Fortune Brands(US:FBIN)2021-10-27 01:47Financial Data and Key Metrics Changes - Company sales increased by 20% in total and 14% organically, reaching nearly $2 billion, marking an all-time record in quarterly sales [10][63] - Operating income rose by 20%, and earnings per share increased by 25%, reflecting strong performance despite external challenges [10][63] - The company expects full-year EPS in the range of $5.63 to $5.73, indicating a growth of 36% over the previous record year [80] Business Line Data and Key Metrics Changes - Plumbing: Sales grew by 26% to $741 million, with operating income increasing by 36% to $168 million and an operating margin of 22.6% [64] - Outdoors & Security: Sales increased by 30% to $528 million, with operating income of $82 million, up 24%, and an operating margin of 15.6% [65][68] - Cabinets: Sales grew over 9% to $717 million, but operating income decreased by 13% to $69 million, with an operating margin of 9.7% [69][70] Market Data and Key Metrics Changes - Demand for products remains strong, with expectations for U.S. housing market growth of 12% to 13% and new construction growth of 11% to 12% [78] - The company anticipates a cash conversion rate of 80% to 85% for the year, with free cash flow expected to be approximately $625 million to $675 million [82] Company Strategy and Development Direction - The company is focused on long-term growth and margin improvement, with significant investments in digital initiatives, brand innovation, and capacity expansion [14][15] - The strategic agenda includes leveraging Fortune Brands advantage capabilities to enhance operational efficiency and reduce complexity [34][35] - The company is committed to returning capital to shareholders, having repurchased over $380 million in shares year-to-date [18][77] Management's Comments on Operating Environment and Future Outlook - Management highlighted strong demand for products and a favorable long-term outlook for the housing market, despite ongoing supply chain challenges [25][26] - The company is addressing labor shortages and material availability issues through strategic investments and operational improvements [33][72] - Management remains optimistic about achieving exceptional growth and margin improvement in 2021, despite external pressures [14][80] Other Important Information - The company celebrated its 10-year anniversary since its spin-off and public listing, with cumulative capital returned to shareholders surpassing $2.5 billion [19] - Recent advancements in ESG initiatives were noted, including partnerships with affordable housing organizations [21][20] Q&A Session Summary Question: Operating margin improvement in fiscal '22 - Management confirmed that the 75 basis points of operating margin improvement would come from a combination of cost mix improvements, volume incrementals, and structural cost changes [88][91] Question: Demand categories with sustained momentum - Management indicated that demand remains solid across all categories, with particular strength in pro-oriented projects and premium offerings [93][94] Question: Price cost timing and inflation offset - Management clarified that they expect to fully offset inflation in the first quarter of 2022 through cost improvement and pricing actions, with a focus on maintaining margins [100][102] Question: Inflation dynamics and impact on Cabinets - Management noted that inflation has significantly impacted costs, particularly in materials and freight, affecting margins in the Cabinets segment [118][120]