Fortune Brands Innovations Q3 Earnings Call Highlights

Key Points

• Third-quarter results weakened: Sales fell 3.1% to $1.1 billion, operating income declined 24.6% to $156 million, and operating margin contracted 390 basis points to 14%. Softer construction demand, service issues and margin pressure weighed on results, though tariff refunds and a tax benefit boosted reported earnings.
• Fortune Brands lowered its outlook: It expects 2026 sales of $4.205 billion to $4.275 billion and EPS of $3.20 to $3.30, citing weaker construction, lower channel inventory and planned business exits.
• A turnaround plan targets savings and improved execution: Portfolio changes and organizational realignment are expected to deliver more than $120 million in annual benefits by the end of 2027. Management is also working to improve customer service and pricing, with a long-term goal of exceeding 20% underlying EBITDA margin.

Fortune Brands Innovations NYSE: FBIN reported third-quarter results that were pressured by softer new-construction demand, service challenges and margin compression, while outlining a multiyear “Back to Business” plan intended to improve execution, simplify its portfolio and expand profitability.

Chief Executive Officer Jesse Singh, who completed his first full quarter in the role, said the company’s core brands—including Moen, House of Rohl, Therma-Tru, Larson, Master Lock and Yale—retain strong market positions. However, he said customers have called for more reliable service, closer collaboration, stronger marketing and faster product development.

“Our job now is to execute,” Singh said. “It will take time, and our results over the next several quarters will reflect a company in the middle of that work.”

Third-quarter sales and profit declined

Total third-quarter sales were $1.1 billion, down 3.1% from the prior-year period. Operating income before charges and gains was $156 million, down 24.6%, while operating margin declined 390 basis points to 14%. Earnings per share were $1.14.

The quarter included $18 million of operating-income benefit, or $0.14 per share, from net tariff refunds. The company also recorded a $33 million net tax benefit, equal to $0.28 per share, related to an internal restructuring intended to simplify the legal entity structure of its European operations. Excluding those discrete items, the underlying third-quarter tax rate was about 24.4%, according to CFO Pete Clifford.

Water segment sales fell 5.5% to $584 million, or 4.3% excluding China. The business was affected by service levels, softer retail demand and further weakening in wholesale new-construction demand during September. E-commerce growth partially offset those pressures.

Water operating income declined 31.8% to $103 million, and margin fell 680 basis points to 17.6%. Clifford said the margin decline reflected unfavorable price-cost dynamics, volume deleverage and higher costs to serve customers. He said roughly half of the margin pressure was tied to price-cost, about one-quarter came from lower fixed-cost absorption, and the remainder reflected costs such as overtime and air freight used to improve service.

Clifford said the company does not expect Water to be fully price-cost neutral until late in the first quarter of 2027, or potentially the start of the second quarter. Singh said the company identified gaps in price realization through a SKU-by-SKU review and sees pricing and mix management as an area for improvement.

Outdoors and Security showed mixed trends

Outdoors sales increased 0.8% to $347 million. Excluding Fiberon, which the company has agreed to sell, sales rose 3.4%, aided by favorable channel-inventory comparisons and higher price realization. The increase was partly offset by softer new-construction demand in wholesale, primarily at Therma-Tru.

Outdoors operating income was unchanged at $53 million, while operating margin declined 20 basis points to 15.3%. The company cited lower volumes and higher material and freight costs, partly offset by favorable mix. Larson in particular faced margin pressure from higher aluminum and freight costs, and management said it has actions underway to improve its price-cost position.

Security sales fell 2.4% to $182 million, primarily due to retail and e-commerce declines associated with service challenges. Commercial-channel growth and increased Yale penetration among multifamily customers partially offset the declines.

Security operating income rose 16.9% to $39 million, with margin increasing 350 basis points to 21.3%. Tariff refunds contributed roughly 715 basis points to segment margin, while higher service costs and a SKU-rationalization inventory adjustment partly offset that benefit.

Portfolio actions and organizational overhaul

Singh said Fortune Brands is reorganizing around four pillars: creating customer-focused business units, optimizing the portfolio, building a business-led growth engine and expanding margins while maintaining growth investments.

The company is unwinding much of its previous centralization, with more salaried employees being assigned directly to businesses or geographies. About 40% of salaried employees had such alignment earlier this year, and the company expects that figure to exceed 80% by year-end. Service levels improved by 10 percentage points during the quarter, with fill rates reaching the high-90% range entering the fourth quarter.

Fortune Brands also announced several portfolio actions:

• It signed an agreement on Oct. 15 to sell Fiberon decking for $160 million, with closing expected before year-end.
• It plans to exit commercial operations serving China’s domestic market while retaining manufacturing, research and development, and sourcing capabilities supporting North American markets. The restructuring is expected to be completed by the end of the third quarter of 2027.
• It plans to rationalize the European, Middle East and Africa operating footprint of a Water business by the fourth quarter of 2027.

The affected businesses collectively generate annual operating losses of approximately $50 million to $55 million on revenue of $320 million to $330 million, management said. Fortune Brands expects the actions to become fully beneficial at a run-rate level by the end of 2027, although they may create near-term headwinds through that year.

The company also expects organizational realignment to produce $70 million of annualized SG&A savings by the first quarter of 2027. Singh said the announced actions are expected to deliver more than $120 million of annual benefit as the company exits 2027.

Guidance reduced amid weaker construction outlook

For the fourth quarter, Fortune Brands forecast sales of $925 million to $995 million and earnings per share before charges and gains of $0.19 to $0.29. For full-year 2026, it expects sales of $4.205 billion to $4.275 billion and EPS of $3.20 to $3.30.

Clifford said the lowered outlook reflects approximately $20 million of sales pressure from businesses being sold or exited, about $25 million from weaker market conditions—primarily single-family construction—and roughly $55 million from reduced channel inventory. The company is deliberately managing channel inventory more conservatively as customer sentiment has become more cautious.

Management said it expects the first half of 2027 to remain affected by the China exit and the timing of the Water EMEA rationalization. The company expects the turnaround to become more apparent in the fourth quarter of 2027, when the portfolio actions, SG&A savings and improved price-cost recovery are expected to be more fully reflected.

Fortune Brands’ longer-term target is to exceed 20% underlying EBITDA margin while delivering above-market growth. Clifford said management views the core business, excluding major one-time items and portfolio-related effects, as currently operating at mid-teens operating margins and high-teens EBITDA margins.

About Fortune Brands Innovations (NYSE:FBIN)

Fortune Brands Innovations, Inc is a manufacturer and marketer of products used in residential construction, remodeling and commercial applications. The company operates through businesses focused on water management, outdoor living and home safety and security.

Its portfolio includes plumbing products under brands such as Moen and House of Rohl; doors and related products marketed through Therma-Tru; composite decking and outdoor-living products from Fiberon; and locks, safes and security products sold under Master Lock and SentrySafe.

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