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Fortune Brands Innovations, Inc. (FBIN)·Q3 2024 Earnings Summary

Executive Summary

  • Revenue declined to $1.155B (-8% YoY), but margins expanded materially; operating margin before charges/gains rose to 18.7% (+130 bps YoY), and GAAP operating margin was 17.8%; GAAP EPS was $1.09 (+2% YoY) and EPS before charges/gains was $1.16 (-3% YoY) .
  • Segment margin execution was strong: Outdoors margin before charges/gains reached 18.0% (+320 bps YoY) and Security reached 19.3% (+250 bps YoY), despite sales headwinds from wholesale decking destocking and consumer softness .
  • Full-year 2024 guidance was lowered: net sales to flat–+1% (from +2.5%–+4.5%), EPS before charges/gains to $4.17–$4.23 (from $4.25–$4.35), CFO/FCF trimmed; Outdoors margin guidance raised, Security margin guidance raised, Water margin guidance modestly trimmed; tax rate lowered to ~22.25%–22.5% .
  • Digital products are a medium-term catalyst: ~225,000 device activations in Q3; ~20,000 new Flo users; agreements now cover ~8M policyholders with a pipeline of >$160M at a conservative 5% conversion, though conversion/ramp capacity is the near-term gating factor .
  • Street estimates: S&P Global consensus data was unavailable at the time of writing; call commentary suggests results were below expectations across segments due to choppy demand and hurricanes (cannot quantify beat/miss) .

What Went Well and What Went Wrong

What Went Well

  • Margin expansion in a soft environment: total operating margin before charges/gains rose to 18.7% (+130 bps YoY), with Outdoors +320 bps and Security +250 bps; management executed productivity and mix priorities while continuing strategic investment .
  • Digital portfolio acceleration: ~225,000 new device activations in Q3; ~20,000 Flo users added; total digital users ~4.5M; new partnerships with insurers and integrations (ADT, ecobee, Airbnb) expand distribution and future recurring/data monetization potential .
  • Cash generation and capital returns: Q3 operating cash flow $205.3M and free cash flow $175.6M; $35M repurchased in Q3 ($190M YTD), leverage improved to 2.5x net debt/EBITDA .

What Went Wrong

  • Top-line pressure: revenue fell 8% YoY; organic sales ex-China down ~5%; POS excluding China down low-single digits; China sales down >40% in Water; decking down >30% due to wholesale channel destock .
  • Security demand/competition: organic sales down ~12% on consumer softness and trade-down to noncompliant private label brands; management launched campaigns to counter misleading claims and increased promotions .
  • Guidance cut on macro/weather: FY net sales and EPS before charges/gains lowered due to choppy demand, hurricane impacts (POS down >25% in affected states) and channel inventory reduction, partially offset by digital water strength .

Financial Results

Company Financials vs Prior Year and Prior Quarter

MetricQ3 2023Q2 2024Q3 2024
Revenue ($USD Billions)$1.261 $1.240 $1.155
GAAP Operating Margin (%)15.6% 16.1% 17.8%
Operating Margin Before Charges/Gains (%)17.4% 17.4% 18.7%
GAAP EPS ($)$1.07 $1.06 $1.09
EPS Before Charges/Gains ($)$1.19 $1.16 $1.16

Quarterly Trajectory (Q1–Q3 2024)

MetricQ1 2024Q2 2024Q3 2024
Revenue ($USD Billions)$1.110 $1.240 $1.155
GAAP Operating Margin (%)14.0% 16.1% 17.8%
Operating Margin Before Charges/Gains (%)15.1% 17.4% 18.7%
EPS Before Charges/Gains ($)$0.83 $1.16 $1.16

Segment Breakdown

SegmentNet Sales ($USD Millions) Q3 2023Net Sales ($USD Millions) Q2 2024Net Sales ($USD Millions) Q3 2024Operating Margin Before Charges/Gains (%) Q3 2023Operating Margin Before Charges/Gains (%) Q2 2024Operating Margin Before Charges/Gains (%) Q3 2024
Water Innovations$688.0 $659.6 $635.1 24.2% 23.3% 24.6%
Outdoors$366.4 $389.4 $342.7 14.8% 16.3% 18.0%
Security$206.8 $191.0 $177.5 16.8% 18.9% 19.3%

KPIs and Cash/Balance Sheet

KPIQ2 2024Q3 2024
Operating Cash Flow ($USD Millions)$261.5 $205.3
Free Cash Flow ($USD Millions)$222.7 $175.6
Net Debt ($USD Billions)$2.548 $2.433
Net Debt/EBITDA (x)2.6x 2.5x
Cash ($USD Millions)$352.6 $344.8
Share Repurchases ($USD Millions)$55 $35
Digital Device Activations (units)~200,000 ~225,000
New Flo Users (units)~20,000 ~20,000

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Global marketFY 2024-3% to -1% -3.5% to -1.5% Lowered
U.S. marketFY 2024-1% to flat -1% to flat Maintained
U.S. R&RFY 2024-4% to -3% -4% to -3% Maintained
U.S. SFNCFY 20248% to 10% 7% to 9% Lowered
China marketFY 2024-20% to -15% -20% to -15% Maintained
Net sales (Total Company)FY 2024+2.5% to +4.5% Flat to +1% Lowered
Organic net sales (Total Company)FY 2024-2% to flat -4.5% to -3.5% Lowered
Operating margin before charges/gains (Total Company)FY 202417.0% to 17.5% 17.0% to 17.25% Slightly narrowed down
EPS before charges/gainsFY 2024$4.25 to $4.35 $4.17 to $4.23 Lowered
Cash flow from operationsFY 2024~ $700M ~ $650M Lowered
Free cash flowFY 2024~ $500M ~ $475M Lowered
Cash conversionFY 2024~100% ~100% Maintained
Water net salesFY 2024+2.5% to +4.5% +1% to +1.5% Lowered
Water organic net salesFY 2024-4% to -2% -5% to -4.5% Lowered
Water operating margin before charges/gainsFY 2024~24% ~23.5% Lowered
Outdoors net salesFY 2024+2% to +4% Flat to +1% Lowered
Outdoors operating margin before charges/gainsFY 202414.5% to 15.5% 16.0% to 16.5% Raised
Security net salesFY 2024+5% to +7% -2% to -1% Lowered
Security organic net salesFY 2024-3% to -1% -10% to -9% Lowered
Security operating margin before charges/gainsFY 202415.5% to 16.5% 16.5% to 17.0% Raised
Corporate expenseFY 2024$143M–$148M $149M–$151M Raised
Interest expenseFY 2024$122M–$124M $122M–$124M Maintained
Other income/(expense)FY 2024~ $5M ~ $7M Raised
CapexFY 2024~ $200M ~ $175M Lowered
Tax rateFY 202423.25%–23.5% 22.25%–22.5% Lowered
Share countFY 2024~126M ~126M Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2024)Current Period (Q3 2024)Trend
Digital/Connected products>200k activations in Q1; ~200k in Q2; insurer, municipal partnerships (e.g., Farmers, CA WE) and ADT tie-up; aiming for >150 bps growth contribution in 2H’24 ~225k activations; ~20k Flo users added; ~4.5M users; ~8M policyholders under contract, pipeline >$160M at 5% conversion; integrations with ADT, ecobee, Airbnb Accelerating adoption; conversion/capacity ramp is the bottleneck before revenue flows .
Supply chain/tariffsOngoing optimization; China COGS exposure reduced; dual-sourcing strategy China COGS exposure down to <25% from >50% in 2018; U.S. ~40–50% of COGS; ready to flex if tariffs rise Improved resilience; potential tariff hikes viewed as manageable with network flexibility .
R&R demandStabilized but below prior year; POS mixed; cautious consumer POS excluding China down low-single digits; management sees pent-up demand and expects 2025 inflection weighted to 2H Near-term soft; cautious outlook, potential improvement with rate declines .
Single-family new constructionRaised FY guidance in Q2; Moen/Therma-Tru tailwinds from starts/completions and builder wins Builders resilient; doors flat with strength; hurricane near-term headwind, rebuilds expected in 2025 Tailwind continues, offset by Q4 hurricane impacts .
ChinaWeakness continued; transitioning to R&R; mid- to high-single digit margin in Q2 Water China sales down >40%; macro uncertainty; business resized, low bottom-line risk; optionality for future Persistent headwind; risk contained .
Product performance (Outdoors)Doors strong; decking wholesale up low-single digits in Q2; retail softer Decking sales down >30% on wholesale destock; POS down mid-single digits; margin +320 bps YoY; improving POS into Q4 Transitory destock; margins strong; early signs of POS improvement .
Regulatory/legal/complianceNANoncompliant private label competition making false claims (fire/water safety); campaigns to educate consumers Risk mitigation underway; early POS improvements .
PartnershipsFarmers Insurance, CA water efficiency partnership, ADT in Q2; Meritage Homes exclusive plumbing supplier (Moen) in Q3 period Expanded insurer/municipal coverage; ongoing discussions with utilities; continued integrations Strengthening ecosystem/channel access .

Management Commentary

  • “We again delivered margin expansion despite the unfavorable macroeconomic environment…focused on a key set of strategic priorities…which we expect will drive our future growth once demand inflects positively.” — CEO Nicholas Fink .
  • “Total company operating margin improved to 18.7% and earnings per share were $1.16, down 3%…Free cash flow in the quarter was $176 million.” — CFO David Barry .
  • “We currently have agreements in place covering approximately 8 million policyholders…at a conservative 5% conversion…the potential sales pipeline for Flo is over $160 million.” — CEO Nicholas Fink .
  • “Regarding the impact of the hurricanes, we see the impact most acutely in our Moen and Doors businesses with POS in impacted states down more than 25% since the hurricane.” — CFO David Barry .

Q&A Highlights

  • Guidance drivers: CFO quantified ~3 pts consolidated sales guidance cut; ~$80M impact occurred in Q3, ~$55M in Q4 with ~half hurricane-related and ~half continued POS softness; still expects Q4 margin ~100 bps improvement and high-single to low-double-digit EPS growth .
  • Margin mechanics: Outdoors margin strength from doors volume and continuous improvement; Security benefitted from footprint optimization and cost savings, enabling reinvestment in brands/innovation .
  • Digital conversion/ramp: Pipeline and POS ahead, sales conversion behind prior expectations; targeted investment to cut time-to-revenue from ~3 months to ~3 weeks; some Yale channel inventory headwind viewed as one-time .
  • Competition/compliance: Impact from noncompliant private-label competitors most acute in Security; campaigns highlight performance (e.g., fire/waterproof safes testing); early POS turnaround observed .
  • China outlook: Uncertain bottom timing; business resized with low bottom-line risk; retains growth/innovation optionality .

Estimates Context

  • S&P Global consensus estimates for Q3 2024 (EPS, revenue, EBITDA, targets) were unavailable due to API limit constraints at time of writing; cannot quantify beat/miss vs consensus. Values would typically be retrieved from S&P Global, but were not accessible at this time.
  • On the call, an analyst noted results appeared below expectations across segments, citing a more challenging operating environment; management attributed variance to weaker summer consumer demand, capacity ramp timing for digital conversions, and trade-down effects in certain categories .
  • Where estimates may adjust: FY EPS before charges/gains cut to $4.17–$4.23 and net sales cut to flat–+1% likely prompt downward estimate revisions, partly offset by stronger margin trajectory and digital pipeline momentum .

Key Takeaways for Investors

  • Margin execution remains the anchor: despite -8% revenue, operating margin before charges/gains reached 18.7%; segment margin expansion broad-based, supporting earnings durability in soft demand .
  • Guidance reset embeds near-term headwinds: hurricanes, channel inventory actions, and cautious consumers drove lower FY net sales/EPS/CFO/FCF outlook; watch Q4 trajectory and rebuild-related demand in 2025 .
  • Digital monetization is a strategic torque lever: insurer/municipal agreements and platform integrations expand TAM; the immediate focus is accelerating conversion and capacity to translate pipeline into revenue .
  • Outdoors destock is transitory: wholesale decking inventory actions pressured Q3 sales, but POS trends improved and margins expanded materially; doors remain supported by SFNC fundamentals .
  • Security brand defense underway: campaigns and promotions counter noncompliant competitors; margin progress gives room to reinvest in marketing and innovation for sustained recovery .
  • Balance sheet flexibility: net leverage improved to 2.5x; continued FCF generation and opportunistic buybacks provide capital allocation options into the recovery .
  • Medium-term setup: management expects U.S. demand to inflect positively in 2025, weighted to 2H, with above-market growth from core and digital, and meaningful margin progress contingent on reinvestment pacing .

Other Relevant Press Releases (Q3 period)

  • Moen extended its exclusive plumbing partnership with Meritage Homes (5th-largest U.S. public builder), reinforcing brand position and exposure to energy-efficient, new-home tailwinds .