Analyst Note| Brian Bernard, CFA, CPA |
Fortune Brands will make two significant changes to its product portfolio this year and next. First, the firm plans to spin off its $3.3 billion (our 2022 sales estimate) cabinets business on Dec. 14. While Fortune Brands’ cabinets business (to be named MasterBrand) is the largest cabinets manufacturer in the United States (we estimate 15%-20% market share), we think it’s a no-moat business because, in our view, limited product differentiation makes it difficult for industry players to achieve consistent economic profits. The cabinets business generates below-consolidated average operating margin and return on invested capital, so Fortune Brands will report stronger profit margins and ROIC after the spinoff.