DEERFIELD, Ill.- MasterBrand Cabinets and other Fortune Brands Home & Security, Inc. (NYSE: FBHS) kitchen cabinet operations reported flat sales in the fourth quarter, despite growth among more customized cabinetry offerings.
Cabinetry sales showed low-single-digit growth in dealer and high-single-digit growth in builder direct sales, says FBHS, but these gains were offset by declines in Canada and home-center special order sales. The vast majority of MasterBrand Cabinets’ sales come from two critical channels: kitchen and bath dealers and home center in-stock cabinetry and vanity offerings. MasterBrand Cabinets 5,000 kitchen and bath dealers are its the most profitable channel, with 25 plant locations providing regional service.
"We exited direct sales to builders and excluding that cabinet sales are up 2 percent."
"Similar to recent quarters, sales of value products were stronger than the overall market and sales in our in-stock cabinets and vanities and builder direct businesses were both up high single-digits in the quarter," said Chris Klein, CEO, during an earnings call (transcript courtesy Seeking Alpha)
"In our largest channel, dealer [sales] grew low single-digits led by the value product lines. Sales were lower in the home center special order and in Canada, where the market continues to trend softer than what we see in the U.S."
Klein said FBHS cabinet business is reversing the negative sales trends seen earlier in the year, "even after including the headwinds from the exited business," which Klein called a "pivot." The company closed two plants in the past year.
"Despite the low price points since we have a large low-cost production platform specifically designed for these products"
"Regarding our cabinets' pivot, it's clearly parts of the business that are performing very well, particularly, value products where we have over $1 billion in sales annually," Klein said. "The margin associated with these products continues to be very attractive, despite the low price points since we have access to a large low-cost production platform specifically designed for these products. But that doesn't come with the cost or complexity associated with more custom made-to-order products. Our unique capabilities in Mexico facilitate this business." FBHS operate Woodcrafters Home Products S. DE R.L. DE C.V. in Rio Bravo in Mexico, under Woodcrafters U.S. business.
In September 2018, FBHS's MasterBrand Cabinets opened a new manufacturing facility in Reynosa, Mexico, which will handle the new products. Having closed two facilities and invested in capacity for lower-priced products, in 2018, next year "we'll take even more actions to balance the cost structure and at the same time, launch a broader range of value semi-custom products," Klein said, hinting that next week, "You will hear from our Cabinet Center, the Advantage. We’ll go into greater detail on the industry, the progress in pivot plan, and our 2019 and longer-term outlook for this business."
In the fourth quarter, the market grew at a more moderate pace, and consumers and channel partners adopted a cautious stance heading into year-end, Klein said. “We have built a 2019 plan around a more conservative market, with a soft first-half start and modest growth overall for the year."
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