Fortune Brands Home & Security, Inc. (NYSE:FBHS) Q2 2019 Earnings Conference Call Transcript

Aug 01, 2019 • 04:30 pm ET

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Fortune Brands Home & Security, Inc. (NYSE:FBHS) Q2 2019 Earnings Conference Call Transcript

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Presentation
Executive
Christopher Klein

in a solid position to grow in the second half of the year and into 2020 as the market begins to reaccelerate.

I'm going to first take you through our updated view of the US home products market. Next, I will provide my perspective on our business performance in the second quarter. Then Nick Fink, our President and Chief Operating Officer, will provide some insights into how we are driving our businesses for growth and performance improvement, followed by Pat, who will provide more details on our second quarter and 2019 outlook.

Starting with our updated view of the US home products market. In the second quarter, the market for our home products was softer and came in below even the moderate pace we had planned for. We estimate that the market for our products grew below 2% in the quarter with the repair and remodel market growing around 3%.

The construction spending on our product categories was approximately flat as our business typically lags starts activity by a quarter or so, and we continue to feel some impact from the weak industry performance at the start of the year.

In terms of the quarter, we started out with an April that was in line with our weaker outlook, followed by a very wet and soft May. June orders were an improvement from the trend, but overall, the market in the second quarter for our products was weaker than expected. We are now seeing some signs of the building season extending out later in the year and see indicators of stronger consumer demand for housing.

Order rates have been healthier late June and into July, and while the slow ramp-up we are seeing now is one we would have expected to see back in late April and May, the data is pointing to a modest pickup in market growth in the second half of 2019. Solid ramp-up in building product demand will only begin to show up in our results later in the third quarter and should primarily benefit the fourth quarter and set us up for a solid start in 2020. Now let me provide some perspective on our business performance in the second quarter.

In the second quarter, sales increased 5% in total and 6%, excluding FX. On the top line, we performed well given the market, particularly outside of Canada, where the market continued to trend lower in the period. Total Company sales growth, excluding Canada, was up 7%. Total Company operating margin was 14.1%. This was a solid result in light of the softer market, continued tariffs at the 25% level, the investments we are making related to our Cabinet business, mostly in Mexico, and incremental expense to support the additional capacity in doors and Fiberon.

Overall, our performance in the quarter was driven by a tough posture on cost management as we work to offset the market. Solid growth in margins in Plumbing and strong sales of value cabinets were offset by weaker trends in