Fortune Brands Delivers Solid Sales and Strong Margin Results Amid Dynamic Macro Environment; Increases Full-Year 2023 Guidance

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.

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.

Contact:

Leigh Avsec – Media Contact – Investor.Questions@fbhs.com – (847) 484-4211

Source: Fortune Brands Innovations, Inc.