from net tariff refunds.
Cash generation recovered during the quarter, with operating cash flow of $202.8 million and free cash flow of $179.3 million after first-quarter outflows. The company raised its full-year operating cash-flow forecast to $495 million to $530 million and its free-cash-flow forecast to $370 million to $420 million. Net debt declined to $2.3 billion, while share repurchases slowed to $2 million.