Highlights:
- Q2 2023 sales were $1.2 billion, a decrease of 7 percent
versus Q2 2022
- Q2 2023 earnings per share (EPS) were $0.80, a decrease of
27 percent versus a year ago; EPS before charges / gains were
$1.07, a decrease of 4 percent versus Q2 2022
- Full-year 2023 guidance adjusted upward reflecting the
impact of the recent acquisition, operational outperformance and
stronger than expected market conditions
- Recent acquisition will increase Fortune Brands’ scale in
connected products, drive innovation and expand offerings in the
luxury home products market
- Company generated strong operating and free cash flow in the
quarter
Fortune Brands Innovations, Inc. (NYSE: FBIN or “Fortune Brands”
or the “Company”), an industry-leading home, security and
commercial building products company, today announced second
quarter 2023 results and increased its full-year 2023 sales, EPS
before charges / gains and free cash flow guidance.
“Our Company continued to leverage its core strengths in brand,
innovation and channel excellence and delivered very strong margin
results in the quarter amid a dynamic macro environment,” said
Fortune Brands Chief Executive Officer Nicholas Fink. “We also took
concrete steps to position the Company for future growth, including
completing a highly attractive acquisition of leading, innovative
brands which will accelerate our larger growth strategy,
particularly in the differentiated connected home and luxury
markets.”
Fink continued, “Looking forward, we are well prepared to
respond to any short-term macro challenges, while further
positioning ourselves as a forward-thinking leader in a market
supported by long-term growth drivers and secular tailwinds.”
Second Quarter
2023 Results
($ in millions, except per share
amounts)
Unaudited
NET SALES
OPERATING INCOME
OPERATING MARGIN
EPS
Q2 2023 Reported
$1,164
$152.6
13.1%
$0.80
Change versus prior year
(7%)
(30%)
(440 bps)
(27%)
Q2 2023 Before charges / gains
$1,164
$197.8
17.0%
$1.07
Change versus prior year
(7%)
(11%)
(60 bps)
(4%)
For each segment in the second quarter of 2023, compared to the
prior-year quarter:
- Water Innovations sales decreased 5 percent, primarily due to
lower sales volumes, partially offset by price. Excluding the
impact of the Aqualisa acquisition and FX, sales decreased 6
percent. Operating margin was 23.0 percent. Operating margin before
charges / gains was 23.2 percent.
- Outdoors sales decreased 14 percent, driven by lower sales
volumes, partially offset by price. Operating margin was 16.3
percent, a 90 bps increase over Q2 2022. Operating margin before
charges / gains was 16.4 percent, an 80 bps increase over Q2
2022.
- Security sales increased 2 percent, driven by increased
distribution, price and continued growth in the commercial safety
business. Operating margin was -0.2 percent. Operating margin
before charges / gains was 15.6 percent.
Emtek, Schaub, Yale and August
Acquisition
On June 20, 2023, the Company completed its acquisition of the
Emtek and Schaub premium and luxury door and cabinet hardware
business, and the U.S. and Canadian Yale and August residential
smart locks business from ASSA ABLOY (collectively, the
“Acquisition”). The purchase price was $800 million, or
approximately $700 million net of tax benefits, on a cash-free,
debt-free basis, subject to customary adjustments. The net purchase
price of $700 million equates to approximately 7.8x 2022 adjusted
EBITDA before synergies. Results from the Acquisition were
immaterial to Fortune Brands’ 2023 Q2 results.
For the second half of 2023, the Acquisition is expected to
generate net sales of $190 million to $210 million and earnings per
share of $0.04 to $0.06, inclusive of approximately $0.08
unfavorable EPS impact from purchase price amortization, or $0.12
to $0.14 excluding purchase price amortization.
By the end of 2026, the Acquisition is expected to generate net
sales of $500 million to $550 million, earnings per share of $0.45
to $0.55, $65 million to $85 million of run-rate sales synergies
and $10 million to $20 million of run-rate cost synergies. For more
information on the Acquisition, please visit
ir.fbin.com/quarterly-results.
Balance Sheet and Cash
Flow
At the end of the quarter, net debt was $2.6 billion and net
debt to EBITDA before charges / gains was 2.9x. The Company had
$682 million in cash and full availability under its $1.25 billion
revolving credit facility. Cash flow from operations was $428
million while free cash flow was $358 million for the quarter,
reflecting the favorable impact of the Company’s working capital
and inventory reduction efforts.
Annual Outlook
The Company is increasing full-year EPS before charges / gains
guidance to a range of $3.75 to $3.90, reflecting the impact of the
Acquisition and improved market conditions. The mid-point of this
guidance represents a $0.13 increase over the mid-point of the
Company’s initial 2023 guidance provided during its fourth quarter
2022 earnings call. In addition, the Company upwardly revised its
market outlook, full-year sales and free cash flow guidance,
reflecting the impact of the Acquisition as well as the Company’s
outperformance and a stronger than anticipated single family new
construction market.
“We took decisive actions in the first half of 2023, while still
maintaining investments in our key strategic priorities, and
delivered impressive results amid a volatile operating
environment,” said Fortune Brands Chief Financial Officer David
Barry. “Our updated guidance reflects our confidence in the
Company’s strong financial position as we continue to position
Fortune Brands for future shareholder value creation opportunities
by prioritizing above-market sales growth, margin preservation and
enhancement and cash generation.”
The Company now expects:
Prior Guidance
Updated
MARKET
Global market
-6.5% to -8.5%
-5.5% to -7.5%
U.S. market
-6.5% to -8.5%
-5.5% to -7.5%
U.S. R&R
-4% to -6%
-4% to -6%
U.S. SFNC
-18% to -22%
-12% to -14%
China market
-15% to -20%
-15% to -20%
FINANCIAL METRICS
Net sales
-5% to -7%
0% to -2%
Net sales [organic]
-5% to -7%
-4% to -6%
Operating margin
16% to 17%
16% to 16.5%
EPS before charges / gains
$3.65 to $3.85
$3.75 to $3.90
Cash flow from operations
-
~$855 million
Free cash flow
~$475 million
~$575 million
Cash conversion
~100%
~120%
For more information on the Company's guidance, please visit
ir.fbin.com/quarterly-results.
For certain forward-looking non-GAAP measures (as used in this
press release, EPS before charges / gains and cash conversion), the
Company is unable to provide a reconciliation to the most
comparable GAAP financial measure because the information needed to
reconcile these measures is unavailable due to the inherent
difficulty of forecasting the timing and/or amount of various items
that have not yet occurred, including the high variability and low
visibility with respect to gains and losses associated with our
defined benefit plans and restructuring and other charges, which
are excluded from EPS before charges / gains and cash conversion.
Additionally, estimating such GAAP measures and providing a
meaningful reconciliation consistent with the Company’s accounting
policies for future periods requires a level of precision that is
unavailable for these future periods and cannot be accomplished
without unreasonable effort. Forward-looking non-GAAP measures are
estimated consistent with the relevant definitions and
assumptions.
Conference Call Details
Today at 5:00 p.m. ET, Fortune Brands will host an investor
conference call to discuss results. A live internet audio webcast
of the conference call will be available on the Fortune Brands
website at ir.fbin.com/upcoming-events. It is recommended that
listeners log on at least 10 minutes prior to the start of the
call. A recorded replay of the call will be made available on the
Company’s website shortly after the call has ended.
About Fortune Brands
Innovations
Fortune Brands Innovations, Inc. (NYSE: FBIN), headquartered in
Deerfield, Ill., is a brand, innovation and channel leader focused
on exciting, supercharged categories in the home products, security
and commercial building markets. The Company’s growing portfolio of
brands includes Moen, House of Rohl, Aqualisa, Emtek, Therma-Tru,
Larson, Fiberon, Master Lock, SentrySafe, Yale and August. To learn
more about FBIN, its brands and environmental, social and
governance (ESG) commitments, visit www.FBIN.com.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS
This press release 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”).
Forward-looking statements include all statements that are not
historical statements of fact and those regarding our intent,
belief or expectations for our business, operations, financial
performance or financial condition in addition to statements
regarding our general business strategies, the market potential of
our brands, trends in the housing market, the potential impact of
costs, including material and labor costs, the potential impact of
inflation, expected capital spending, expected pension
contributions, the expected impact of acquisitions, dispositions
and other strategic transactions including the expected benefits
and costs of the separation (the “Separation”) of MasterBrand, Inc.
(“MasterBrand”) and the tax-free nature of the Separation, the
anticipated impact of recently issued accounting standards on our
financial statements, and other matters that are not historical in
nature. Statements preceded by, followed by or that otherwise
include the words “believes,” “expects,” “anticipates,” “intends,”
“projects,” “estimates,” “plans,” “outlook,” “positioned” 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 of our
management about our industry, business and future financial
results, available at the time this press release is issued.
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,
including but not limited to: (i) our reliance on the North
American and Chinese home improvement, repair and remodel and new
home construction activity levels, (ii) the housing market,
downward changes in the general economy, unfavorable interest rates
or other business conditions, (iii) the competitive nature of
consumer and trade brand businesses, (iv) our ability to execute on
our strategic plans and the effectiveness of our strategies in the
face of business competition, (v) our reliance on key customers and
suppliers, including wholesale distributors and dealers and
retailers, (vi) risks associated with our ability to improve
organizational productivity and global supply chain efficiency and
flexibility, (vii) risks associated with global commodity and
energy availability and price volatility, as well as the
possibility of sustained inflation, (viii) delays or outages in our
information technology systems or computer networks, (ix) risks
associated with doing business globally, including changes in
trade-related tariffs and risks with uncertain trade environments,
(x) risks associated with the disruption of operations, (xi) our
inability to obtain raw materials and finished goods in a timely
and cost-effective manner, (xii) risks associated with entering
into potential strategic acquisitions and joint ventures and
related integration activities, (xiii) impairments in the carrying
value of goodwill or other acquired intangible assets, (xiv) risk
of increases in our defined benefit-related costs and funding
requirements, (xv) the uncertainties relating to the impact of
COVID-19 on the Company’s business, financial performance and
operating results, (xvi) our ability to attract and retain
qualified personnel and other labor constraints, (xvii) the effect
of climate change and the impact of related changes in government
regulations and consumer preferences, (xviii) risks associated with
environmental, social and governance matters, (xix) changes in
government and industry regulatory standards, (xx) future tax law
changes or the interpretation of existing tax laws, (xxi) our
ability to secure and protect our intellectual property rights,
(xxii) potential liabilities and costs from claims and litigation,
(xxiii) our ability to achieve the expected benefits of the
Separation of MasterBrand, (xxiv) the risk that we may be required
to indemnify MasterBrand in connection with the Separation or that
MasterBrand’s indemnities to us may not be sufficient to hold us
harmless for the full amount of liabilities for which MasterBrand
has been allocated responsibility, (xxv) the potential that the
Separation fails to qualify as tax-free for U.S. federal income tax
purposes and (xxvi) unanticipated difficulties or expenditures
relating to the transaction, including, without limitation,
difficulties that result in the failure to realize expected
synergies, efficiencies and cost savings from the transaction
within the expected time period (if at all). 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, 2022. 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.
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 from continuing operations before
charges / gains, operating income before charges / gains, operating
margin before charges / gains, EBITDA before charges / gains, net
debt, net debt to EBITDA before charges / gains, sales excluding
the impact of FX and acquisitions, and free cash flow. These
non-GAAP 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 applicable most
closely comparable GAAP measures, and reasons for the Company’s use
of these measures, are presented in the attached pages.
FORTUNE BRANDS INNOVATIONS, INC. (In millions)
(Unaudited)
Thirteen Weeks Ended Three Months
Ended Twenty-Six Weeks Ended Six Months Ended
Net sales (GAAP) July 1, 2023 June 30, 2022
$ Change % Change July 1, 2023 June 30,
2022 $ Change % Change Water
$
617.1
$
650.0
$
(32.9
)
(5
)
$
1,211.3
$
1,293.6
$
(82.3
)
(6
)
Outdoors
375.6
437.2
(61.6
)
(14
)
665.5
780.8
(115.3
)
(15
)
Security
171.0
168.2
2.8
2
326.9
321.2
5.7
2
Total net sales
$
1,163.7
$
1,255.4
$
(91.7
)
(7
)
$
2,203.7
$
2,395.6
$
(191.9
)
(8
)
RECONCILIATIONS OF GAAP OPERATING INCOME TO OPERATING
INCOME BEFORE CHARGES/GAINS (In millions) (Unaudited)
Thirteen Weeks Ended Three Months Ended
Twenty-Six Weeks Ended Six Months Ended July 1,
2023 June 30, 2022 $ Change % Change
July 1, 2023 June 30, 2022 $ Change %
Change WATER Operating income (GAAP)
$
142.1
$
160.7
$
(18.6
)
(12
)
$
270.5
$
310.0
$
(39.5
)
(13
)
Restructuring charges
1.1
0.9
0.2
22
1.3
0.9
0.4
44
Other charges/(gains) Cost of products sold
-
-
-
-
0.1
-
0.1
100
Selling, general and administrative expenses
-
-
-
-
-
0.8
(0.8
)
(100
)
Operating income before charges/gains (a)
$
143.2
$
161.6
$
(18.4
)
(11
)
$
271.9
$
311.7
$
(39.8
)
(13
)
OUTDOORS Operating income (GAAP)
$
61.2
$
67.4
$
(6.2
)
(9
)
$
74.2
$
107.2
$
(33.0
)
(31
)
Restructuring charges
1.5
0.1
1.4
1,400
3.0
0.7
2.3
329
Other charges/(gains)
$
-
-
Cost of products sold
(1.7
)
-
(1.7
)
(100
)
(1.7
)
(5.4
)
3.7
(69
)
Selling, general and administrative expenses
-
-
-
-
-
(0.2
)
0.2
(100
)
Solar compensation (e)
0.6
0.6
-
-
1.3
1.0
0.3
30
Operating income before charges/gains (a)
61.6
68.1
$
(6.5
)
(10
)
76.8
103.3
$
(26.5
)
(26
)
SECURITY Operating income (GAAP)
$
(0.4
)
$
25.1
$
(25.5
)
(102
)
$
20.8
$
45.5
$
(24.7
)
(54
)
Restructuring charges
19.6
-
19.6
NM
20.2
-
20.2
100
Other charges/(gains) Cost of products sold
7.4
-
7.4
100
7.5
-
7.5
100
Operating income before charges/gains (a)
$
26.6
$
25.1
$
1.5
6
$
48.5
$
45.5
$
3.0
7
CORPORATE Corporate expense (GAAP)
$
(50.3
)
$
(33.7
)
$
(16.6
)
49
$
(81.1
)
$
(63.4
)
$
(17.7
)
28
Restructuring charges
-
-
-
-
0.7
-
0.7
100
Other charges/(gains)
-
-
Selling, general and administrative expenses
0.3
0.2
0.1
50
0.3
0.2
0.1
50
ASSA transaction expenses (d)
16.4
-
16.4
NM
17.4
-
17.4
100
General and administrative expenses before charges/gains (a)
$
(33.6
)
$
(33.5
)
$
(0.1
)
-
$
(62.7
)
$
(63.2
)
$
0.5
(1
)
TOTAL COMPANY Operating income (GAAP)
$
152.6
$
219.5
$
(66.9
)
(30
)
$
284.4
$
399.3
$
(114.9
)
(29
)
Restructuring charges
22.2
1.0
21.2
2,120
25.2
1.6
23.6
1,475
Other charges/(gains) Cost of products sold
5.7
-
5.7
100
5.9
(5.4
)
11.3
(209
)
Selling, general and administrative expenses
0.3
0.2
0.1
50
0.3
0.8
(0.5
)
(62
)
ASSA transaction expenses (d)
16.4
-
16.4
100
17.4
-
17.4
100
Solar compensation (e)
0.6
0.6
-
-
1.3
1.0
0.3
30
Operating income before charges/gains (a)
$
197.8
$
221.3
$
(23.5
)
(11
)
$
334.5
$
397.3
$
(62.8
)
(16
)
NM - Not Meaningful The Yale/August and Emtek/Schaub
acquisition net sales, operating income and cash flows from the
date of acquisition to July 1, 2023 were not material to the
Company. (a) (d) (e) For definitions of Non-GAAP measures,
see Definitions of Terms page
FORTUNE BRANDS
INNOVATIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
(GAAP) (In millions) (Unaudited)
July 1,
December 31,
2023
2022
Assets Current assets Cash and cash equivalents
$
681.7
$
642.5
Accounts receivable, net
621.2
521.8
Inventories
954.5
1,021.3
Other current assets
186.2
274.8
Total current assets
2,443.6
2,460.4
Property, plant and equipment, net
859.5
783.7
Goodwill
1,917.8
1,640.7
Other intangible assets, net of accumulated amortization
1,421.5
1,000.8
Other assets
230.8
235.3
Total assets
$
6,873.2
$
6,120.9
Liabilities and equity Current liabilities
Short-term debt
$
599.8
$
599.2
Accounts payable
489.5
421.6
Other current liabilities
551.4
523.9
Total current liabilities
1,640.7
1,544.7
Long-term debt
2,668.5
2,074.3
Deferred income taxes
138.2
136.9
Other non-current liabilities
248.7
278.1
Total liabilities
4,696.1
4,034.0
Stockholders' equity
2,177.1
2,086.9
Total equity
2,177.1
2,086.9
Total liabilities and equity
$
6,873.2
$
6,120.9
FORTUNE BRANDS INNOVATIONS, INC. CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions)
(Unaudited)
Twenty-Six Weeks
Ended Six Months Ended July 1, 2023 June 30,
2022 Operating activities Net income
$
186.7
$
372.9
Depreciation and amortization
66.1
93.8
Non-cash lease expense
15.8
22.2
Deferred taxes
(1.0
)
(0.5
)
Other non-cash items
16.7
23.3
Changes in assets and liabilities, net
219.3
(469.8
)
Net cash provided by operating activities
$
503.6
$
41.9
Investing activities Capital expenditures
$
(112.2
)
$
(115.6
)
Proceeds from the disposition of assets
2.7
8.0
Cost of acquisitions, net of cash acquired
(781.8
)
(61.6
)
Net cash used in investing activities
$
(891.3
)
$
(169.2
)
Financing activities Increase in debt, net
$
595.1
$
650.4
Proceeds from the exercise of stock options
5.0
0.4
Treasury stock purchases
(100.0
)
(505.0
)
Dividends to stockholders
(58.6
)
(73.6
)
Other items, net
(13.7
)
(45.1
)
Net cash provided by financing activities
$
427.8
$
27.1
Effect of foreign exchange rate changes on cash
$
(2.1
)
$
(11.3
)
Net increase (decrease) in cash and cash equivalents
$
38.0
$
(111.5
)
Cash, cash equivalents and restricted cash* at beginning of period
648.3
476.1
Cash, cash equivalents and restricted cash* at end of period
$
686.3
$
364.6
FREE CASH
FLOW Twenty-Six Weeks Ended Six Months
Ended 2023 Full Year July 1, 2023 June 30,
2022 Estimate Cash flow from operations
(GAAP)
$
503.6
$
41.9
$
830.0 - 880.0
Less: Capital expenditures
112.2
115.6
250.0 - 300.0
Free cash flow**
$
391.4
$
(73.7
)
$
575.0
*Restricted cash of $2.3 million and $2.3 million is
included in Other current assets and Other assets, respectively, as
of July 1, 2023. Restricted cash of $1.2 million and $2.8 million
is included in Other current assets and Other assets, respectively,
as of June 30, 2022. Note that our net decrease in cash and cash
equivalents for the six months ended June 30, 2022 represents the
combined cash flows of both our continuing and discontinued
operations. ** Free cash flow is cash flow from operations
calculated in accordance with U.S. generally accepted accounting
principles ("GAAP") less capital expenditures. Free cash flow does
not include adjustments for certain non-discretionary cash flows
such as mandatory debt repayments. Free cash flow is a measure not
derived in accordance with GAAP. Management believes that free cash
flow provides investors with helpful supplemental information about
the Company's ability to fund internal growth, make acquisitions,
repay debt and related interest, pay dividends and repurchase
common stock. This measure may be inconsistent with similar
measures presented by other companies. The Yale/August and
Emtek/Schaub acquisition net sales, operating income and cash flows
from the date of acquisition to July 1, 2023 were not material to
the Company.
FORTUNE BRANDS INNOVATIONS, INC.
CASH FLOW FROM OPERATIONS (GAAP) TO FREE CASH FLOW (In
millions) (Unaudited)
Thirteen Weeks Ended
July 1, 2023 Cash flow from operations
(GAAP)
$
427.5
Less: Capital expenditures
69.6
Free cash flow**
$
357.9
** Free cash flow is cash flow from operations
calculated in accordance with U.S. generally accepted accounting
principles ("GAAP") less capital expenditures. Free cash flow does
not include adjustments for certain non-discretionary cash flows
such as mandatory debt repayments. Free cash flow is a measure not
derived in accordance with GAAP. Management believes that free cash
flow provides investors with helpful supplemental information about
the Company's ability to fund internal growth, make acquisitions,
repay debt and related interest, pay dividends and repurchase
common stock. This measure may be inconsistent with similar
measures presented by other companies. The
Yale/August and Emtek/Schaub acquisition net sales, operating
income and cash flows from the date of acquisition to July 1, 2023
were not material to the Company.
FORTUNE
BRANDS INNOVATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS
OF INCOME (GAAP) (In millions, except per share amounts)
(Unaudited)
Thirteen Weeks Ended Three Months
Ended Twenty-Six Weeks Ended Six Months Ended
July 1, 2023 June 30, 2022 % Change July 1,
2023 June 30, 2022 % Change Net
sales
$
1,163.7
$
1,255.4
(7
)
$
2,203.7
$
2,395.6
(8
)
Cost of products sold
695.6
742.0
(6
)
1,327.2
1,413.8
(6
)
Selling, general and administrative expenses
280.7
281.3
-
541.7
557.7
(3
)
Amortization of intangible assets
12.6
11.6
9
25.2
23.2
9
Restructuring charges
22.2
1.0
100
25.2
1.6
100
Operating income
152.6
219.5
(30
)
284.4
399.3
(29
)
Interest expense
27.7
30.5
(9
)
54.6
52.3
4
Other (income)/expense, net
(5.2
)
(0.2
)
100
(11.6
)
(2.4
)
383
Income from continuing operations before income taxes
130.1
189.2
(31
)
241.4
349.4
(31
)
Income tax
28.0
44.9
(38
)
53.7
78.9
(32
)
Income from continuing operations, net of tax
$
102.1
$
144.3
(29
)
$
187.7
$
270.5
(31
)
(Loss) income from discontinued operations, net of
tax
-
47.7
(100
)
(1.0
)
102.4
(101
)
Net income
$
102.1
$
192.0
(47
)
$
186.7
$
372.9
(50
)
Net income attributable to Fortune Brands
$
102.1
$
192.0
(47
)
$
186.7
$
372.9
(50
)
Diluted earnings per common share Continuing
operations
$
0.80
$
1.10
(27
)
$
1.47
$
2.03
(28
)
Discontinued operations
$
-
$
0.36
(100
)
$
(0.01
)
$
0.77
(101
)
Diluted EPS attributable to Fortune Brands
$
0.80
$
1.46
(45
)
$
1.46
$
2.80
(48
)
Diluted average number of shares outstanding
127.5
131.2
(3
)
128.0
133.0
(4
)
FORTUNE BRANDS INNOVATIONS, INC. (In
millions) (Unaudited)
RECONCILIATIONS OF
INCOME FROM CONTINUING OPERATIONS, NET OF TAX TO EBITDA BEFORE
CHARGES/GAINS Thirteen Weeks Ended Three
Months Ended Twenty-Six Weeks Ended Six Months
Ended July 1, 2023 June 30, 2022 % Change
July 1, 2023 June 30, 2022 % Change
Income from continuing operations, net of tax
$
102.1
$
144.3
(29
)
$
187.7
$
270.5
(31
)
Depreciation *
$
19.5
$
20.1
(3
)
$
38.7
$
40.1
(3
)
Amortization of intangible assets
12.6
11.6
9
25.2
23.2
9
Restructuring charges
22.2
1.0
100
25.2
1.6
100
Other charges/(gains)
6.0
0.2
100
6.2
(4.6
)
(235
)
ASSA transaction expenses (d)
16.4
-
NM
17.4
-
NM
Solar compensation (e)
0.6
0.6
-
1.3
1.0
30
Interest expense
27.7
30.5
(9
)
54.6
52.3
4
Income taxes
28.0
44.9
(38
)
53.7
78.9
(32
)
EBITDA before charges/gains (c)
$
235.1
$
253.2
(7
)
$
410.0
$
463.0
(11
)
* Depreciation excludes accelerated depreciation expense of
$2.1 million for the thirteen weeks ended July 1, 2023, and $2.2
million for the twenty-six weeks ended July 1, 2023. Accelerated
depreciation is included in restructuring and other charges/gains.
CALCULATION OF NET DEBT-TO-EBITDA BEFORE
CHARGES/GAINS RATIO As of July 1, 2023 Short-term
debt **
$
599.8
Long-term debt **
2,668.5
Total debt
3,268.3
Less: Cash and cash equivalents **
681.7
Net debt (1)
$
2,586.6
For the twelve months ended July 1, 2023 EBITDA before
charges/gains (2) (c)
$
898.5
Net debt-to-EBITDA before charges/gains ratio (1/2)
2.9
** Amounts are per the Unaudited Condensed Consolidated
Balance Sheet as of July 1, 2023.
Six
Months ended Twenty-Six Weeks Ended Twelve Months
Ended December 31, 2022 July 1,
2023 July 1, 2023 Income from continuing
operations, net of tax
$
269.5
$
187.7
$
457.2
Depreciation***
$
42.7
$
38.7
$
81.4
Amortization of intangible assets
25.1
25.2
50.3
Restructuring charges
30.8
25.2
56.0
Other charges/(gains)
2.2
6.2
8.4
ASSA transaction expenses (d)
3.4
17.4
20.8
Solar compensation (e)
1.1
1.3
2.4
Interest expense
66.8
54.6
121.4
Defined benefit plan actuarial gains
(1.3
)
-
(1.3
)
Income taxes
48.2
53.7
101.9
EBITDA before charges/gains (c)
$
488.5
$
410.0
$
898.5
*** Depreciation excludes accelerated
depreciation expense of $2.2 million for the twenty-six weeks ended
July 1, 2023, and $0.1 million for the six months ended December
31, 2022. Accelerated depreciation is included in restructuring and
other charges/gains. NM - Not Meaningful (c) (d) (e) For
definitions of Non-GAAP measures, see Definitions of Terms page
RECONCILIATION OF DILUTED EPS FROM CONTINUING
OPERATIONS BEFORE CHARGES/GAINS For the thirteen weeks
ended July 1, 2023, the diluted EPS before charges/gains is
calculated as income from continuing operations on a diluted
per-share basis, excluding $22.2 million ($16.9 million after tax
or $0.13 per diluted share) of restructuring charges, $6.0 million
($4.6 million after tax or $0.04 per diluted share) of other
charges/gains, $16.4 million ($12.6 million after tax or $0.10 per
diluted share) of expenses directly related to our ASSA transaction
and $0.6 million ($0.5 million after tax) related to the
compensation agreement with the former owner of Solar. For
the twenty-six weeks ended July 1, 2023, the diluted EPS before
charges/gains is calculated as income from continuing operations on
a diluted per-share basis, excluding $25.2 million ($19.2 million
after tax or $0.15 per diluted share) of restructuring charges,
$6.2 million ($4.6 million after tax or $0.04 per diluted share) of
other charges/gains, $17.4 million ($13.4 million after tax or
$0.10 per diluted share) of expenses directly related to our ASSA
transaction and $1.3 million ($1.0 million after tax or $0.01 per
diluted share) related to the compensation agreement with the
former owner of Solar. For the three months ended June 30,
2022, the diluted EPS before charges/gains is calculated as income
from continuing operations on a diluted per-share basis, excluding
$1.0 million ($0.7 million after tax or $0.01 per diluted share) of
restructuring charges, $0.2 million of other charges/gains and $0.6
million ($0.5 million after tax) related to the compensation
agreement with the former owner of Solar. For the six months
ended June 30, 2022, the diluted EPS before charges/gains is
calculated as income from continuing operations on a diluted
per-share basis, excluding $1.6 million ($1.2 million after tax or
$0.01 per diluted share) of restructuring charges, ($4.6) million
(($4.8) million after tax or ($0.03) per diluted share) of other
charges/gains and $1.0 million ($0.8 million after tax or $0.01 per
diluted share) related to the compensation agreement with the
former owner of Solar.
Thirteen Weeks Ended
Three Months Ended Twenty-Six Weeks Ended Six
Months Ended July 1, 2023 June 30, 2022 %
Change July 1, 2023 June 30, 2022 % Change
Earnings per common share (EPS) - Diluted Diluted
EPS from continuing operations (GAAP)
$
0.80
$
1.10
(27
)
$
1.47
$
2.03
(28
)
Restructuring charges
0.13
0.01
100
0.15
0.01
100
Other charges/(gains)
0.04
-
NM
0.03
(0.04
)
(175
)
ASSA transaction expenses (d)
0.10
-
NM
0.10
-
NM
Solar compensation (e)
-
-
-
0.01
0.01
-
-
Diluted EPS from continuing operations before charges/gains (b)
$
1.07
$
1.11
(4
)
$
1.76
$
2.01
(12
)
NM - Not Meaningful (b) (d) (e) For definitions of
Non-GAAP measures, see Definitions of Terms page
FORTUNE
BRANDS INNOVATIONS, INC. (In millions, except per share
amounts) (Unaudited)
Thirteen Weeks
Ended Three Months Ended Twenty-Six Weeks Ended
Six Months Ended July 1, 2023 June 30, 2022
% Change July 1, 2023 June 30, 2022 %
Change Net sales (GAAP) Water
$
617.1
$
650.0
(5
)
$
1,211.3
$
1,293.6
(6
)
Outdoors
375.6
437.2
(14
)
665.5
780.8
(15
)
Security
171.0
168.2
2
326.9
321.2
2
Total net sales
$
1,163.7
$
1,255.4
(7
)
$
2,203.7
$
2,395.6
(8
)
Operating income (loss) Water
$
142.1
$
160.7
(12
)
$
270.5
$
310.0
(13
)
Outdoors
61.2
67.4
(9
)
74.2
107.2
(31
)
Security
(0.4
)
25.1
(102
)
20.8
45.5
(54
)
Corporate expenses
(50.3
)
(33.7
)
49
(81.1
)
(63.4
)
28
Total operating income (GAAP)
$
152.6
$
219.5
(30
)
$
284.4
$
399.3
(29
)
OPERATING INCOME BEFORE
CHARGES/GAINS RECONCILIATION Total operating
income (GAAP)
$
152.6
$
219.5
(30
)
$
284.4
$
399.3
(29
)
Restructuring charges (1)
22.2
1.0
100
25.2
1.6
100
Other charges/(gains) (2)
6.0
0.2
2,900
6.2
(4.6
)
(235
)
ASSA transaction expenses (d)
16.4
-
NM
17.4
-
NM
Solar compensation (e)
0.6
0.6
-
1.3
1.0
30
-
-
Operating income (loss) before charges/gains (a)
$
197.8
$
221.3
(11
)
$
334.5
$
397.3
(16
)
Water
$
143.2
$
161.6
(11
)
$
271.9
$
311.7
(13
)
Outdoors
61.6
68.1
(10
)
76.8
103.3
(26
)
Security
26.6
25.1
6
48.5
45.5
7
Corporate expenses
(33.6
)
(33.5
)
-
(62.7
)
(63.2
)
(1
)
Total operating income before charges/gains (a)
$
197.8
221.3
(11
)
334.5
397.3
(16
)
(1) Restructuring charges, which include costs
incurred for significant cost reduction initiatives and workforce
reduction costs by segment, totaled $22.2 million and $25.2 million
for the thirteen weeks ended and twenty-six weeks ended July 1,
2023, respectively, and $1.0 million and $1.6 million for the three
and six months ended June 30, 2022, respectively. (2) Other
charges/gains represent costs that are directly related to
restructuring initiatives but cannot be reported as restructuring
costs under GAAP. These costs can include losses from disposing of
inventories, trade receivables allowances from discontinued product
lines, accelerated depreciation due to the closure of facilities,
and gains or losses from selling previously closed facilities.
During the thirteen weeks and twenty-six weeks ended July 1, 2023
total other charges were $6.0 million and $6.2 million,
respectively. For the three and six months ended June 30, 2022,
total charges were $0.2 million and total other income of ($4.6)
million, respectively. NM - Not Meaningful (a) (d)
(e) For definitions of Non-GAAP measures, see Definitions of Terms
page
FORTUNE BRANDS INNOVATIONS, INC.
OPERATING MARGIN TO BEFORE CHARGES/GAINS OPERATING MARGIN
(Unaudited)
Thirteen Weeks Ended Three Months
Ended July 1, 2023 June 30, 2022 Change
WATER Operating margin
23.0%
24.7%
(170) bps
Restructuring charges
0.2%
0.2%
Before charges/gains operating margin
23.2%
24.9%
(170) bps
OUTDOORS
Operating margin
16.3%
15.4%
90 bps
Restructuring charges
0.4%
0.1%
Other charges/(gains)
Cost of products sold
(0.5%)
-
Solar compensation (e)
0.2%
0.1%
Before charges/gains operating margin
16.4%
15.6%
80 bps
SECURITY
Operating margin
(0.2%)
14.9%
(1510) bps
Restructuring charges
11.5%
-
Other charges/(gains)
Cost of products sold
4.3%
-
Before charges/gains operating margin
15.6%
14.9%
70 bps
TOTAL COMPANY
Operating margin
13.1%
17.5%
(440) bps
Restructuring charges
1.9%
0.1%
Other charges/(gains)
Cost of products sold
0.5%
-
ASSA transaction expenses (d)
1.4%
-
Solar compensation (e)
0.1%
-
Before charges/gains operating margin
17.0%
17.6%
(60) bps
Operating margin is calculated as the operating
income in accordance with GAAP, divided by the GAAP net sales. The
before charges/gains operating margin is calculated as the
operating income, excluding restructuring and other charges/gains,
divided by the GAAP net sales. This before charges/gains operating
margin is not a measure derived in accordance with GAAP. Management
uses this measure to evaluate the returns generated by the Company
and its business segments. Management believes that this measure
provides investors with helpful supplemental information about the
Company's underlying performance from period to period. However,
this measure may not be consistent with similar measures presented
by other companies. (d) (e) For definitions of Non-GAAP
measures, see Definitions of Terms page
FORTUNE
BRANDS INNOVATIONS, INC. RECONCILIATION OF PERCENTAGE CHANGE
IN GAAP NET SALES TO PERCENTAGE CHANGE IN NET SALES EXCLUDING THE
IMPACT OF AN ACQUISITION AND FOREIGN EXCHANGE
(Unaudited) Thirteen Weeks Ended July 1, 2023
% Change WATER Percentage change in net
sales (GAAP)
(5%)
Impact of Aqualisa Acquisition
(2%)
Impact of FX
1%
Percentage change in net sales excluding impact of an
acquisition and FX
(6%)
Net sales excluding the impact of an acquisition and
the impact of FX on net sales is net sales derived in accordance
with GAAP excluding impact of an acquisition and the effect of
foreign currency on net sales. Management uses this measure to
evaluate the overall performance of its segments and believes this
measure provides investors with helpful supplemental information
regarding the underlying performance of the segment from period to
period. This measure may be inconsistent with similar measures
presented by other companies.
Definitions of Terms:
Non-GAAP Measures (a) Operating income (loss) before
charges/gains is calculated as operating income derived in
accordance with GAAP, excluding restructuring and other
charges/gains. Operating income (loss) before charges/gains is a
measure not derived in accordance with GAAP. Management uses this
measure to evaluate the returns generated by the Company and its
business segments. 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. (b) Diluted earnings per share from
continuing operations before charges/gains is calculated as income
from continuing operations on a diluted per-share basis, excluding
restructuring and other charges/gains. This measure is not in
accordance with GAAP. Management uses this measure to evaluate the
Company's overall performance and believes it provides investors
with helpful supplemental information about the Company's
underlying performance from period to period. However, this measure
may not be consistent with similar measures presented by other
companies. (c) EBITDA before charges/gains is calculated as
income from continuing operations, net of tax in accordance with
GAAP, excluding depreciation, amortization of intangible assets,
restructuring and other charges/gains, 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 the Company. 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. (d) At
Corporate, other charges also include expenditures of $16.4 million
and $17.4 million for the thirteen weeks and twenty-six weeks ended
July 1, 2023, respectively, for banking, legal, accounting, and
other similar services directly related to our ASSA transaction.
(e) In Outdoors, other charges include charges for a
compensation arrangement with the former owner of Solar classified
in selling, general and administrative expenses of $0.6 million and
$1.3 million for the thirteen weeks and twenty-six weeks ended July
1, 2023, respectively. For the three months and six months ended
June 30, 2022, other charges for a compensation agreement with the
former owner of classified in selling, general and administrative
expenses of $0.6 million and $1.0 million, respectively.
Additional Information: In January 2023, the Board of
Directors of the Company approved a change to the Company’s fiscal
year end from December 31 to a 52-or 53-week fiscal year ending on
the Saturday closest but not subsequent to December 31, effective
as of the commencement of the Company’s fiscal year on January 1,
2023. This change was made in order to align the Company’s fiscal
year with that of its operating businesses and to align the
Company’s reporting calendar with how the Company evaluates its
businesses. There was no material impact to any of our previously
disclosed financial information. In February 2023, we
publicly announced an internal reorganization to separate our
Outdoors & Security segment under separate leadership to drive
innovation, accelerate product development, and enhance investments
and business processes. In conjunction with the reorganization, we
changed how our chief operating decision maker evaluates and
allocates the resources for the combined business. Separate
reporting for the new Outdoors and Security segments began in the
first quarter of 2023 and historical financial segment information
has been restated to conform to the new segment presentation.
In the first quarter of 2022, our Plumbing segment was
renamed Water Innovations in order to better align with our key
brands and organizational purpose. The Plumbing segment name change
is to the name only and had no impact on the Company’s historical
financial position, results of operations, cash flow or segment
level results previously reported. In 2018, our Water
Innovations segment entered into a strategic partnership with, and
acquired non-controlling equity interests in, Flo, a U.S.
manufacturer of comprehensive water monitoring and shut-off systems
with leak detection technologies. In January 2020, we entered into
an agreement to acquire the remaining outstanding shares of Flo in
a multi-phase transaction. As part of this agreement, we acquired a
majority of Flo’s outstanding shares during 2020 and entered into a
forward contract to purchase all remaining shares of Flo during the
first quarter of 2022 for a price based on a multiple of Flo’s 2021
sales and adjusted earnings before interest and taxes. On January
30, 2022, we made a final cash payment of $16.7 million to the
legacy minority shareholders to acquire such shares which is
reflected within Other financing, net in our consolidated
statements of cash flows. In January 2022, we acquired 100%
of the outstanding equity of Solar Innovations, a leading producer
of wide-opening exterior door systems and outdoor enclosures, for a
purchase price of $61.6 million, net of cash acquired of $4.8
million. We financed the transaction using cash on hand and
borrowings under our revolving credit facility. The results of
Solar are reported as part of the Outdoors segment. Its
complementary product offerings support the segment’s outdoor
living strategy. In July 2022, we acquired 100% of the
outstanding equity of Aqualisa, a leading U.K. manufacturer of
shower products known for premium, innovative, smart digital shower
systems, for a purchase price of $156.0 million, net of cash
acquired of $4.8 million. The results of Aqualisa are reported as
part of the Water Innovations segment. Its product offerings will
enable us to continue to leverage growing trends in water
management and connected products. We financed the transaction with
borrowings under our existing credit facilities. We have not
included pro forma financial information as it is immaterial to our
condensed consolidated statements of comprehensive income. The fair
value allocated to assets acquired and liabilities assumed as of
July 29, 2022, was $156.0 million. On December 14, 2022, the
Company completed the previously announced spin-off of its Cabinets
business, MasterBrand, Inc. ("MasterBrand") (the "Spin-off"), in a
tax-free transaction to the Company and our stockholders for U.S.
federal income tax purposes, creating two independent, publicly
traded companies. In addition, the Company's name changed from
"Fortune Brands Home & Security, Inc." to "Fortune Brands
Innovations, Inc." and its stock ticker changed from "FBHS" to
"FBIN" each of which became effective subsequent to the completion
of the Spin-off. The operating results of the Cabinets business are
reported as discontinued operations for all periods presented.
For certain forward-looking non-GAAP measures (as used in
this press release, EPS before charges/gains and cash conversion),
the Company is unable to provide a reconciliation to the most
comparable GAAP financial measure because the information needed to
reconcile these measures is unavailable due to the inherent
difficulty of forecasting the timing and/or amount of various items
that have not yet occurred, including the high variability and low
visibility with respect to gains and losses associated with our
defined benefit plans and restructuring and other charges, which
are excluded from our diluted EPS before charges/gains and cash
conversion. Additionally, estimating such GAAP measures and
providing a meaningful reconciliation consistent with the Company’s
accounting policies for future periods requires a level of
precision that is unavailable for these future periods and cannot
be accomplished without unreasonable effort. Forward-looking
non-GAAP measures are estimated consistent with the relevant
definitions and assumptions.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230727941262/en/
INVESTOR AND MEDIA CONTACT: Leigh Avsec 847-484-4211
Investor.Questions@fbhs.com
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