An increasing portion of Americans’ net worth is in their homes, making them even more interested in upgrading than they were before the pandemic. The combination of economics and pandemic-related lifestyle changes also mean that homeowners have greater incentives to renovate. To achieve that balance, developers will have to build more units. The housing market is severely undersupplied, with only two months worth of existing homes for sale, less than half the inventory needed to keep the market in balance.
The bigger problem is that there aren’t enough homes for sale-a near-term pressure for Fortune that’s likely to become a longer-term opportunity. The broader housing market has been slowing as mortgage rates rise above 5% and some buyers get turned off by high prices. “We expect operating margin to expand sequentially across the balance of the year,” Fink said on Fortune’s latest earnings call. In the coming quarter, the bulk of those price hikes should hit Fortune’s bottom line just as some of the supply-chain problems are diminishing. Those problems caused its operating margin to fall to 13% in the first quarter, from 14.8% a year earlier.īut Fink says those pressures are starting to wane, and that the company has been able to pass along cost increases to consumers. Fortune sources materials from around the world, and has dealt with some of the same supply-chain and inflation-related issues that have hurt other companies. Getting to that higher valuation will mean persevering through some tricky times. One that can monitor the entire house for leaks or pump out water for a baby’s bottle at the perfect temperature is worth quite a bit more. A plumbing system that’s just pipes isn’t worth a premium. Fortune’s products in those areas are innovative and fetch higher prices. Outdoors and security brands increased sales by 44%. In 2021, its plumbing brands (now called “water innovations”) saw 25% sales growth. The company’s other divisions have potential for more organic growth, with or without a major boost from housing. ” Wojs believes that the focus on cabinets ends up pulling down the valuation of the rest of the company. “I think the cabinet business is a good business, but investors tend to spend an inordinate amount of time. “Investors have wanted them to spin it off for a while,” says Baird analyst Timothy Wojs. In 2021, cabinets sales grew 16%, slower than Fortune’s other divisions.īut the spinoff is also about the shareholder base. The cabinets business is likely to grow in conjunction with the housing market, giving it a cyclical trading pattern that’s vulnerable to downturns. The business rationale for the split is that the capital can be more efficiently allocated if the cabinet division-which has a different growth trajectory than Fortune’s other divisions-operates independently. Fortune now gets about 40% of its revenue, or about $3 billion a year, from sales of cabinets. The next spinoff, which is likely to happen in 2023, involves splitting the company’s cabinetry division into a publicly traded company owned by Fortune shareholders. Shares are down 32% this year, to a recent $72.98.įortune now owns well-known home brands like Moen plumbing fixtures, Master Lock, and Omega cabinets. Lately, Fortune stock has sold off along with other housing-related names, on fears that interest-rate hikes will sink its business.
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“Given our history, we know how to do these and we do them well,” says CEO Nicholas Fink. That spin was extremely successful, as Fortune Brands has grown earnings per share at a 24% compound annual growth rate since then, versus 7% for the The company was born from a spinoff a little over a decade ago, when it was part of a conglomerate that also sold Jim Beam liquors and Titleist golf balls. Fortune (ticker: FBHS) is no stranger to spinoffs.