Fortune Brands Earnings: Choppy First Quarter Was Expected as Demand Shows Signs of Softening

Narrow-moat Fortune Brands Innovations delivered solid first-quarter results as end market demand and profit margins held up better than we expected amid a softening economic backdrop. Sales declined 9% (excluding sales from the divested cabinets segment) to $1 billion during the quarter amid weaker repair and remodel and residential construction activity. Adjusted EPS of $.69, while down 24% from the prior year, topped FactSet consensus by 16% as the company’s 13.1% adjusted operating margin modestly exceeded management’s guidance for the quarter. Weaker year-over-year performance is unsurprising as management previously warned of a difficult 2023 operating environment, with impacts being the most acute in the first half due to inventory destocking. We are maintaining our fair value estimate of $72 as we believe Fortune Brands is capable of adequately navigating near-term demand softness.