Fortune Brands Home & Security Reports Strong Q1 Sales and EPS Growth, Raises Annual Outlook and Ann
Fortune Brands Home & Security Reports Strong Q1 Sales and EPS Growth, Raises Annual Outlook and Announces Strategic Acquisition
- Q1 2013 net sales increase 11 percent year-over-year to $890 million
- Q1 2013 EPS $0.22, EPS before charges/gains increases to $0.24 vs. $0.08 prior year
- Company raises annual outlook to sales growth of 9 - 11 percent and EPS before charges/gains of $1.23 - $1.33
- Company announces agreement to acquire WoodCrafters Home Products, LLC, a leading manufacturer of bathroom vanities
DEERFIELD, Ill.--(BUSINESS WIRE)-- Fortune Brands Home & Security, Inc. (NYS: FBHS) , an industry-leading home and security products company, today announced first quarter 2013 results and raised its annual outlook for sales and earnings per share. The Company also announced today a strategic acquisition, after declaring its first quarterly dividend earlier this week.
"Our strong results, including outperforming the market through profitable growth, are due to aggressive moves we've made over the last several years to position the Company to leverage the market recovery. We are increasing our annual outlook as well as driving incremental shareholder value by initiating a dividend and announcing a strategic acquisition," said Chris Klein, chief executive officer, Fortune Brands Home & Security.
First Quarter 2013
For the first quarter of 2013, net sales were $890 million, an increase of 11 percent over the first quarter of 2012. Diluted earnings per share were $0.22, compared to $0.08 in the prior year quarter. Diluted EPS before charges/gains was $0.24, compared to $0.08 the prior year.
Operating income was $56.6 million, compared to $21.3 million in the prior year quarter. Operating income before charges/gains was $62.4 million, compared to $20.9 million the prior year.
"Sales in our home products segments grew a combined 16 percent vs. last year, once again outperforming the market, with our cabinets, plumbing and entry doors performing especially well. Importantly, this was very profitable growth, with total company operating income before charges/gains tripling. New housing construction continued at a strong pace, and spending for home repairs and remodeling began to improve despite cooler weather in many parts of the country that held back exterior projects like windows," Klein said.
For each segment in the first quarter 2013, compared to the prior-year quarter:
- Kitchen & Bath Cabinetry net sales were up 11 percent, with operating income before charges/gains of $14.9 million vs. a loss of $3.9 million last year. Growth and share gains were driven across all parts of the business, with new construction leading the momentum.
- Plumbing & Accessories net sales were up 26 percent, and operating income before charges/gains was up 52 percent as share gains were evident across the business.
- Advanced Material Windows & Door Systems net sales were up 10 percent, with entry doors driving the gains.
- Security & Storage net sales were down 14 percent as planned, primarily driven by storage sales that faced unfavorable comparisons due to heavy promotional activity at a key retailer in the prior year. Segment operating income before charges/gains was up modestly.
Company Raises Annual Outlook for 2013
Based on the Company's performance and its expectation to continue outperforming the market for its home products, the Company now expects full-year 2013 net sales to increase 9 to 11 percent, excluding anticipated benefits from the acquisition discussed below. The Company now expects diluted EPS before charges/gains to be in the range of $1.23 to $1.33, also excluding anticipated benefits from the acquisition. This targeted range compares to 2012 diluted EPS before charges/gains of $0.89.
"We have the confidence to raise our annual outlook because the market is improving and our performance outpaced the recovering market," Klein said. "We are executing well, gaining share and growing profits."
Company Announces Dividend and Strategic Acquisition
On April 30, 2013, the Company announced its Board of Directors approved a quarterly cash dividend payment of $0.10 per share of common stock. The Company is initiating this dividend approximately 19 months after becoming an independent company.
The Company announced today it has signed an agreement to acquire WoodCrafters Home Products, LLC, a leading, privately-owned manufacturer of bathroom vanities and tops with estimated annual sales of $230 million. The transaction is valued at approximately $300 million. WoodCrafters will become part of the Company's Kitchen & Bath Cabinetry segment and will greatly expand the Company's offerings of bathroom cabinetry.
"We've been a leader in kitchen and bath cabinets for years. WoodCrafters' strength in manufacturing vanities and vanity sink tops immediately strengthens our offerings for the bathroom, with more products, and more control over our supply chain and capacity in that category," said Klein. "The cabinet market is experiencing early stages of recovery. Now is the perfect time to add to our leadership position as the leading cabinet manufacturer in North America with this strategic acquisition."
WoodCrafters is headquartered in Weslaco, Texas and has approximately 2,000 associates. WoodCrafters operates manufacturing facilities in southern Texas and northern Mexico. The Company plans for WoodCrafters to operate as a business unit of MasterBrand Cabinets, Inc., the Company's kitchen & bath cabinetry unit, with its current management team, staffing, operations and locations.
The transaction is expected to be accretive to FBHS's earnings per share before charges/gains for the full year 2014 at $0.11 to $0.13 per share before future operating synergies. Any impact on 2013 EPS depends on the transaction's closing date and is not included in the Company's revised annual outlook announced above. The transaction is expected to be funded with a combination of cash on hand and the Company's existing credit facilities.
The closing of the transaction is subject to regulatory approval and is expected to occur prior to the end of 2013.
"Our consistently strong performance is providing the foundation to drive incremental shareholder value," said Lee Wyatt, chief financial officer. "The dividend reflects our confidence in ongoing cash flows, and we believe the acquisition will increase operating results in the second half of 2013. Even with these two actions, we expect our net-debt-to-EBITDA before charges/gains ratio to be less than 0.5 times at year-end. We expect our capital structure and free cash flow will continue to provide the fuel to both invest in the business and drive further incremental shareholder value in the future," Wyatt said.
"Our balance sheet remains solid," Wyatt said. "As of March 31, 2013, cash was $259 million, and debt remained at $326 million."
About Fortune Brands Home & Security, Inc.
Fortune Brands Home & Security, Inc. (NYS: FBHS) , headquartered in Deerfield, Ill., creates products and services that help fulfill the dreams of homeowners and help people feel more secure. The Company's trusted brands include Master Lock security products, MasterBrand cabinets, Moen faucets, Simonton windows and Therma-Tru entry door systems. FBHS holds market leadership positions in all of its segments. The Company's more than 16,000 full-time associates generated $3.6 billion in net sales in 2012. FBHS is part of the S&P MidCap 400 Index. For more information, please visit www.FBHS.com.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This press release contains certain "forward-looking statements" regarding business strategies, market potential, future financial performance and other matters. Statements preceded by, followed by or that otherwise include the words "believes," "expects," "anticipates," "intends," "projects," "estimates," "plans," "outlook," 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 the current plans and expectations of our management. 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. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including but not limited to: (i) by our reliance on the North American home improvement, repair and new home construction activity levels, (ii) the North American and larger global economies, (iii) risk associated with entering into potential strategic acquisitions, (iv) our ability to remain innovative and protect our intellectual property, (v) our reliance on key customers and suppliers, (vi) the cost and availability associated with our supply chains and the availability of raw materials, (vii) risk of increases in our postretirement benefit-related costs and funding requirements, and (viii) changes in tax, environmental and federal and state laws and industry regulatory standards. These and other factors are discussed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission. In addition, this press release contains certain forward-looking statements that involve risks and uncertainties associated with the transaction between Fortune Brands Home & Security, Inc. ("FBHS") and WoodCrafters Home Products, LLC ("WoodCrafters"). These risks and uncertainties include: the satisfaction of closing conditions for the transaction between FBHS and WoodCrafters; market conditions; the effect of the announcement of the transaction on WoodCrafters' and FBHS's respective businesses; the impact of any failure to complete the transaction; the risk that WoodCrafters and FBHS will not realize the anticipated benefits of the transaction; the potential inability to successfully operate or integrate WoodCrafters' business; general industry and economic conditions; and other factors beyond the companies' control and the risk factors and other cautionary statements described in FBHS's filings with the SEC. The forward-looking statements included in this release are made as of the date hereof, and except as required by law, we undertake no obligation to update, amend or clarify any forward-looking statements to reflect events, new information or circumstances occurring after the date hereof.
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 before charges/gains, operating income before charges/gains, and net debt-to-EBITDA before charges/gains ratio. These 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 most closely comparable GAAP measures, and reasons for the company's use of these measures, are presented in the attached pages.
|FORTUNE BRANDS HOME & SECURITY, INC.|
|(In millions, except per share amounts)|
|Three Months Ended March 31,|
|Net Sales (GAAP)|
|Kitchen & Bath Cabinetry||$||345.3||$||311.5||10.9|
|Plumbing & Accessories||308.9||244.5||26.3|
|Advanced Material Windows & Door Systems||124.2||113.4||9.5|
|Security & Storage||111.6||129.4||(13.8||)|
|Total Net Sales||$||890.0||$||798.8||11.4|
|Operating Income (Loss) Before Charges/Gains(a)|
|Kitchen & Bath Cabinetry||$||14.9||$||(3.9||)||482.1|
|Plumbing & Accessories||55.0||36.2||51.9|
|Advanced Material Windows & Door Systems||(7.9||)||(10.3||)||23.3|
|Security & Storage||12.3||11.8||4.2|
|Total Operating Income Before Charges/Gains||$||62.4||$||20.9||198.6|
|Earnings Per Share Before Charges/Gains(b)|
|EBITDA Before Charges/Gains(c)||$||84.5||$||45.4||86.1|
|(a) Operating income (loss) before charges/gains is operating income (loss) derived in accordance with U.S. generally accepted accounting principles ("GAAP") excluding restructuring and other charges, income from a contingent acquisition consideration adjustment, and the impact of income and expense from actuarial gains or losses associated with our defined benefit plans. Operating income (loss) before charges/gains is a measure not derived in accordance with GAAP. Management uses this measure to determine the returns generated by FBHS and to evaluate and identify cost-reduction initiatives. 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. A reconciliation to operating income, the most comparable GAAP measure, is included in subsequent tables.|
|(b) Diluted EPS before charges/gains is net income calculated on a diluted per-share basis excluding restructuring and other charges, income from a contingent acquisition consideration adjustment and the impact of income and expense from actuarial gains or losses associated with our defined benefit plans. Diluted EPS before charges/gains is a measure not derived in accordance with GAAP. Management uses this measure to evaluate the overall performance of the Company and 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. A reconciliation to diluted EPS, the most closely comparable GAAP measure, is included in subsequent tables.|
|(c) EBITDA before charges/gains is net income derived in accordance with GAAP excluding restructuring and other charges, income from a contingent acquisition consideration adjustment, the impact of income and expense from actuarial gains or losses associated with our defined benefit plans, depreciation, amortization of intangible assets, 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 FBHS. 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. A reconciliation from net income, the most closely comparable GAAP measure, is included in subsequent tables.|
|FORTUNE BRANDS HOME & SECURITY, INC.|
|CONDENSED CONSOLIDATED BALANCE SHEET (GAAP)|
|March 31,||December 31,|
|Cash and cash equivalents||$||258.9||$||336.0|
|Accounts receivable, net||429.1||381.7|
|Other current assets||131.2||153.0|
|Total current assets||1,199.2||1,227.9|
|Property, plant and equipment, net||499.5||509.4|
|Other intangible assets, net of accumulated amortization||677.9||683.6|
|Liabilities and Equity|
|Notes payable to banks||$||6.4||$||5.5|
|Current portion of long-term debt||22.5||22.5|
|Other current liabilities||229.9||317.4|
|Total current liabilities||559.7||632.4|
|Deferred income taxes||225.5||224.0|
|Accrued defined benefit plans||200.7||252.7|
|Other non-current liabilities||79.2||82.6|
|Total liabilities and equity||$||3,823.8||$||3,873.9|
|FORTUNE BRANDS HOME & SECURITY, INC.|
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS|
|Three Months Ended March 31,|
|Depreciation and amortization||22.0||24.5|
|Recognition of actuarial losses||4.6||-|
|Deferred income taxes||7.0||8.1|
|Other noncash items||6.5||6.0|
|Changes in assets and liabilities, net||(150.1||)||(95.5||)|
|Net cash used in operating activities||$||(72.5||)||$||(43.9||)|
|Capital expenditures, net of proceeds from asset sales||$||(14.2||)||$||(9.8||)|
|Other investing activities||-||(3.6||)|
|Net cash used in investing activities||$||(14.2||)||$||(13.4||)|
|Net cash provided by financing activities||$||9.9||$||56.7|
|Effect of foreign exchange rate changes on cash||(0.3||)||0.4|
|Net decrease in cash and cash equivalents||$||(77.1||)||$||(0.2||)|
|Cash and cash equivalents at beginning of period||336.0||120.8|
|Cash and cash equivalents at end of period||$||258.9||$||120.6|
FREE CASH FLOW
|Three Months Ended March 31,|
|Free Cash Flow(a)||$||(69.8||)||$||(12.5||)|
|Proceeds from the sale of assets||0.2||1.4|
|Proceeds from the exercise of stock options||16.9||41.2|
|Cash Flow From Operations (GAAP)||$||(72.5||)||
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