Fortune Brands Innovations (FBIN) Q1 2025 Earnings Call May 06, 2025 05:00 PM ET Company Participants Leigh Avsec - Chief of Staff & Executive VP - External AffairsNicholas Fink - CEODavid Barry - President, Security & Connected ProductsPhilip Ng - Managing DirectorTrevor Allinson - Director - Equity ResearchMichael Rehaut - Executive Director Conference Call Participants John Lovallo - Senior US Homebuilding & Building Products Equity Research AnalystSusan Maklari - Senior Equity Research Analyst Operator ...

Fortune Brands Innovations (FBIN) Q1 2025 Earnings Call May 06, 2025 05:00 PM ET Speaker0 Good afternoon, everyone. My name is Morgan, and I will be your conference operator today. Welcome to the Fortune Brands First Quarter twenty twenty five Earnings Conference Call. All lines are muted to prevent background noise. Following the speakers' remarks, we will open the call for a Q and A session. At this time, I'll turn the call over to Leigh Avsek, Executive Vice President, External Affairs and Chief of Staff ...

[First Quarter 2025 Results](index=1&type=section&id=First%20Quarter%202025%20Results) Fortune Brands' Q1 2025 results met margin and EPS expectations despite geopolitical and macroeconomic challenges, with net sales down 7% to $1.0 billion and organic sales down 5%, as the company implements strategies to offset 2025 tariffs [Overall Company Performance](index=1&type=section&id=Overall%20Company%20Performance) Fortune Brands' Q1 2025 results met margin and EPS expectations despite geopolitical and macroeconomic challenges, with net sales down 7% to $1.0 billion and organic sales down 5%, as the company implements strategies to offset 2025 tariffs Q1 2025 Financial Highlights (vs. Q1 2024, in millions, except percentages and EPS) | Metric | Q1 2025 GAAP | Change | Q1 2025 Non-GAAP | Change | | :--- | :--- | :--- | :--- | :--- | | **Net Sales** | $1,033M | (7%) | $1,033M | (7%) | | **Operating Income** | $97.0M | (38%) | $135.8M | (19%) | | **Operating Margin** | 9.4% | (460) bps | 13.1% | (200) bps | | **EPS** | $0.42 | (45%) | $0.66 | (20%) | - Organic sales, excluding the impact of China and foreign exchange, decreased by **5%** compared to Q1 2024[4](index=4&type=chunk) - The company is implementing tariff mitigation strategies designed to fully offset anticipated 2025 tariff impacts[4](index=4&type=chunk) - Management expressed confidence in the company's long-term strategy and its ability to manage costs, cash, and outperform the market in an uncertain landscape[2](index=2&type=chunk) [Segment Results](index=2&type=section&id=Segment%20Results) All Fortune Brands' segments experienced year-over-year declines in Q1 2025 net sales and operating margins, with Water Innovations seeing the largest sales drop at 10% and all segments contracting margins before charges/gains Q1 2025 Segment Performance (vs. Q1 2024) | Segment | Reported Net Sales Change | Organic Net Sales Change | Operating Margin Before Charges/Gains | Margin Change (bps) | | :--- | :--- | :--- | :--- | :--- | | **Water Innovations** | (10%) | (10%) | 20.0% | (260) bps | | **Outdoors** | (3%) | (3%) | 10.4% | (160) bps | | **Security** | (4%) | (4%) | 14.2% | (160) bps | [Balance Sheet and Cash Flow](index=2&type=section&id=Balance%20Sheet%20and%20Cash%20Flow) Fortune Brands maintained a strong Q1 2025 balance sheet with net debt to EBITDA at 2.8x, despite negative seasonal operating and free cash flows, while repurchasing $175 million in shares Key Financial Position Metrics (as of Q1 2025 End, in millions/billions) | Metric | Value | | :--- | :--- | | Net debt | $2.6 billion | | Net debt to EBITDA before charges / gains | 2.8x | | Cash | $340 million | | Available under revolving credit facility | $970 million | - Cash flow was in line with expectations, with operating cash flow of **$(83.4) million** and free cash flow of **$(112.6) million**, driven by typical seasonality[7](index=7&type=chunk) - The company repurchased **$175 million** of its shares in Q1 2025, with a total of **$225 million** repurchased year-to-date as of May 6, 2025[7](index=7&type=chunk) [Outlook and Corporate Information](index=2&type=section&id=Outlook%20and%20Corporate%20Information) [2025 Full-Year Guidance](index=2&type=section&id=2025%20Full-Year%20Guidance) Fortune Brands is not providing detailed 2025 full-year guidance due to demand uncertainty, instead offering an EPS framework based on volume scenarios and focusing on tariff mitigation through sourcing, cost reduction, and pricing - The company is not providing detailed 2025 full-year guidance due to uncertainty around consumer demand and volumes[9](index=9&type=chunk) - Management will provide a framework for EPS before charges/gains scenarios based on different volume assumptions during the earnings call[9](index=9&type=chunk) - The company is confident in its long-term strategy, focusing on brand and innovation, and accelerating its digital strategy[9](index=9&type=chunk) [About Fortune Brands Innovations](index=3&type=section&id=About%20Fortune%20Brands%20Innovations) Fortune Brands Innovations, Inc. (NYSE: FBIN) is an innovation-focused leader in home products, security, and commercial building markets, featuring a portfolio of prominent brands including Moen and Master Lock - The company is a brand, innovation, and channel leader in the home products, security, and commercial building markets[14](index=14&type=chunk) - Key brands in the portfolio include Moen, House of Rohl, Aqualisa, SpringWell, Therma-Tru, Larson, Fiberon, Master Lock, SentrySafe, and Yale residential[14](index=14&type=chunk) [Forward-Looking Statements and Non-GAAP Measures](index=3&type=section&id=Forward-Looking%20Statements%20and%20Non-GAAP%20Measures) This section provides cautionary forward-looking statements, detailing risks like market conditions and tariffs, and explains the use of non-GAAP financial measures as supplemental information with provided reconciliations - Forward-looking statements are based on current expectations and are subject to numerous risks and uncertainties, including reliance on housing market activity, competition, supply chain risks, and trade tariffs[15](index=15&type=chunk) - The report uses non-GAAP measures like diluted EPS before charges/gains, organic sales, and free cash flow to provide supplemental information. These are reconciled to comparable GAAP measures within the report[17](index=17&type=chunk) [Financial Statements and Reconciliations](index=5&type=section&id=Financial%20Statements%20and%20Reconciliations) [Consolidated Financial Statements (GAAP)](index=6&type=section&id=Consolidated%20Financial%20Statements%20(GAAP)) Fortune Brands' unaudited Q1 2025 GAAP financial statements report total assets of $6.58 billion, net income of $51.4 million on $1.03 billion in net sales, and diluted EPS of $0.42, with net cash used in operating activities at $(83.4) million [Condensed Consolidated Statements of Income (GAAP)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20(GAAP)) Q1 2025 Income Statement Summary (in millions, except EPS) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | **Net sales** | $1,033.1 | $1,109.6 | | **Operating income** | $97.0 | $155.4 | | **Net income** | $51.4 | $96.4 | | **Diluted EPS** | $0.42 | $0.76 | [Condensed Consolidated Balance Sheets (GAAP)](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(GAAP)) Balance Sheet Summary (in millions) | Metric | March 29, 2025 | Dec 28, 2024 | | :--- | :--- | :--- | | **Total current assets** | $2,062.0 | $2,007.4 | | **Total assets** | $6,584.8 | $6,561.8 | | **Total current liabilities** | $1,461.9 | $1,602.3 | | **Total liabilities** | $4,280.2 | $4,139.8 | | **Total equity** | $2,304.6 | $2,422.0 | [Condensed Consolidated Statements of Cash Flows (GAAP)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(GAAP)) Q1 Cash Flow Summary (in millions) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $(83.4) | $(71.3) | | **Net cash used in investing activities** | $(29.2) | $(169.8) | | **Net cash provided by financing activities** | $68.0 | $238.7 | | **Free cash flow** | $(112.6) | $(135.9) | [Reconciliations of Non-GAAP Measures](index=5&type=section&id=Reconciliations%20of%20Non-GAAP%20Measures) This section details reconciliations for key non-GAAP metrics, showing Q1 2025 Operating Income Before Charges/Gains at $135.8 million, Diluted EPS Before Charges/Gains at $0.66, and a 5% decline in organic sales (ex-China and FX) [Reconciliation of Operating Income Before Charges/Gains](index=5&type=section&id=Reconciliation%20of%20Operating%20Income%20Before%20Charges%2FGains) Q1 2025 Reconciliation of Operating Income (in millions) | Description | Total Company | Water | Outdoors | Security | | :--- | :--- | :--- | :--- | :--- | | **Operating income (GAAP)** | $97.0 | $103.2 | $22.6 | $16.0 | | Restructuring charges | $24.8 | $9.6 | $2.5 | $3.9 | | Other charges/(gains) | $14.0 | $0.4 | $6.6 | $3.3 | | **Operating income before charges/gains** | $135.8 | $113.2 | $31.7 | $23.2 | [Reconciliation of Diluted EPS Before Charges/Gains](index=10&type=section&id=Reconciliation%20of%20Diluted%20EPS%20Before%20Charges%2FGains) Q1 2025 Reconciliation of Diluted EPS | Description | Per Share Amount | | :--- | :--- | | **Diluted EPS from continuing operations (GAAP)** | $0.42 | | Restructuring charges | $0.14 | | Other charges/(gains) | $0.10 | | **Diluted EPS before charges/gains** | $0.66 | [Calculation of Net Debt-to-EBITDA Before Charges/Gains Ratio](index=9&type=section&id=Calculation%20of%20Net%20Debt-to-EBITDA%20Before%20Charges%2FGains%20Ratio) - As of March 29, 2025, the Net Debt-to-EBITDA before charges/gains ratio was **2.8x**, based on **$2.61 billion** in net debt and **$929.9 million** in trailing fifty-two week EBITDA before charges/gains[30](index=30&type=chunk)[31](index=31&type=chunk) [Reconciliation of Organic Net Sales](index=13&type=section&id=Reconciliation%20of%20Organic%20Net%20Sales) Q1 2025 Reconciliation of Net Sales Growth (%) | Description | Total Company | | :--- | :--- | | **Percentage change in net sales (GAAP)** | (7%) | | Excluding Acquisitions | (0%) | | Excluding China sales | 1% | | Excluding FX | 1% | | **Organic sales excluding impact of China and FX** | (5%) | [Definitions of Terms: Non-GAAP Measures](index=14&type=section&id=Definitions%20of%20Terms%3A%20Non-GAAP%20Measures) This section defines the non-GAAP financial measures used in the report. Management believes these measures, such as Operating Income before charges/gains, Diluted EPS before charges/gains, and EBITDA before charges/gains, provide helpful supplemental information regarding the company's underlying performance and ability to fund growth and repay debt - Operating income before charges/gains excludes restructuring and other charges to evaluate returns generated by the company and its segments[40](index=40&type=chunk) - Diluted EPS before charges/gains excludes restructuring and other charges to evaluate the company's overall underlying performance from period to period[41](index=41&type=chunk) - EBITDA before charges/gains is used to assess returns and the company's ability to fund internal growth, make acquisitions, and repay debt[42](index=42&type=chunk)

NO LONGER ONLY AVAILABLE FOR LARGE CARRIERS, PROVIDERS CAN NOW SIGN UP TO OFFER THE MOEN® FLO SMART WATER MONITOR AND SHUTOFF TO POLICYHOLDERS AT NO COSTNORTH OLMSTED, Ohio, April 14, 2025 /PRNewswire/ -- Moen, a leader in water experiences in the home, has launched an Insurance Partner Program for insurance providers of all sizes, including regional carriers, to help limit water damage claims across all states with its Moen® Flo Smart Water Monitor and Shutoff. Water damage is a leading cause of insurance ...

Core Insights - Moen has partnered with Liberty Mutual Insurance to offer discounts on the Flo Smart Water Monitor and Shutoff devices, aiming to reduce water damage claims and waste significantly [1][2] Company Overview - Moen is recognized as the leading consumer faucet brand in North America, providing a wide range of innovative products for kitchen and bath applications, including leak detection solutions [6] - The company is part of Fortune Brands Innovations, Inc., which focuses on various home products and security markets [7] Industry Context - Water damage claims are a significant financial burden for insurers, with over $15 billion paid out annually, and these claims account for 24% of all homeowner insurance claims [2][8] - The initiative aims to address the estimated one trillion gallons of water wasted annually in the U.S. due to leaks, highlighting a growing concern for water conservation [3][8] Product Features - The Flo Smart Water Monitor and Shutoff continuously monitors water pressure and flow, detecting leaks as small as a drop per minute, and can automatically shut off water to prevent major damage [4] - Users can track water usage and set conservation goals through the Moen Smart Water Network App, enhancing water-saving efforts [4]

Core Insights - Moen has launched the Hot Water Savings Handheld showerhead, which can reduce shower water usage by over a third and save up to 5,500 gallons annually without compromising the shower experience [1][3]. Product Features - The showerhead features a CONSERVE button that, when activated, reduces water flow to a trickle once the water reaches 95°F, maintaining temperature while minimizing water waste [3][5]. - It offers five high-performance spray settings and incorporates Moen's Magnetix™ technology for easy handling and secure docking, made from recycled ocean plastic [4][5]. Sustainability Commitment - The Hot Water Savings Handheld meets EPA WaterSense® criteria, emphasizing Moen's commitment to sustainability and eco-conscious solutions [3][5]. - The product aligns with the Mission Moen initiative, which focuses on conserving water as a precious resource [5]. Company Overview - Moen is a leader in home water experiences, providing a wide range of innovative kitchen and bath products that enhance user interaction with water [6]. - The company is part of Fortune Brands Innovations, Inc., which encompasses various brands in home products and security markets [7].

Financial Performance - For the year ended December 28, 2024, total net sales were $4,609.0 million, a decrease of 0.4% compared to 2023[130]. - Operating income increased by 20.0% to $737.9 million in 2024, primarily due to acquisitions and cost deflation[138]. - The Water segment reported net sales of $2,564.6 million, a slight increase of 0.1% from 2023[138]. - International market sales declined by $136.7 million, impacting overall net sales negatively[135]. - Net sales decreased by $96.8 million, or 2.0%, primarily due to lower sales unit volume in the U.S. and unfavorable foreign exchange of approximately $24 million[159]. - Operating income decreased by $159.4 million, or 20.6%, attributed to lower sales unit volume, manufacturing inefficiencies, and higher restructuring costs[165]. - Net sales in the Water segment decreased by $8.0 million, or 0.3%, due to lower organic sales unit volume and unfavorable foreign exchange of approximately $24.4 million[172]. - Operating income in the Outdoors segment decreased by $60.7 million, or 31.3%, due to asset impairment charges of $33.5 million and lower net sales[175]. - Net sales in the Security segment increased by $87.5 million, or 13.8%, primarily due to the acquisition of the Yale and August Business[176]. Expenses and Costs - Selling, general and administrative expenses rose by 6.1% to $1,226.5 million, driven by acquisitions and increased marketing costs[142]. - Selling, general and administrative expenses increased by $90.5 million, or 8.4%, due to the impact from the acquisition of the Acquired Businesses and higher headcount-related costs[161]. - Corporate expenses increased by $25.4 million, or 19.6%, primarily due to costs related to the acquisition of the Acquired Businesses[178]. - Interest expense decreased by $2.7 million, or 2.3%, due to lower interest on floating rate debt[166]. Acquisitions and Investments - The acquisition of Wise Water Solutions LLC. was completed for $105.6 million, contributing to the Water segment's performance[127]. - The company plans to continue investing in organic growth initiatives and strategic acquisitions to enhance shareholder value[131]. - The company acquired SpringWell for $105.6 million in February 2024, and the results are reported as part of the Water segment[196]. - The company completed the acquisition of the Acquired Businesses from ASSA for approximately $813.9 million in June 2023[197]. - The company invested approximately $60 million in incremental capacity in 2024 and expects capital spending in 2025 to be between $100 million and $140 million[191]. Cash Flow and Debt - The net cash provided by operating activities was $667.8 million in 2024, a decrease of $388.0 million from 2023[201]. - The company used $302.9 million in investing activities in 2024, significantly lower than $1,037.8 million in 2023, primarily due to lower acquisition costs[202]. - The company had aggregate outstanding notes of $2.7 billion as of December 30, 2023[184]. - The company entered into a $1.25 billion revolving credit facility with a maturity date of August 2027, with no outstanding borrowings as of December 28, 2024[185]. - As of December 28, 2024, the company had cash and cash equivalents of $381.1 million, with $335.4 million held at non-U.S. subsidiaries[191]. - Debt payments due in the next five years include $500 million in 2025 and $1.5 billion in 2030 and beyond[210]. Tax and Liabilities - The effective income tax rate for 2024 was adversely affected by state and local taxes and foreign income taxed at higher rates[148]. - As of December 28, 2024, liabilities for unrecognized tax benefits pertaining to uncertain tax positions totaled $25.2 million, with a reasonable possibility of a decrease by $6.1 million in the next 12 months[241]. - The company has contractual obligations of $545.1 million as of December 28, 2024, with $522.4 million due within one year[207]. Pension and Actuarial Information - The weighted-average long-term expected rate of return on pension plan assets was 7.3% for 2024, compared to 6.1% for 2023[235]. - The weighted-average discount rate for defined benefit liabilities was 5.7% as of December 28, 2024, compared to 5.0% as of December 30, 2023[236]. - Total pension cost for 2024 was $11.6 million, with an actuarial loss component of $18.5 million[238]. - The actual gain on plan assets in 2024 was 0.3%, compared to an actuarial assumption of an average 7.3% expected return[238]. - A 25 basis point change in the discount rate assumption would lead to an increase or decrease in pension and postretirement liability of approximately $6 million[239]. - The assumed rate of increase for postretirement medical and prescription drugs for pre-65 retirees decreased from 7.3% in 2023 to 7.1% in 2024[237]. Inventory and Impairments - Inventory provision was $69.3 million and $75.8 million as of December 28, 2024, and December 30, 2023, respectively[216]. - No material impairments related to long-lived assets were recorded in 2024, 2023, or 2022[218]. - Pre-tax impairment charges of $28.0 million and $5.5 million were recorded for two indefinite-lived tradenames in the Outdoors segment during the fourth quarter of 2023[229]. - The fair value of indefinite-lived tradenames was $518.8 million as of December 28, 2024, with $215.6 million in the Water segment, $271.2 million in the Outdoors segment, and $32.0 million in the Security segment[228].

Group 1 - The core thesis for investing in Fortune Brands Innovations (NYSE: FBIN) is based on the expectation that FY25 will be a growth year due to an improved outlook for the housing market [1] - The investment strategy focuses on identifying undervalued companies with long-term growth potential, emphasizing a blend of value investing principles and long-term growth [1] - The approach involves purchasing quality companies at a discount to their intrinsic value and holding them to allow for compounding of earnings and shareholder returns [1]

Financial Data and Key Metrics Changes - For Q4 2024, net sales were $1.1 billion, a 5% decrease compared to Q4 2023, impacted by a third-party software outage, hurricanes, and softness in China [17][66] - Adjusted for these impacts, Q4 organic sales were down 1%, while EPS for Q4 were $0.98, a 3% increase from Q4 2023 [18][66] - Full-year 2024 net sales were $4.6 billion, flat compared to 2023, with full-year organic sales down 5% or 2% excluding China and the one-time disruption [19][66] - Full-year operating margins increased by 90 basis points to 16.9%, with EPS at $4.12, up 5% over 2023 [21][66] - Free cash flow for 2024 was approximately $475 million, with a cash conversion of over 100% of net income [20][66] Business Line Data and Key Metrics Changes Water Innovations - Q4 sales were $645 million, down 3%, but organic sales were up 2% when excluding China and hurricane impacts [67][68] - Full-year sales were flat, with organic sales down 2% excluding the same impacts, and operating margin at 23.7% for Q4 [68][69] Outdoors - Q4 sales were $303 million, down 2%, while full-year sales were up 1% [72][73] - Operating margin for the outdoor segment was 18.2% in Q4, an increase of 430 basis points [73] Security - Q4 sales were $157 million, down 17%, or down 10% when adjusting for the software outage [55][75] - Full-year sales decreased 4% to $694 million, with organic sales down around 10% when adjusting for the outage [75][76] Market Data and Key Metrics Changes - The overall market for the company's products is expected to remain dynamic, with the R&R market stabilizing but still negative [38][41] - The single-family new construction market is expected to be flat in 2025, with incomplete low single-digit growth anticipated [39] Company Strategy and Development Direction - The company is focusing on high-growth and profitable opportunities, simplifying its organization, and enhancing its digital business [8][10] - Strategic investments in brand building, innovation, and digital transformation are expected to drive future growth [10][12] - The company aims to leverage its digital capabilities and partnerships to enhance sales and market presence [27][30] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to outperform in 2025 and beyond, despite a challenging macro environment [10][16] - The company is preparing for potential supply chain disruptions and has reduced tariff exposure from China [34][35] - Management highlighted the importance of brand strength and innovation in navigating current market challenges [36][37] Other Important Information - The board approved a new $1 billion share repurchase authorization, reflecting confidence in cash generation and long-term shareholder value [22] - The company has made significant progress in its digital business, with 214 million in digital sales and a strong user base growth [23][24] Q&A Session Summary Question: What are the expectations for the digital business in 2025? - Management expects digital sales to contribute significantly to growth, with a path towards $100 million in annualized sales for the Flow business in 2025 [27][30] Question: How is the company addressing the challenges in the security segment? - Management acknowledged the performance issues in the security segment and outlined plans for improvement, including a major branding campaign for Master Lock [56][78]

Core Insights - Fortune Brands Innovations (FBIN) reported $1.1 billion in revenue for Q4 2024, a year-over-year decline of 4.9% [1] - The company's EPS for the same period was $0.98, slightly up from $0.95 a year ago [1] - Revenue fell short of the Zacks Consensus Estimate of $1.15 billion, resulting in a surprise of -3.61% [1] - EPS also missed the consensus estimate of $1.05, with a surprise of -6.67% [1] Revenue Performance - Net Sales in the Outdoors segment were $303 million, below the average estimate of $307.14 million, reflecting a year-over-year decline of 2% [4] - Net Sales in the Security segment were $157 million, significantly lower than the average estimate of $173.36 million, marking a year-over-year decline of 17% [4] - Net Sales in the Water segment were $645 million, slightly below the average estimate of $660.52 million, representing a year-over-year change of -2.7% [4] Operating Income Analysis - Non-GAAP Operating Income for the Water segment was $152.50 million, compared to the average estimate of $154.92 million [4] - Non-GAAP Operating Income for the Outdoors segment was $55.20 million, slightly below the average estimate of $56.66 million [4] - Non-GAAP Operating Income for the Security segment was $14.60 million, significantly lower than the average estimate of $22.26 million [4] - Total Corporate Expenses were reported at -$40.70 million, worse than the average estimate of -$37.85 million [4] Stock Performance - Shares of Fortune Brands Innovations have remained unchanged over the past month, while the Zacks S&P 500 composite increased by 2.1% [3] - The stock currently holds a Zacks Rank 2 (Buy), indicating potential for outperformance in the near term [3]