Fortune Brands Innovations, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed February 28, 2023. Results below are continuing operations unless noted. The former Cabinets business, spun off as MasterBrand on December 14, 2022, is presented as discontinued operations for all periods.
Business context
Fortune Brands sells branded home, security and building products through two 2022 segments: Water Innovations and Outdoors & Security. The company renamed itself from Fortune Brands Home & Security and changed its ticker from FBHS to FBIN following the spin-off. In 2022, 80% of sales were in the U.S.; China and Canada each accounted for about 8%. Home Depot and Lowe’s represented 11.7% and 12.0% of company sales, respectively.
Financial results
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Net sales | $4,723.0 million | $4,801.1 million |
| Operating income | $774.3 million | $811.1 million |
| Operating margin | 16.4% | 16.9% |
| Income from continuing operations | $539.9 million | $559.7 million |
| Diluted EPS, continuing operations | $4.11 | $4.01 |
| Net income, including discontinued operations | $686.7 million | $772.4 million |
| Operating cash flow | $566.3 million | $688.7 million |
| Capital expenditures (cash flow statement) | $246.1 million | $214.2 million |
Gross profit was $1,932.9 million, or approximately 40.9% of sales. Continuing-operations sales fell 1.6%; operating income declined 4.5%. Interest expense rose 41.4% to $119.2 million as borrowing costs and average borrowings increased. The effective tax rate was 19.1%, versus 22.9%.
Fourth quarter: Net sales were $1,131.9 million, down from $1,218.0 million in Q4 2021. Continuing-operations income was $128.1 million, compared with $127.5 million. Discontinued-operations results were a loss of $18.4 million, versus income of $47.7 million, including separation-related and other items.
Segments: Water Innovations sales declined 6.9% to $2,570.2 million and operating income declined 2.4% to $614.6 million. Outdoors & Security sales grew 5.5% to $2,152.8 million, while operating income declined 0.8% to $289.6 million.
Liquidity, debt and capital allocation
At year-end, cash and cash equivalents were $642.5 million. Debt had a $2,673.5 million carrying value, including $599.2 million due in 2023; cash less debt was approximately negative $2.03 billion. The company had no revolver borrowings and reported compliance with its credit-facility covenants. Its revolving credit facility provides up to $1.25 billion through August 2027.
Cash flow from operations includes continuing and discontinued operations. Financing included a one-time $940 million cash dividend received from MasterBrand at the separation. Fortune Brands repurchased 7.6 million shares for $580.1 million and paid $145.6 million in dividends during 2022. The board announced a quarterly dividend of $0.23 per share in December.
Material changes, outlook and risks
- Sales and profit faced lower unit volume, distributor inventory reductions, softer demand in China and North America, higher sales incentives, unfavorable foreign exchange, and commodity, freight and labor cost pressure. Pricing and productivity partly offset these effects.
- Separation and transaction costs were $83 million in 2022; $73 million was reported in discontinued operations. The former Cabinets business reported $3,199.7 million of sales and $146.8 million of net income before its separation presentation.
- The company acquired Solar for $61.6 million and Aqualisa for $156.0 million. It agreed to acquire specified ASSA ABLOY businesses for approximately $800 million, subject to regulatory and other conditions, and expected closing in Q2 2023.
- Management expected 2023 capital spending of $250–$300 million, including added decking capacity. It described the housing slowdown as potentially short term, while acknowledging uncertainty around demand recovery.
- Key risks include housing-market and interest-rate sensitivity, ongoing inflation and supply-chain constraints, customer and home-center concentration, competitive pricing, execution of the new operating model and separation, and potential tax or indemnity obligations related to the spin-off. One Outdoors & Security tradename’s fair value exceeded its $111 million carrying value by less than 10%, making impairment assumptions worth monitoring.
- Subsequent reporting changes: three reportable segments—Water Innovations, Outdoors and Security—effective Q1 2023; fiscal year-end changed to the Saturday closest to, but not after, December 31, beginning in 2023.
Key facts for investors to verify
- Compare continuing-operations results on the recast basis and separate them from MasterBrand’s discontinued results and one-time separation costs.
- Track the 2023 maturity of $600 million of notes, funding for the planned $800 million acquisition, and post-transaction leverage and liquidity.
- Assess whether price, productivity and planned capacity investments can offset weaker housing demand, destocking and input-cost pressures.
- Verify completion and terms of the ASSA ABLOY transaction, including required court and regulatory outcomes.
- Monitor impairment headroom, separation-related tax and indemnity exposure, and the effects of the new segment and fiscal-year reporting structure.