Fortune Brands Spin-off (Cabinet Biz) Notes

December 17, 2022 Update

– Good overview. I think it looks cheap but want to wait for indiscriminate selling to end before potentially getting involved

May 27, 2022 Update

Fortune Brands: Cheap With A Potential Catalyst In The Form Of Upcoming Spin-Off

– Author makes a good case that Fortune Brands is a good long-term stock.

May 6, 2022 Update

Fortune Brands (FBHS) has announced that it will separate into two individual publicly traded companies through a spin-off of their Cabinets business ($2.9BN of sales), one of their three main operating segments. The remaining company will consist of their Water Innovation, and Outdoors & Security segments ($4.8BN of sales). Here is the slide deck for the transaction.

As the business stands today (pre break up), it is very cyclical with about 40% of the Cabinets business exposed to new residential housing. With the spin-off, the RemainCo, comprised of the Water Innovations and Outdoor & Security segments will likely have a less cyclical, higher margin product portfolio, with lower exposure to new residential housing and higher exposure to repair and remodeling expenditure will enhance its ability to maintain strong margins.

It is expected to be a tax-free transaction and is estimated to be completed in the next 12 months. The will be a “good co, bad co” transaction.” Fortune Brands has been a good long term stock. It has compounded revenue at 9% and EPS at 24% since 2012. It’s only trading at 12x forward earnings. This looks like an interesting set up. Here’s a good VIC write up from 2019.