Fortune Brands(FBIN) - 2024 Q1 - Quarterly Results

First Quarter 2024 Performance Overview Highlights and Management Commentary Fortune Brands reported first-quarter results that surpassed expectations, with a 7% increase in reported sales and a 20% rise in non-GAAP EPS, driven by strategic execution and confidence in market outperformance - Q1 sales and margin results exceeded expectations, driven by the successful execution of the company's strategy to grow its core business and accelerate in connected products[3] - The company reaffirmed its initial 2024 guidance, signaling confidence in its strategy for above-market sales performance, margin expansion, and cash generation[5] Consolidated Financial Results For Q1 2024, Fortune Brands reported net sales of $1.11 billion, a 7% increase year-over-year, while organic sales declined 3%, with GAAP EPS rising 13% to $0.76 and non-GAAP EPS increasing 20% to $0.83 Q1 2024 Total Company Results vs. Q1 2023 | Metric | Q1 2024 GAAP | Change (YoY) | Q1 2024 Non-GAAP | Change (YoY) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $1,110 M | 7% | $1,110 M | 7% | | Operating Income | $155.4 M | 18% | $167.2 M | 22% | | Operating Margin | 14.0% | 130 bps | 15.1% | 200 bps | | EPS | $0.76 | 13% | $0.83 | 20% | - While reported sales grew 7% to $1.1 billion, organic sales (excluding acquisitions) decreased by 3% compared to Q1 2023, indicating that recent acquisitions were the primary driver of top-line growth[5] Segment Performance Water Innovations The Water Innovations segment reported a 5% increase in net sales to $625 million, driven by acquisitions, despite a 7% decline in organic sales, with operating margin improving by 100 basis points to 22.6% Water Innovations Q1 2024 Performance | Metric | Value | Change (YoY) | | :--- | :--- | :--- | | Reported Net Sales | $625 M | 5% | | Organic Net Sales | $555 M | (7)% | | Operating Margin Before Charges/Gains | 22.6% | 100 bps | Outdoors The Outdoors segment achieved strong performance with a 9% increase in both reported and organic net sales to $315 million, alongside a significant 680 basis point expansion in operating margin to 12.0% Outdoors Q1 2024 Performance | Metric | Value | Change (YoY) | | :--- | :--- | :--- | | Reported Net Sales | $315 M | 9% | | Organic Net Sales | $315 M | 9% | | Operating Margin Before Charges/Gains | 12.0% | 680 bps | - Operating margin improvement was positively impacted by higher production volumes and continuous improvement initiatives[6] Security The Security segment's net sales grew 9% to $169 million, primarily due to acquisitions, despite an 8% decline in organic sales, with operating margin increasing by 170 basis points to 15.7% Security Q1 2024 Performance | Metric | Value | Change (YoY) | | :--- | :--- | :--- | | Reported Net Sales | $169 M | 9% | | Organic Net Sales | $143 M | (8)% | | Operating Margin Before Charges/Gains | 15.7% | 170 bps | Financial Position and Outlook Balance Sheet and Cash Flow The company maintained a strong balance sheet with $360 million in cash and a net debt to EBITDA ratio of 2.9x, while experiencing negative operating cash flow due to seasonality and repurchasing $100 million in shares Key Financial Position Metrics (as of Q1 2024 End) | Metric | Value | | :--- | :--- | | Net Debt | $2.7 billion | | Net Debt to EBITDA (before charges/gains) | 2.9x | | Cash | $360 million | | Available Revolving Credit Facility | $875 million | - The company experienced negative operating cash flow of $(71.3) million and free cash flow of $(135.9) million, which was attributed to typical seasonality[8] - The company repurchased $100 million of its shares in Q1 2024 as part of its opportunistic share repurchase program[8] Full-Year 2024 Guidance Fortune Brands reaffirmed its full-year 2024 guidance, projecting net sales growth of 3.5% to 5.5% and adjusted EPS between $4.20 and $4.40, despite anticipating a challenging global market - The company reaffirmed its full-year guidance, prioritizing above-market sales growth, margin expansion, and cash generation while continuing strategic investments[9] 2024 Full-Year Guidance Highlights | Metric | Guidance Range | | :--- | :--- | | Global Market | -3% to 0% | | Net Sales Growth | 3.5% to 5.5% | | Organic Net Sales Growth | -1% to 1% | | Operating Margin (before charges/gains) | 16.5% to 17.5% | | EPS (before charges/gains) | $4.20 to $4.40 | | Free Cash Flow | Around $520 million | Detailed Financial Statements and Reconciliations Consolidated Financial Statements The detailed financial statements provide a comprehensive view of the company's performance, showing a 7% revenue increase to $1.11 billion, a 14% rise in net income to $96.4 million, and a seasonal use of cash in operations Condensed Consolidated Statements of Income For Q1 2024, net sales grew 7% to $1.11 billion, operating income increased 18% to $155.4 million, and net income rose 14% to $96.4 million, resulting in diluted EPS of $0.76 Q1 2024 Income Statement Highlights (in millions) | Line Item | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,109.6 | $1,040.0 | 7% | | Operating Income | $155.4 | $131.8 | 18% | | Net Income | $96.4 | $84.6 | 14% | | Diluted EPS (Continuing Ops) | $0.76 | $0.67 | 13% | Condensed Consolidated Balance Sheets As of March 30, 2024, total assets increased to $6.79 billion, driven by higher goodwill and accounts receivable, while total liabilities rose to $4.51 billion, primarily due to an increase in long-term debt Balance Sheet Highlights (in millions) | Line Item | March 30, 2024 | Dec 30, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $359.7 | $366.4 | | Total current assets | $2,172.1 | $2,045.7 | | Goodwill | $1,988.7 | $1,906.8 | | Total assets | $6,791.5 | $6,565.0 | | Long-term debt | $3,044.7 | $2,670.1 | | Total liabilities | $4,510.7 | $4,271.6 | | Total equity | $2,280.8 | $2,293.4 | Condensed Consolidated Statements of Cash Flows In Q1 2024, the company experienced a net cash outflow from operating activities of $(71.3) million, used $169.8 million in investing activities, and generated $238.7 million from financing activities, primarily through increased debt Q1 2024 Cash Flow Highlights (in millions) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash from operating activities | $(71.3) | $76.1 | | Capital expenditures | $(64.6) | $(42.6) | | Cost of acquisitions | $(105.2) | - | | Net cash from investing activities | $(169.8) | $(42.6) | | Treasury stock purchases | $(100.0) | $(100.0) | | Net cash from financing activities | $238.7 | $(139.3) | Non-GAAP Reconciliations This section provides detailed reconciliations for key non-GAAP metrics, including organic net sales, operating income, diluted EPS, and the net debt-to-EBITDA ratio Reconciliation of Organic Net Sales Total company organic net sales for Q1 2024 were $1.01 billion, a 3% decrease from the prior year, excluding $96.5 million in revenue from recent acquisitions Q1 2024 GAAP Net Sales to Organic Net Sales Reconciliation (in millions) | Segment | Net Sales (GAAP) | Acquisition Impact | Organic Net Sales | Organic % Change | | :--- | :--- | :--- | :--- | :--- | | Water | $625.3 | $70.4 | $554.9 | (7)% | | Outdoors | $315.0 | $0.0 | $315.0 | 9% | | Security | $169.3 | $26.1 | $143.2 | (8)% | | Total Company | $1,109.6 | $96.5 | $1,013.1 | (3)% | Reconciliation of Operating Income and Margin Total company GAAP operating income of $155.4 million was adjusted to $167.2 million before charges/gains, representing a 22% increase year-over-year and a non-GAAP operating margin of 15.1% Q1 2024 Operating Income Reconciliation (in millions) | Line Item | Value | | :--- | :--- | | Operating Income (GAAP) | $155.4 | | Restructuring Charges | $2.8 | | Other Charges/(Gains) | $9.0 | | Operating Income Before Charges/Gains | $167.2 | Reconciliation of Diluted EPS The company's GAAP diluted EPS of $0.76 was adjusted to $0.83 before charges/gains for Q1 2024, reflecting a 20% increase from the prior year after excluding specific charges Q1 2024 Diluted EPS Reconciliation | Line Item | Value | | :--- | :--- | | Diluted EPS from continuing operations (GAAP) | $0.76 | | Restructuring charges | $0.02 | | Other charges/(gains) | $0.05 | | Diluted EPS before charges/gains | $0.83 | Calculation of Net Debt-to-EBITDA Ratio As of March 30, 2024, the company's net debt was $2.685 billion, resulting in a net debt-to-EBITDA ratio of 2.9x based on a trailing fifty-two-week EBITDA of $940.5 million Net Debt-to-EBITDA Ratio Calculation (as of March 30, 2024) | Line Item | Value (in millions) | | :--- | :--- | | Total Debt | $3,044.7 | | Less: Cash and cash equivalents | $359.7 | | Net Debt | $2,685.0 | | EBITDA before charges/gains (52-week) | $940.5 | | Net Debt-to-EBITDA Ratio | 2.9x |