News Column

Fortune Brands Home and Security Updates on 4Q and Full Year Sales

February 8, 2014

Fortune Brands Home and Security, Inc., a home and security products company, announced fourth quarter and full-year 2013 results and issued its 2014 annual outlook for sales and earnings per share.

"We delivered another strong quarter and full year as we leveraged our structural competitive advantages and the market recovery to deliver profitable growth," said Chris Klein, chief executive officer, Fortune Brands Home and Security, in a release dated Jan. 29. "Entering 2014, our annual outlook calls for continued growth based on our strong execution and the continuing market recovery for both new construction and, importantly, repair and remodel activity."

Fourth Quarter 2013

For the fourth quarter of 2013, net sales were $1.10 billion, an increase of 16 percent over the fourth quarter of 2012. Diluted earnings per share were $0.37, compared to $0.11 in the prior-year quarter. Diluted EPS before charges/gains were $0.38, compared to $0.23 the same quarter last year. Operating income was $95.4 million, compared to $7.5 million in the prior-year quarter. Operating income before charges/gains was $97.3 million, compared to $61.2 million the same quarter last year.

"Sales were up a combined 20 percent versus last year for our home segments in the fourth quarter as we benefitted from new construction and continued repair and remodel momentum. Importantly, total company operating income before charges/gains increased 59 percent," Klein said.

For each segment in the fourth quarter 2013, compared to the prior-year quarter:

-Kitchen and Bath Cabinetry net sales were up 34 percent. Sales increased across all channels led by dealers, with continued improvement in repair and remodel volume and mix. Operating income before charges/gains increased $21.3 million over last year to $33.6 million.

-Plumbing and Accessories net sales were up 7 percent, 10 percent excluding the benefit of a 53rd week in 2012. Sales grew in all channels, with wholesale leading the growth and operating income before charges/gains up 28 percent.

-Advanced Material Windows and Door Systems net sales were up 13 percent, with entry doors sales up 19 percent and windows sales up 7 percent. Operating income before charges/gains for the segment increased 18 percent.

-Security and Storage net sales decreased 2 percent. As expected, a security sales increase of 8 percent was more than offset by a 16 percent tool storage decline, due primarily to timing of holiday shipments to the largest customer. Segment operating income before charges/gains was up 8 percent.

Full Year 2013

For the full year 2013, net sales were $4.2 billion, an increase of 16 percent over 2012. Diluted earnings per share were $1.34 compared to $0.71 in the prior year, and diluted EPS before charges/ gains were $1.50 versus $0.89 last year, an increase of 69 percent.

"Our balance sheet strengthened during 2013, even as we completed the WoodCrafters acquisition, repurchased $52 million of our shares and initiated a quarterly dividend," said Lee Wyatt, chief financial officer. "As of Dec. 31, 2013, cash was $241 million and debt was $356 million, resulting in net debt to EBITDA of 0.2 times. We also announced a 20 percent increase in our quarterly dividend beginning in 2014."

"We have built strong momentum over the past two years," said Klein. "We believe we are still in the early stages of a multi-year housing recovery and are well positioned to continue to leverage our structural competitive advantages and drive profitable growth well into the future."

Annual Outlook for 2014

The Company's 2014 annual outlook is based on a home products market growth assumption of 10 to 11 percent. Based on the Company's strong performance, its confidence in the housing market recovery and expectation to continue outperforming the market, the Company expects full-year 2014 net sales to increase 11 to 13 percent. The Company expects diluted EPS before charges/gains to be in the range of $1.91 to $2.01. This targeted range compares to 2013 diluted EPS before charges/gains of $1.50.

The Company expects to generate $250+ million in free cash flow in 2014, net of capital expenditures of $130 to $140 million, as it begins to invest in incremental capacity and infrastructure to support multi-year growth.

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