Fortune Brands Innovations reported third-quarter 2026 net sales of $1.11 billion, down 3.1% from a year earlier, and unveiled a multi-year “Back to Business Turnaround Plan” in its earnings presentation on November 3. The company cited softer housing demand and execution challenges across its businesses. Excluding China operations, sales declined 2.4%.
Operating income before charges fell 24.6% to $155.5 million, while the operating margin contracted 390 basis points to 14.0%. Management attributed the pressure to pricing that lagged inflation, lower volumes and higher costs to serve customers. Adjusted earnings per share were $1.14, including $0.42 from non-recurring items: tariff refunds and a European tax restructuring benefit.
Water, the company’s largest segment, recorded a 5.5% sales decline to $584.5 million. Service issues, weaker retail demand and slower wholesale new construction weighed on results. Its operating margin fell 680 basis points to 17.6%, despite a 135-basis-point benefit from tariff refunds. Management said pricing in the segment had fallen short of inflationary levels.
Outdoors sales rose 0.8% to $347.4 million, or 3.4% excluding Fiberon, the decking business being divested. Its operating margin slipped 20 basis points to 15.3%, as higher material and freight costs and lower volume offset favorable mix. Security sales declined 2.4% to $181.8 million, while its operating margin expanded 350 basis points to 21.3%. That margin included a 715-basis-point benefit from tariff refunds, partly offset by an inventory adjustment and higher service costs.
The company announced three portfolio actions with a combined annualized impact of $320 million to $330 million in sales and $50 million to $55 million in operating losses. Fortune Brands agreed to sell Fiberon for $160 million, with the deal expected to close before the end of 2026. It also plans to exit commercial operations serving China’s domestic market while retaining capabilities supporting North American end markets, and to restructure the EMEA footprint of a Water business. Those changes are targeted for completion by the end of Q3 2027 and Q4 2027, respectively. The company expects the actions to improve earnings and margins, with full run-rate benefits by the end of 2027.
The turnaround plan calls for realigning functions into customer-focused business units, optimizing the portfolio, developing growth in commercial and repair-and-remodel markets, and improving margins while maintaining investment. Fortune Brands is targeting $70 million in annualized SG&A savings by Q1 2027 and more than $120 million in annual benefits as it exits 2027. It said the savings would help fund investment in people, technology, product development and commercial capabilities.
Fortune Brands ended the quarter with $231 million in cash and total liquidity of $1.3 billion. Net debt declined to $2.1 billion from $2.3 billion in the previous quarter, and its net debt-to-EBITDA ratio improved to 2.5 times from 2.7 times. Free cash flow was $331 million, up $154 million year over year. The company returned $71 million to shareholders through repurchases and dividends, and lowered its 2026 capital expenditure range to $90 million-$100 million from $110 million-$125 million.
The company now expects 2026 net sales of $4.205 billion-$4.275 billion and adjusted EPS of $3.20-$3.30. Its revised assumption for U.S. single-family new construction is a mid-to-high-single-digit decline. Fortune Brands forecast operating cash flow of $480 million-$500 million and free cash flow of $380 million-$410 million. Its tax-rate assumption was lowered to 18%-19%, reflecting the European restructuring benefit.
For the fourth quarter, the company expects net sales of $925 million-$995 million and adjusted EPS of $0.19-$0.29. The earnings outlook reflects weaker core markets, channel inventory normalization, portfolio actions and the absence of the tariff refunds that benefited the third quarter. Management described 2027 as a rebuilding year, with the effects of execution improvements, cost measures and portfolio changes expected to become more visible later in the year.
Sources: Investing.com News.