Despite Fortune Brands Innovations (FBIN) optimistic name, investors may want to approach the stock with caution. The company, which manufactures plumbing fixtures, cabinets and security products through brands like Moen and Master Lock, faces a convergence of headwinds that may leave little upside. The housing market remains the elephant in the room. Fortune Brands derives substantial revenue from new residential construction and remodeling activity, both of which have cooled significantly. Elevated mortgage rates have frozen the housing market, with existing home sales at multi-decade lows and new construction activity subdued. Homeowners who might have undertaken major renovations are staying put and delaying discretionary upgrades. This isn’t a temporary blip — structural affordability challenges suggest housing activity could remain depressed for an extended period, directly impacting demand for Fortune Brands’ products. Although the median home price has fallen from Q4 2022 highs, and median incomes have recently risen, home price affordability has slightly improved from the astronomical levels of 2023, when the median home price was almost 10x median personal income. That’s eight times higher than it was 40 years earlier. The company’s third quarter results, released on Oct. 30, narrowly missed EPS estimates of $1.09, falling short of the consensus estimate of $1.10, while revenues totaled $1.15 billion, down 0.5% year over year and below expectations of $1.18 billion. This marked a year-over-year EPS decline of approximately 5.2%, aligning with pre-report forecasts but highlighting that, on a constant-currency basis, revenues fell by ~8%. The firm also cut full-year 2025 EPS guidance to $3.70–$3.80, well below analysts’ prior consensus of $4.24. Reviewing EPS GAAP Guidance for the period from 2021 through 2024, actual GAAP earnings have fallen short of analyst estimates and, when it was provided, the company’s own guidance. Although the company does generate revenue internationally, that has not proven to be much of a hedge against the affordability crisis in U.S. housing. International revenues have also been falling consistently year over year. FYE2024 international revenues of $800 million are ~36% lower than they were in 2021, not adjusting for inflation . Given the multidecade-high inflation experienced from 2021 through 2024, in constant-currency terms, those revenues fell by 47.5% using Bureau of Labor Statistics inflation estimates; whereas most agree that the real rate of inflation was likely higher than the government figures indicated. The trade Fortune Brands, whose “fortunes” are linked to remodeling and construction activity, will remain under pressure for as long as the housing market does, and there’s little evidence that will turn around soon which likely accounts for the tepid ratings from sell-side analysts, only 38% rate the stock a “Buy”, 57% rate the stock a “Hold” and 5% rate the stock a “Sell”. Confronting a confluence of headwinds, prudent investors who hold the stock might consider selling calls against their holdings to enhance the ~2% dividend yield rather than holding out hope for a near-term recovery in the stock price once clearer signs of housing market stabilization emerge. For example, one could sell the January $55 strike covered call – although be sure to use mid-market limit orders, the bid/ask spread was about $0.50 wide on those as of Friday’s close. DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
