Fortune Brands Home & Security, Inc. — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed February 28, 2022. Although the request identifies 2021 Q4, this filing reports annual results, not standalone fourth-quarter results. The filing names the registrant as Fortune Brands Home & Security, Inc.; it does not identify it as Fortune Brands Innovations, Inc.
Business context
The company sells branded plumbing products, outdoor and security products, and cabinets, principally in North America and China. Its three segments are Plumbing, Outdoors & Security, and Cabinets. The Larson acquisition contributed to 2021 results; Flo was consolidated beginning January 2021, with its full acquisition completed in January 2022.
Key financial metrics
| Metric | FY 2021 | FY 2020 | Change |
|---|---|---|---|
| Net sales | $7,656.1 million | $6,090.3 million | +25.7% |
| Operating income | $1,090.4 million | $801.4 million | +36.1% |
| Operating margin | 14.2% | 13.2% | +1.1 percentage points |
| Net income attributable to Fortune Brands | $772.4 million | $553.1 million | +39.7% |
| Diluted EPS | $5.54 | $3.94 | +40.6% |
| Cash from operating activities | $688.7 million | $825.7 million | −$137.0 million |
| Capital expenditures | $214.2 million | $150.5 million | +$63.7 million |
Gross margin was approximately 35.9%, versus 35.5% in 2020. Cash and cash equivalents were $471.5 million at year-end. Current assets were $2,744.5 million and current liabilities $1,971.1 million (current ratio approximately 1.39). Total debt was $2,709.8 million, including $400 million current debt; long-term debt was $2,309.8 million. The company reported covenant compliance and no debt defaults.
Segment sales were Plumbing $2,761.2 million (+25.4%), Outdoors & Security $2,039.9 million (+43.7%), and Cabinets $2,855.0 million (+15.6%). Segment operating income was $629.7 million, $291.9 million, and $279.3 million, respectively.
Changes versus prior comparable period
- Sales growth reflected higher volume, price increases, favorable mix and approximately $63 million of favorable foreign exchange, along with $403.4 million of Larson sales. Higher promotions and volume rebates partly offset growth.
- Operating income rose on greater sales, Larson, productivity improvements, no repeat of 2020’s $22.5 million intangible impairment, and lower restructuring charges. Cost inflation in commodities, labor and transportation, as well as tariffs and higher advertising, rebates and amortization, offset some gains.
- Operating cash flow declined as inventory investment increased to manage supply uncertainty and receivables rose with sales growth; higher net income partly offset these effects.
- Net cash used in investing was $207.1 million, versus $923.5 million in 2020, when the Larson acquisition drove substantial outflows. Net cash used in financing was $428.6 million, versus $111.6 million provided in 2020, reflecting higher repurchases and lower net borrowing.
Outlook, risks and unusual items
- Management forecast 2022 capital spending of $375–$425 million, including capacity investment in decking. It expected approximately $10 million of pension contributions in 2022. The filing provides no clear consolidated 2022 sales or earnings guidance.
- Management cited home repair and remodeling market growth of approximately 14% and new housing construction growth of approximately 11% in 2021 versus 2020. It noted that demand, housing activity, inflation, interest rates, labor and supply availability could affect future performance.
- Key risks include housing-market sensitivity, customer and channel concentration (Home Depot and Lowe’s represented 14% and 16% of consolidated sales, respectively), supply-chain disruption, commodity and freight inflation, labor constraints, tariffs, COVID-19 impacts, cybersecurity, foreign exchange, litigation and environmental matters.
- 2021 restructuring and other charges were $20.7 million before tax. Flo-related items included a $4.5 million non-cash remeasurement loss and $2.2 million mark-to-market expense. No intangible-asset impairment was recorded in 2021; prior-year impairment charges totaled $22.5 million.
- Capital returns included $447.7 million of share repurchases (4.7 million shares), $143.0 million of dividends paid, and a December 2021 increase in the quarterly dividend to $0.28 per share. Remaining repurchase authorization was approximately $414.7 million.
- The $400 million variable-rate term loan matures in November 2022; management intended to repay or refinance it by maturity. The filing also reports $959.1 million in purchase obligations, $900.3 million due within one year.
- The independent auditor reported effective internal control over financial reporting. Its critical audit matter concerned valuation assumptions in quantitative impairment testing of certain indefinite-lived tradenames.
Important facts for investors to verify
- Confirm the registrant and ticker against the intended issuer: the filing is for Fortune Brands Home & Security, Inc. (FBHS), not a registrant named Fortune Brands Innovations, Inc.
- Review subsequent housing demand, order trends, pricing and the extent to which sales growth depends on acquired revenue and price increases.
- Track whether input-cost inflation, freight, labor and supply constraints affect margins, working capital and cash conversion.
- Assess refinancing or repayment of the November 2022 term loan, upcoming note maturities, and liquidity after planned capital spending and shareholder returns.
- Monitor the sensitivity of goodwill and tradename valuations to forecasts, discount rates and housing-market assumptions, as well as the outcome of tax examinations and ordinary-course contingencies.