Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Settings
Settings
Dynamic quotes 
OFFON

FORTUNE BRANDS HOME & SECURITY, INC.

(FBHS)
  Report
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisions 
SummaryMost relevantAll NewsAnalyst Reco.Other languagesPress ReleasesOfficial PublicationsSector newsMarketScreener Strategies

Fortune Brands Home & Security : MANAGEMENT'S DISCUSSION AND ANALYSIS OF

05/04/2021 | 04:04pm EDT

FINANCIAL CONDITION AND RESULTS OF OPERATIONS.


The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed
consolidated financial statements and the notes thereto, which are included in
this report, as well as our audited consolidated financial statements for the
year ended December 31, 2020, which are included in our Annual Report on Form
10-K for the year ended December 31, 2020.

This discussion contains forward-looking statements that are made pursuant to
the safe harbor provisions of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), regarding our business, operations or financial condition in
addition to statements regarding our general business strategies, market
potential, future financial performance, the potential of our brands and other
matters, expected capital spending, expected pension contributions, the
anticipated impact of recently issued accounting standards on our financial
statements, planned business strategies, anticipated market potential, future
financial performance, impact of acquisitions and other matters including the
expected or potential impact of the novel coronavirus ("COVID-19") pandemic.
Statements preceded by, followed by or that otherwise include the words
"believes," "expects," "anticipates," "intends," "projects," "estimates,"
"plans" 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 current expectations, estimates, assumptions and projections about
our industry, business and future financial results, available at the time this
report is filed with the Securities and Exchange Commission. 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:4 (i) our
reliance on the North American home improvement, repair and remodel and new home
construction activity levels, and the North American and global economies
generally, (ii) the competitive nature of consumer and trade brand businesses,
(iii) our ability to develop new products or processes and improve existing
products and processes, (iv) our reliance on key customers and suppliers,
including wholesale distributors and dealers, (v) risks associated with our
ability to improve organizational productivity and global supply chain
efficiency and flexibility, (vi) risks associated with global commodity and
energy availability and price volatility, as well as the possibility of
sustained inflation, (vii) risks associated with doing business globally,
including changes in trade-related tariffs and risks with uncertain trade
environments, (viii) changes in government and industry regulatory standards,
(ix) risks associated with the disruption of operations, (x) our inability to
obtain raw materials and finished goods in a timely and cost-effective manner,
(xi) impairments in the carrying value of goodwill or other acquired intangible
assets, (xii) delays or outages in our information technology system or computer
networks, (xiii) risk of increases in our defined benefit-related costs and
funding requirements, (xiv) the uncertainties relating to the impact of COVID-19
on the Company's business, financial performance and operating results, (xv)
risks associated with entering into potential strategic acquisitions and
integrating acquired property, (xvi) future tax law changes or the
interpretation of existing tax laws, (xvii) our ability to secure and protect
our intellectual property rights, (xviii) our ability to attract and retain
qualified personnel and other labor constraints, (xix) potential liabilities and
costs from claims and litigation, and (xx) our ability to access the capital
markets on terms acceptable to us. These and other factors are discussed in Part
I, Item 1A "Risk Factors" of our Annual Report on Form 10-K for the year ended
December 31, 2020. We undertake no obligation to, and expressly disclaim any
such obligation to, update or clarify any forward-looking statements to reflect
changed assumptions, the occurrence of anticipated or unanticipated events, new
information or changes to future results over time or otherwise, except as
required by law.

OVERVIEW


References to "Fortune Brands," "the Company," "we," "our" and "us" refer to
Fortune Brands Home & Security, Inc. and its consolidated subsidiaries as a
whole, unless the context otherwise requires. The Company is a leading home and
security products company with a portfolio of leading branded products used for
residential home repair, remodeling, new construction and security applications.

We believe that the Company has certain competitive advantages including
market-leading brands, a diversified mix of channels, lean and flexible supply
chains, a decentralized business model and a strong capital structure, as well
as a tradition of strong innovation and customer service. We believe these
long-held strengths will enable us to compete effectively and continue to focus
on outperforming our markets in growth, profitability and returns in order to
drive increased shareholder value.  We believe the Company's track record
reflects the long-term attractiveness and potential of the categories we serve
and our leading brands.

We believe long-term our most attractive opportunities are to invest in profitable organic growth initiatives. We also believe that we have the potential to generate additional growth from leveraging our cash flow and balance sheet strength by pursuing accretive strategic acquisitions, non-controlling equity investments and joint ventures, and by returning cash to shareholders through a combination of dividends and share repurchases as explained in further detail under "Liquidity and Capital Resources" below.

                                       20

--------------------------------------------------------------------------------


The U.S. market for our products primarily consists of spending on both new home
construction and repair and remodel activities within existing homes, with a
substantial majority of the markets we serve consisting of repair and remodel
spending. We believe that recent increases in consumer focus on the home have
accelerated the home products market. We expect this expanding market will
continue after the pandemic is over due to an underbuilt housing supply in the
U.S. and as more flexible workspaces allow for a greater number of housing
options. Growth in the U.S. market for our products will largely depend on
consumer confidence, employment, home prices, stable mortgage rates and credit
availability.

We may be impacted by fluctuations in the cost and availability of raw materials, tariffs, transportation costs, changes in foreign exchange, inflation and promotional activity among our competitors. We strive to offset the potential unfavorable impact of these items with productivity improvement initiatives and price increases.


In January 2021, we obtained control of and began consolidating Flo in our
results. Flo, which is included in our Plumbing segment, is a U.S. manufacturer
of comprehensive water monitoring and shut-off systems with leak detection
technologies. During 2020, we applied the equity method of accounting to our
investment in Flo as the minority shareholders had substantive participating
rights which precluded consolidation. The fair value allocated to assets
acquired and liabilities assumed as of January 1, 2021 was $87.8 million, net of
cash acquired of $9.7 million.

In December 2020, we acquired 100% of the outstanding equity of Larson, the
North American market leading brand of storm, screen and security doors. Larson
also sells related outdoor living products including retractable screens and
porch windows. The Company completed the acquisition for a total purchase price,
excluding expected tax benefits, of approximately $717.5 million, net of cash
acquired and final working capital adjustments of $2.3 million paid during the
three months ended March 31, 2021. The results of operations are included in the
Outdoors & Security segment.








                                       21
--------------------------------------------------------------------------------



RESULTS OF OPERATIONS

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020



                                           Net Sales
                                                          % Change
                                                         vs. Prior
(In millions)                2021          2020             Year
Plumbing                   $   621.6     $   469.0           32.5   %
Outdoors & Security            461.5         313.7           47.1
Cabinets                       687.9         620.0           11.0
Net sales                  $ 1,771.0     $ 1,402.7           26.3   %

                                    Operating Income (Loss)
                                                        % Change
                                                       vs. Prior
                             2021          2020           Year
Plumbing                   $   147.9     $   104.5           41.5   %
Outdoors & Security             52.8          31.5           67.6
Cabinets                        72.6          43.7           66.1
Less: Corporate expenses       (24.9 )       (24.7 )         (0.8 )
Operating income           $   248.4     $   155.0           60.3   %




The following discussion of consolidated results of operations and segment
results refers to the three months ended March 31, 2021 compared to the three
months ended March 31, 2020. Consolidated results of operations should be read
in conjunction with segment results of operations.

Net sales


Net sales increased by $368.3 million, or 26.3%, due to higher sales volume, the
benefit from the 2020 Larson acquisition ($101.2 million), favorable mix, price
increases to help mitigate the impact of cumulative commodity and transportation
cost increases as well as favorable foreign exchange of approximately $12
million. These benefits were partially offset by higher promotion and rebate
costs.

Cost of products sold

Cost of products sold increased by $217.4 million, or 23.9%, due to higher net
sales, the impact of the Larson acquisition including higher amortization of the
acquisition related inventory fair value adjustment ($3.3 million in 2021) and
product mix, partially offset by the benefit from productivity improvements.

Selling, general and administrative expenses

Selling, general and administrative expenses increased by $57.6 million, or 18.3%, due to higher employee related, transportation, and advertising costs.

Amortization of intangible assets

Amortization of intangible assets increased by $6.3 million primarily due to the 2020 Larson acquisition in our Outdoors & Security segment and the 2021 consolidation of Flo in our Plumbing segment.

Asset impairment charges

Asset impairment charges of $9.5 million in 2020 related to an indefinite-lived tradename within our Cabinets segment.

Restructuring charges


Restructuring charges of $7.6 million in the three months ended March 31, 2021
primarily related to severance costs associated with the relocation of
manufacturing facilities within our Cabinets and Outdoors & Security segments.
Restructuring charges of $4.5 million in the three months ended March 31, 2020
primarily related to severance costs across all our segments.







                                       22
--------------------------------------------------------------------------------

RESULTS OF OPERATIONS (Continued)

Operating income


Operating income increased by $93.4 million, or 60.3%, primarily due to higher
net sales, productivity improvements, the absence of the 2020 asset impairment
charges and the benefit from the 2020 Larson acquisition. These benefits were
partially offset by higher employee related, transportation and advertising
costs, higher restructuring charges and higher amortization of intangible
assets.

Interest expense

Interest expense decreased $0.7 million to $21.4 million due to lower average interest rates, partially offset by higher average borrowings.

Other expense (income), net


Other expense, net, of $3.3 million in the three months ended March 31, 2021
includes a non-cash loss of $4.5 million related to the remeasurement of our
investment in Flo immediately prior to consolidation and foreign currency
adjustments, partially offset by defined benefit plan income. Other income, net
of $6.1 million in the three months ended March 31, 2020 includes a non-cash
gain of $6.6 million related to the remeasurement of our investment in Flo
immediately prior to applying the equity method of accounting, partially offset
by unfavorable foreign currency adjustments.

Income taxes


The effective income tax rates for the three months ended March 31, 2021 and
2020 were 20.5% and 21.5%, respectively. The effective income tax rate in 2021
was favorably impacted by a benefit related to decreases in uncertain tax
positions and a benefit related to share-based compensation.

Net income attributable to Fortune Brands


Net income attributable to Fortune Brands was $177.8 million in the three months
ended March 31, 2021 compared to $109.1 million in the three months ended March
31, 2020. The increase was due to higher operating income and lower interest
expense, partly offset by higher income tax expenses and higher other expense.

Results By Segment

Plumbing

Net sales increased by $152.6 million, or 32.5%, due to higher sales volume
across most brands and markets and price increases to help mitigate the impact
of cumulative commodity and transportation cost increases as well as favorable
foreign exchange of approximately $10 million. These benefits were partially
offset by higher sales rebate costs.

Operating income increased by $43.4 million, or 41.5%, due to higher net sales
and the benefit from productivity improvements as well as favorable foreign
exchange of approximately $3 million. These benefits were partially offset by
the impact of higher marketing, freight and employee related costs.

Outdoors & Security

Net sales increased by $147.8 million, or 47.1%, due to the benefit from the 2020 Larson acquisition ($101.2 million) and higher sales volume.


Operating income increased by $21.3 million, or 67.6%, due to higher net sales,
the benefit from the 2020 Larson acquisition and productivity improvements.
These benefits were partially offset by commodity cost inflation, higher freight
costs and restructuring charges.

Cabinets


Net sales increased by $67.9 million, or 11.0%, due to higher sales volume, in
both our make-to-order and value priced points, favorable mix and price
increases to help mitigate the impact of cumulative commodity and transportation
cost increases as well as favorable foreign exchange of approximately $1
million. These factors were partly offset by increased promotional costs.



                                       23

--------------------------------------------------------------------------------


Operating income increased by $28.9 million, or 66.1%, due to higher net sales,
the absence of asset impairment charges booked during the three months ended
March 31, 2020 ($9.5 million), favorable mix and the benefit from productivity
improvements. These factors were partly offset by higher freight costs,
commodity inflation and higher employee related costs.

Corporate

Corporate expenses increased by $0.2 million, or 0.8%, due to higher employee related costs.




                                       24

--------------------------------------------------------------------------------

LIQUIDITY AND CAPITAL RESOURCES


Our principal sources of liquidity are cash on hand, cash flows from operating
activities, cash borrowed under our credit facilities and cash from debt
issuances in the capital markets. Our operating income is generated by our
subsidiaries. We believe our operating cash flows, including funds available
under our credit facilities and access to capital markets, provide sufficient
liquidity to support the Company's liquidity and financing needs, which are to
support working capital requirements, fund capital expenditures and service
indebtedness, as well as to finance acquisitions, repurchase shares of our
common stock and pay dividends to stockholders, as the Board of Directors deems
appropriate.

Our cash flows from operations, borrowing availability and overall liquidity are
subject to certain risks and uncertainties, including those described in the
section of our Annual Report on Form 10-K for the year-ended December 31, 2020
entitled "Item 1A. Risk Factors." In addition, we cannot predict whether or when
we may enter into acquisitions, joint ventures or dispositions, pay dividends,
or what impact any such transactions could have on our results of operations,
cash flows or financial condition, whether as a result of the issuance of debt
or equity securities, or otherwise.

Long-Term Debt


At March 31, 2021, the Company had aggregate outstanding notes in the amount of
$1.8 billion, with varying maturities (the "Notes"). The Notes are unsecured
senior obligations of the Company. The following table provides a summary of the
Company's outstanding Notes, including the net carrying value of the Notes, net
of underwriting commissions, price discounts and debt issuance costs as of March
31, 2021 and December 31, 2020:



                                                                                   Net Carrying Value
                           Principal      Issuance Date    Maturity Date     March 31, 2021      December 31,
(in millions)                Amount                                                                  2020
4.000% Senior Notes        $    500.0       June 2015        June 2025      $          496.8     $      496.6
4.000% Senior Notes (the
"2018 Notes")                   600.0     September 2018   September 2023              597.3            597.1
3.250% Senior Notes (the
"2019 Notes")                   700.0     September 2019   September 2029              693.7            693.5
Total Senior Notes         $  1,800.0                                       $        1,787.8     $    1,787.2




Credit Facilities

In April 2020, the Company entered into a 364-day, supplemental $400 million
revolving credit facility (the "2020 Revolving Credit Agreement"). This
supplemental facility was never utilized by the Company prior to its expiration
in April 2021.



In September 2019, the Company entered into a second amended and restated $1.25
billion revolving credit facility (the "2019 Revolving Credit Agreement"), and
borrowings thereunder will be used for general corporate purposes. The terms and
conditions of the 2019 Revolving Credit Agreement, including the total
commitment amount, essentially remained the same as under the previous credit
agreement, except that the maturity date was extended to September 2024.
Interest rates under the 2019 Revolving Credit Agreement are variable based on
LIBOR at the time of the borrowing and the Company's long-term credit rating and
can range from LIBOR + 0.91% to LIBOR + 1.4%. On March 31, 2021 and December 31,
2020, our outstanding borrowings under this facility were $895.0 million and
$785.0 million, respectively. This facility is included in Long-term debt in the
condensed consolidated balance sheets. As of March 31, 2021, we were in
compliance with all covenants under this facility.

Cash and Seasonality


On March 31, 2021, we had cash and cash equivalents of $356.1 million, of which
$302.2 million was held at non-U.S. subsidiaries. We manage our global cash
requirements considering (i) available funds among the subsidiaries through
which we conduct business, (ii) the geographic location of our liquidity needs,
and (iii) the cost to access international cash balances. The repatriation of
non-U.S. cash balances from certain subsidiaries could have adverse tax
consequences as we may be required to pay and record tax expense on those funds
that are repatriated.

Our operating cash flows are significantly impacted by the seasonality of our
business. We typically generate most of our operating cash flow in the third and
fourth quarters of each year. We use operating cash in the first quarter of the
year.

We believe that our current cash position, cash flow generated from operations,
and amounts available under our revolving credit facilities should be sufficient
for our operating requirements and enable us to fund our capital expenditures,
dividend payments, and any required long-term debt payments. In addition, we
believe that we have the ability to obtain alternative sources of financing if
required.



                                       25
--------------------------------------------------------------------------------

Share Repurchases and Dividends


In the first quarter of 2021, we repurchased 0.6 million shares of our
outstanding common stock under the Company's share repurchase program for $54.1
million. As of March 31, 2021, the Company's total remaining share repurchase
authorization under its share repurchase program was approximately $408.4
million. The share repurchase program does not obligate the Company to
repurchase any specific dollar amount or number of shares and may be suspended
or discontinued at any time.

In the first quarter of 2021, we paid dividends in the amount of $36.0 million
to the Company's shareholders. Our Board of Directors will continue to evaluate
dividend payment opportunities on a quarterly basis. There can be no assurance
as to when and if future dividends will be paid, and at what level, because the
payment of dividends is dependent on our financial condition, results of
operations, cash flows, capital requirements and other factors deemed relevant
by our Board of Directors. There are no restrictions on the ability of our
subsidiaries to pay dividends or make other distributions to Fortune Brands.

Acquisitions

We periodically review our portfolio of brands and evaluate potential strategic transactions and other capital initiatives to increase shareholder value.

Cash Flows


Below is a summary of cash flows for the three months ended March 31, 2021 and
2020.



                                                    Three Months Ended
(In millions)                                            March 31,
                                                     2021          2020
Net cash used in operating activities             $    (69.2 )    $ (13.8 )
Net cash used in investing activities                  (18.5 )      (77.0 )
Net cash provided by financing activities               22.8         77.3

Effect of foreign exchange rate changes on cash 1.7 (15.0 ) Net decrease in cash and cash equivalents $ (63.2 ) $ (28.5 )





Net cash used in operating activities was $69.2 million in the three months
ended March 31, 2021, compared to net cash used in operating activities of $13.8
million in the three months ended March 31, 2020. The increase in cash used of
$55.4 million was primarily due to higher increases in working capital driven by
higher inventory associated with our strong sales growth (26.3% versus the three
months ended March 31, 2020) and the payment of 2020 customer program and
employee incentive accruals, partially offset by higher net income and increases
in accrued taxes.



Net cash used in investing activities was $18.5 million in the three months
ended March 31, 2021, compared to net cash used in investing activities of $77.0
million in the three months ended March 31, 2020. The decrease in cash used of
$58.5 million was primarily due to the acquisition of additional shares of Flo
in January 2020.



Net cash provided by financing activities was $22.8 million in the three months
ended March 31, 2021, compared to cash provided by financing activities of $77.3
million in the three months ended March 31, 2020. The decrease in cash provided
of $54.5 million was primarily due to lower net borrowings in 2021 compared to
2020 ($140.0 million decrease), partly offset by lower share repurchases in 2021
compared to 2020.

Pension Plans

Subsidiaries of Fortune Brands sponsor their respective defined benefit pension
plans that are funded by a portfolio of investments maintained within our
benefit plan trust. As of December 31, 2020, the fair value of our total pension
plan assets was $784.9 million, representing 84% of the accumulated benefit
obligation liability. In 2021, we expect to make pension contributions of
approximately $10 million. For the foreseeable future, we believe that we have
sufficient liquidity to meet the minimum funding that may be required by the
Pension Protection Act of 2006.

Foreign Exchange

We have operations in various foreign countries, principally Canada, China, Mexico, the United Kingdom, France, Australia, Japan and South Africa. Therefore, changes in the value of the related currencies affect our financial statements when translated into U.S. dollars.

                                       26

--------------------------------------------------------------------------------

RECENTLY ISSUED ACCOUNTING STANDARDS


The adoption of recent accounting standards, as discussed in Note 2, "Recently
Issued Accounting Standards," to our Consolidated Financial Statements, has not
had and is not expected to have a significant impact on our revenue, earnings or
liquidity.

© Edgar Online, source Glimpses

All news about FORTUNE BRANDS HOME & SECURITY, INC.
06/02INSIDER TRENDS : Fortune Brands Home & Security Insider Extends 90-Day Selling T..
MT
05/27FORTUNE BRANDS HOME & SECURITY, INC. : Ex-dividend day for
FA
05/06FORTUNE BRANDS HOME & SECURITY  : FBHS) Insider Makes Significant Share Sale
MT
05/05FORTUNE BRANDS HOME & SECURITY, INC. : Submission of Matters to a Vote of Securi..
AQ
05/05INSIDER TRENDS : Fortune Brands Home & Security Sees 90 Days of Insider Buying T..
MT
05/04FORTUNE BRANDS HOME & SECURITY  : Management's discussion and analysis of
AQ
05/04FORTUNE BRANDS HOME & SECURITY  : KeyBanc Adjusts Price Target on Fortune Brands..
MT
05/03FORTUNE BRANDS HOME & SECURITY  : Declares Quarterly Dividend
BU
04/30FORTUNE BRANDS HOME & SECURITY  : Truist Securities Adjusts Fortune Brands Home ..
MT
04/30FORTUNE BRANDS HOME & SECURITY  : Reports exceptional sales and profit growth in..
AQ
More news