Fortune Brands Home & Security (FBHS 45.53, +0.23, +0.51%), which makes Plumbing
(Moen, Perrin & Rowe), Cabinets (MasterBrand), and Doors & Security
(Master Lock, SentrySafe, Therma-Tru doors) products for the home, is trading
higher today despite a fairly large Q4 miss and downside guidance for 2019.
Non-GAAP EPS for Q4 rose 8% yr/yr to $0.86 while revenue rose 2.8% yr/yr to $1.42 bln. Both results were below market expectations. The guidance for 2019 was not much better as FBHS expects non-GAAP EPS of $3.53-3.77, which was below market expectations.
So, what happened? FBHS explained on the call that consumers and channel partners adopted a more cautious stance as 2018 came to an end. They did not place orders as strongly as expected. Plumbing and door products continued to show strength, cabinets saw stability in sales. In plumbing, sales were lapping two years of strong comps, so FBHS was pleased with the +4% growth in segment sales.
Cabinet segment sales were flat in the quarter and it's notable that the value side of the spectrum was stronger than the overall market. The cabinet business is reversing negative trends seen earlier in 2018. FBHS has successfully increased prices and cut back on promotions and it has migrated its supply chain.
The main problem in the quarter was a pullback by the consumer. Our sense is that a big drop in 401K balances put the brakes on some home remodeling plans. A couple of things support this view: the weakness accelerated in the latter part of the quarter (Nov-Dec) when the stock market really took a tumble. Second, that the value part of the cabinet spectrum was the strong area makes us think that consumers wanted to save money.
So, what's the outlook for the US home products market in 2019? FBHS expects modest market growth of +2-4%, with a slower start to the first half. This industry growth rate is slower than FBHS was predicting last year and incorporates the consumer reaction to the interest rate environment, which is stabilizing, the home price inflation which is moderating at higher levels and more modest economic growth.
In sum, the stock is up despite the fairly large miss probably because the overall market is strong today on the jobs data. Perhaps this job data will ease concerns and investors are expecting improvement heading into the spring remodeling season. Also, the stock has been under pressure for much of the past year, so perhaps investors were expecting weak results.
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