Norcraft and MasterBrand Cabinets helped drive up Fortune Brands Home & Security cabinet segment sales way up lasst quarter, and for the year.
Operating income for the cabinet segment increased 72 percent or $26 million over the prior-year quarter, with Norcraft adding half of the increase. Operating margin in FBHS's cabinetry segment increased 10% for the quarter. For the full year, cabinet sales increased 22 percent over the prior year and operating income grew 42 percent by 22 percent last year, reaching $2.17 billion for the year ending December 31, 2015.
“We delivered strong results at the high end of our guidance for the fourth quarter and full year 2015. We achieved strong sales growth as the home products market accelerated in the back half of the year, as we had anticipated. Our teams also delivered strong profit growth with efficiency gains in our recently expanded capacity and continued to focus on profitable growth in all channels,” said Chris Klein, chief executive officer, Fortune Brands. “We have built on our momentum with another year of growth and market outperformance, and are well-positioned for continued strong performance going into 2016.”
Fortune's cabinet business was the largest cabinet manufacturer in the FDMC 300 for 2015. Norcraft was the fourth largest as an indepdendent company in 2014.
Cabinet sales increased 33 percent from the prior year including the impact of the Norcraft acquisition as the dealer channel and in-stock cabinet/vanities channel grew double digits. Cabinet operating margin before charges/gains improved 220 basis points to 10.0 percent. Plumbing, door and security sales also increased.
“We were accurate in estimating the pace of growth in our home products market and delivered sales and profit growth that was on plan for the year,” said Klein. “In 2015, our teams focused on profitable growth and manufacturing efficiencies which increased our operating margin 110 basis points to 11.8 percent. Additionally, the integrations of both Norcraft cabinetry and SentrySafe are proceeding as planned. Our strong execution in 2015 and the momentum we’ve built has us well-positioned to deliver similar growth in 2016.”
In an earnings call, Klein offered additional information about the company's cabinet segment.
"Starting with our cabinet segment, we continue to follow a disciplined strategy for cabinets, focused on profitable growth and that strategy is working well," he said. "We are focused on the most attractive segments of the market where we have our strongest structural competitive advantages and the greatest profit potential. Our consistent pace of product innovation and our high levels of reliable service to our channel partners is driving growth.
Sales in our largest channel dealers grew 57% and benefited from the Norcraft acquisition. Our share gains in this key channel are coming from deeper relationships with existing customers, as well as ramping up recently added dealerships.
"Our home center in-stock cabinets and vanity sales increased strong double-digits, due largely to strong sell-through of new programs and product upgrades that launched earlier in the year. The remaining 25 percent of our cabinets business focuses on home center semi-custom, builder direct in select markets and our Canadian sales.
"We're disciplined in our approach to these segments of the cabinet market, as we focus on where we can partner with our customers to capture profitable growth. With our focused approach, combined sales for these segments increased strong double-digits in the quarter, excluding the impact of currency.
"Overall for cabinets, our team has continued to execute well across multiple facets of a complex category. Our plants are increasingly more efficient and we're pleased that we added capacity when we did to handle the growth that is now being realized. On the front end of the business, we're performing particularly well and as we build share in the most attractive segments of the market. The impact of our consistent execution can be seen in our share gains, our stronger mix and our improving margins.
"During the year, we also took a number of steps to position ourselves for the growth opportunities that we expect over the coming years. First, in May we purchased Norcraft cabinetry, which is helping us build on our structural competitive advantages with their proven capabilities, and positions us even more strongly for growth and share gains in the critical dealer channel. Norcraft has great relationships in the dealer channel and strong operating management throughout their business. The integration is very straightforward and remains right on track.
"Now, let me turn to our full year outlook for 2016 starting with our view of the U.S. home products market. Our 2016 annual outlook is built on an assumption that U.S. home products market, which impacts over 70% of our sales, grows at a 6 to 7 percent rate, which is similar to full year 2015 market growth. Within that overall assumption the pace of repair and remodel demand is assumed to grow at a continued 5 percent rate. Consumers continue to demonstrate appetite for stronger styling, product differentiation and project complexity. We see the impact of these trends in the improving mix across our categories.
New home construction is assumed to grow at around 10 percent in 2016, a rate similar to full year 2015 growth. Single-family growth is now expected to grow faster than multi-family, as single-family entry-level activity is beginning to accelerate. Therefore, our top global market, which includes assumptions for U.S. market, as well as our other international and security market is expected to grow at a combined 5 to 6 percent in 2016."
Fortune Brand's Lee Wyatt offered additional comment.
"Our cabinet sales were $608 million, up $152 million or 33 percent versus the prior-year quarter," Wyatt said. "Norcraft added $107 million of the sales growth. Dealer sales were $309 million and increased 57% from the prior year. In-stock cabinets and vanity sales of $121 million increased 15 percent, driven by strong sell-through of new products. The remaining sales for home center, semi-custom, builder direct and Canada increased 21 percent, excluding the negative impact of currency of approximately $8 million.
"Operating income for the cabinet segment increased 72 percent or $26 million over the prior-year quarter, with Norcraft adding half of the increase. Operating margin for the quarter increased 220 basis points to 10%. For the full year, cabinet sales increased 22 percent over the prior year and operating income grew 42 percent to $196 million, with the operating margin increasing 130 basis points to 9 percent. Excluding the Norcraft acquisition and the negative impact of currency, sales increased 8 percent and operating income grew 19 percent."
CEO Klein said Fortune Brand's 2016 annual outlook is based on a U.S. home products market growth assumption of 6 to 7 percent and an assumption of 5 to 6 percent growth for the total global market. Based on incremental sales from the Norcraft acquisition, Klein expects full-year 2016 sales growth in the range of 10 to 12 percent.
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