Fortune Brands Call with Investor Relations
FBHS
May 11, 2022
Do you believe the Cabinet business is holding back your valuation?
That’s part of the reason we are doing the spin. For years, we’ve had conversations with investors about the sum-of-the-parts story. So that is part of it. But there is also an operational turn around. 3 years ago, brought in Dave Banyard and he has turned around the business. Historical performance had not been good, but it is doing very well now, much better than its peers. Previously were focused too much on higher end cabinets, but came down into more value based cabinets. Will work on continued improvement and margin expansion.
Some would say American Woodmark (AMWD) is the best comp, but it is a really poorly run company with lower profitability. There have been many management changes at American Woodmark.
Think the spin-off will deserve to trade at a 30% to 40% premium to AMWD.
Will the spin-off pay a dividend?
No will not initially. The spin-off will be levered at 1.5x to 3.0x initially, and will have to spend to stand up the new company. As such, a dividend is unlikely to start.
What are the best comps for RemainCo?
Lazy analysis would say Masco Corp (MAS) but don’t know if that’s necessarily correct. Masco has the Delta faucet brand and so that’s why analysts think of them (Fortune Brands has Moen). Masco also has some paint and lighting stuff. More commodity focused products. Masco is more focused on home remodeling.
On the Water side, in addition to MAS, we track Pentair, AO Smith, Watts, Xylem, Zurn, and Geberit. On the outdoors & security side, we track Assa, Allegion, James Hardie, Trex, and Azek.
Any estimate for dissynergies?
Will cost ~$20MM to stand up the new company.
Anything else worth noting?
Have a fiduciary obligation to maximize shareholder value so will entertain acquisition offers, but it would have to be a very nice offer as the current plan is a tax free spin-off.
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