Fortune Brands Home & Security, Inc. (FBHS) on Q4 2024 Results - Earnings Call Transcript
Operator: Good afternoon, everyone. My name is Joe, and I will be your conference operator today. Welcome to the Fortune Brands Fourth Quarter 2024 Earnings Conference. All lines are muted to prevent background noise. Following the speakers' remarks, we will open the call for a Q&A session. At this time, I'd like to turn the call over to Leigh Avsec, Executive Vice President of External Affairs. Please go ahead.
Leigh Avsec: Good afternoon, everyone. And welcome to the Fortune Brands Innovations Fourth Quarter and Full Year 2024 Earnings Call and Webcast. Hopefully, everyone has had the chance to review the earnings release issued earlier. The earnings release and the audio replay of the webcast of this call can be found in the Investor section of our website, fbin.com. I want to remind everyone that the forward-looking statements we make on the call today, either in our prepared remarks or the associated question and answer session, are based on current expectations and market outlook and are subject to certain risks and uncertainties that may cause actual results to differ materially from those currently anticipated. These risks are detailed in our various filings with the SEC. The company does not undertake any obligation to update or revise any forward-looking statements except as required by law. Any references to operating income, margin, EBITDA, earnings per share, or cash flow on today's call will focus on our results on a non-GAAP before charges and gains basis unless otherwise specified. Please visit our website for reconciliation. Joining me on the call today are Nicholas Fink, our Chief Executive Officer, and David Barry, our Chief Financial Officer. Following our prepared remarks, we have allowed time to address some questions. I will now turn the call over to Nicholas Fink.
Nicholas Fink: Thank you, Leigh Avsec, and thank you to everyone joining us today. As we finish 2024 and begin 2025, I am proud of the progress we have made to continue to replatform the business and unlock our long-term growth potential. We took several important steps this past year amidst a challenging backdrop. We further focused our portfolio on the highest growth and most profitable opportunities within our categories. We simplified and aligned our organization, uniting our associates under a new vision. We saw market outperformance in key core portions of our portfolio, we integrated and scaled our digital business, and announced milestone partnerships in digital water. We had impressive free cash flow and made sustainable margin progress across our portfolio. We did so while also continuing to make strategic investments in brand building, innovation, and our ongoing digital transformation, all of which have delivered real assets that we plan to activate to accelerate growth. The actions we took over the past year to better leverage the strength of our aligned organization and sharpen our focus on our leading brand, meaningful innovation, and our advantage channel relationships give me confidence in our ability to outperform in 2025 and beyond. Our Fortune Brands advantage capabilities are now more effectively deployed across the organization, allowing us to advance our growth and margin journey by reducing costs, optimizing our pricing, and enabling our high-growth focused areas like digital product, luxury, and outdoor living. As we continue our transformation into one aligned organization, we will be able to further leverage our Fortune Brands advantage capabilities to create even more value. Fortune Brands was recently named to The Wall Street Journal's Top 250 Managed Companies list of 2024. This recognition is a testament to the progress we have made as a company, especially our growing prominence as a digital brand and our digital product portfolio, and reflects the tenacity and innovation of our entire team. Before we continue, I want to highlight our new modern and tech environment, which we call our new home. The result will be a world-class collaborative environment to fuel the company's innovation, accelerate our digital solutions, and grow our core product. Additionally, this campus will further our ability to retain and attract top talent and further build our exceptional culture centered around our values. We expect this action will drive bigger thinking and elevated execution even faster and will unlock opportunities for growth and shareholder value. We also announced that we have simplified our leadership structure. This allows the senior commercial leaders to now report directly to me and it allows for quicker decision-making and more direct involvement across the business. Additionally, David Barry will move into a newly created role of President, Security, and Connected Product. He will lead our iconic legacy security business and have direct responsibility for growing Fortune Brands' digital business, including Yale smart residential locks, Master Lock connected lockout tagout, and the Moen smart water ecosystem, including the Moen Flow leak detection solution. These businesses will greatly benefit from David's focus on growth, his acute business insight and company experience, and his passion for our brand and our connected products opportunity. By deploying some of our best talent against some of our biggest opportunities, I am confident that we will achieve our exceptional potential. Now turning to the market and our results. On this call, I will walk through the highlights of our fourth quarter and full year 2024. I will also offer some thoughts on the current macro environment and why we believe Fortune Brands is optimally positioned now more than ever to deliver on our commitment to long-term growth and sustained value creation. I will then turn the call over to David Barry for a discussion of our fourth quarter and full year financial results and our performance expectations for 2025, including our view of the market. For the fourth quarter, we saw net sales of $1.1 billion, a 5% decrease versus the fourth quarter of 2023. Importantly, our fourth quarter sales were impacted by a third-party software outage at our security distribution centers, the hurricanes in the southeastern United States, and continued softness in China. Adjusted for these impacts, our fourth quarter organic sales were down 1%. Also notable is that when you exclude hurricanes and China, fourth quarter organic sales grew. Our water and doors business, and we estimate our total company point of sale excluding China and the one-time disruption outperformed a larger market. Fourth quarter 2024 EPS were $0.98, a 3% increase versus Q4 2023. Operating margins for the quarter were 16.4%, a 60 basis point improvement over the fourth quarter of 2023. For the full year 2024, our teams delivered net sales of $4.6 billion, flat versus 2023. Full-year organic sales were $4.4 billion, down 5% or 2% excluding China and the one-time fourth-quarter disruption. Our full-year operating margins increased 90 basis points versus 2023. Our impressive margin results reflect the actions we have taken to optimize our businesses, including strategically aligning our operational footprint and focusing our portfolio on the most profitable parts of our business. Importantly, the strong margin performance includes strategic investments that we have made to facilitate future growth. Our 2024 free cash flow was approximately $475 million with a cash conversion of more than 100% of net income. Our cash flow performance is another proof point of our more efficient organization. Our full-year earnings per share were $4.12, up 5% over the full year 2023. A strong balance sheet and advantage capital structure enabled us to strategically deploy capital both organically and inorganically. We invested inorganically in strategic platforms including water filtration and connected lockout tagout, both of which we believe have significant secular growth. Finally, we note that our board of directors has approved a new $1 billion share repurchase authorization, demonstrating the confidence we have in our cash generation as well as our focus on creating long-term shareholder value. Now I would like to highlight in more detail the actions we took in 2024 that will position our company for future growth. Starting first with our digital business. As a reminder, our digital business includes all of our digital products in both our water and security segments. In 2024, digital sales were $214 million with significant growth in the Flow business. At the end of 2024, our full digital business had 4.7 million users, inclusive of over 200,000 new device activations in the fourth quarter, and with a strong point of sale trajectory as we head into 2025. In our digital water business, Flow's success both in terms of sales and partnerships far exceeded our expectations. At the end of 2024, we had 12 partnerships with insurance companies and other key sales partners, including our precedent-setting partnership with Farmers Insurance. This is particularly impressive as we started 2024 with a new team and no partnerships. In 2025, we have already signed another one of the largest insurance companies in the United States with significant access to high-net-worth homeowners. As we discussed on the last call, the number of homeowner policies collectively represented by these insurance partners is in the tens of millions, and we are laser-focused on converting these opportunities into sales. For our fourth quarter, retail and e-commerce POS for Flow was up over 100% versus the fourth quarter of 2023, and sales for the full year grew well over 100%. We invested meaningfully in Flow, including innovative marketing designed to drive awareness, as well as key functionality and design updates to make the user and partner experience more seamless. We are converting sales opportunities faster, having recently added additional dedicated resources. In the quarter, we reduced the partner onboarding time by two-thirds, and we are now able to implement marketing and sales activation in less than 30 days on average. Looking to 2025, we will continue our focus on not only entering into new partnerships but accelerating our sales conversion with the partners that we already have. We expect our Flow sales to continue to increase rapidly and have already seen acceleration as we begin 2025. Based on the strong sales trajectory, we see a path towards $100 million in annualized sales in 2025. We are looking to launch new subscription-based pricing models in the first half of 2025. We have increased our awareness campaign in response to the inclement weather devastation as well as the tragic fires in California, which have elevated public awareness around the need to address the interconnected insurance and affordability crisis. Our digital security business also took some transformative actions this past year. First, we continued to build partnerships at Yale. We signed 14 new partnerships in 2024 with companies like Airbnb, Ecobee, and ADP. As we lap significant destocking and product lifecycle headwinds, we expect these new partnerships will reaccelerate growth. We acquired a stake in a connected lockout tagout software platform, which we expect will greatly accelerate our leadership in this emerging space as companies look to keep employees safe, reduce insurance costs, and make their operations more efficient. Our connected lockout tagout hardware and software platform will be best in class. As we look at 2025, we are very excited about the connected business and its ability to generate recurring revenue. Under David's focused leadership and commitment to growth, we believe our connected opportunity is better than ever. We continue to expect connected sales to be at least $1 billion by 2030. This growth will be driven by the rapid expansion of our digital portfolio, including growth in Flow, emerging Master Lock T-Lattice solutions, and a return to growth by Yale as our new partnerships ramp up and our inventories stabilize. We expect digital will contribute 150 basis points of growth to our full-year 2025 net sales, and we are working on accelerating this performance. We took steps to streamline the portfolio, optimize our operations, and work more quickly and efficiently throughout 2024. We strategically focused on the highest growth and most profitable parts of our core portfolio and walked away from some of the less attractive and non-strategic parts of the market, at a 150 to 200 basis point impact on our 2024 sales. This has allowed us to focus our best resources on our biggest and most attractive opportunities, especially when the markets return to growth. We also took key operational steps, including aligning our footprint, opening two new sites for our water business, and optimizing our supply chain ahead of 2025. These capacity investments leave us with room for expected growth in the coming year. Importantly, in 2024, we also took steps to prepare for potential supply chain disruptions related to tariffs or other geopolitical situations. We have significantly increased our flexibility and reduced our tariff exposure from China, with a line of sight to reduce this exposure to less than 10% of total costs by the end of 2025. We are similar to New Mexico and are executing on strategies to reduce this exposure as necessary. We have leveraged our digital capabilities to quickly adapt to the environment, and we believe our supply chain team, robust data, and strong supplier relationships leave us well-positioned relative to our competitors. Now turning to some thoughts on the market for our products as we enter 2025. We are prepared for a dynamic environment, and we are confident in our ability to return to top-line outperformance based on the actions we took in 2024. The strength of our brand, our meaningful innovation, and new product introductions, and our connected products give us confidence. The need and desire for homes remain incredibly strong, and our products are well-positioned in the context of the larger macro environment. Within the larger market, the issue of housing affordability and substandard impostor brands are both of paramount importance and receiving a lot of attention. We believe this current focus will provide us with opportunities for both our core products as well as our digital products. We will be very focused on articulating the value and benefits consumers get from our products and why purchasing from strong brands that stand behind the safety and effectiveness of their products matters more than ever. While it is difficult to call when exactly a recovery will occur, we believe this fundamental demand, together with our strong and optimally positioned brands, will result in medium to long-term tailwinds for our business in both new construction and repair and remodel. The R&R market has generally stabilized relative to the post-COVID normalization period, although it is still negative. Existing home sales have likely found a bottom after three years of decline. That said, recent rate trends and uncertainty regarding policy, inflation, and geopolitics are likely to inhibit market growth in the near term. Starting with new construction, we expect the single-family new construction market to be flat in 2025. We expect incomplete low single-digit growth, partially offset by the lag impact from the 2024 second-half slowdown. As a reminder, new construction represents around a quarter of our total sales. Our businesses, particularly our Moen and Therma-Tru brands, enjoy very strong relationships with many large national production builders and the channel partners that serve them. Despite higher longer-term rates, large builders are offering incentives to support volume in the near term, which will continue to be a tailwind for us. Turning to R&R, the R&R market remains dynamic. There are many variables that are impacting the repair and remodel space, including consumer savings and confidence, employment levels, home equity levels, and existing home turnover. We currently expect the R&R market for our products to be flat to up in 2025, with growth weighted toward the back half. R&R is impacted by a variety of factors. We expect rates will be higher for longer. We also expect higher existing home sales and increased rates of home equity extraction. Even when accounting for the COVID boom, the levels of R&R volumes since 2019 are under trend. However, as consumer confidence improves and consumers increasingly look toward their homes as a source of capital equity, we believe people will increasingly leverage home equity for renovation projects, for a variety of vehicles including refinancing, HELOCs, key loans, and home equity agreements. Now let me turn to segment results. Starting with Water Innovations, our fourth-quarter sales were down 3%. Excluding China and the impact of the hurricane in the Southeast United States, organic sales increased 2%, with above-market point-of-sale growth in our House of Rohl and Emtek businesses. Our margins increased 190 basis points over the fourth quarter of 2023. While we continue to invest in our priorities like digital and marketing, our margin results reflect our focus on the most profitable parts of the market as well as the work we have done to align and streamline the organization and improve the efficiencies of our business. For the full year, Water Innovations sales were flat, and organic sales excluding the impact of China and hurricanes were down 2%. For the full year, we saw 80 basis points of margin growth. Looking forward to 2025, we continue to expect a dynamic environment, especially in the first part of the year, but with clear opportunities for us to differentiate ourselves. We will focus on delivering above-market sales performance across the segment by focusing on the highest growth areas within our core businesses and continuing to accelerate our leadership in digital water. We plan to help consumers and customers better understand what our products stand for: design, dependability, and innovation. We once again won America's Most Trusted Faucet Brand and plan to leverage that strong consumer and pro sentiment in the face of the number of impostor and counterfeit brands in the marketplace. We will continue to invest in our key priorities, including branding and marketing, and our digital products. These targeted investments will help drive our strategy to grow the core and accelerate digital and connected products. 2024 represented a tipping point for our Moen Flow smart water leak detection business, and we expect this to only accelerate in 2025. Our sales pipeline is substantial, and even with conservative conversion estimates, we have the opportunity to realize significant sales. We will continue to invest in this growth opportunity, both to support product functionality as well as marketing and other activation efforts. We believe the current focus on insurance and affordability, together with our leading position in this space, will result in outperformance. Our House of Rohl portfolio, which now includes Emtek, grew in the fourth quarter as our brand, product, and showroom strategy resonated with luxury consumers and designers. We opened a new manufacturing and distribution facility in the UK to better serve our customers, which will continue to come online in 2025. We are also still rolling out our synergy wins for Rohl and Emtek, particularly in showrooms. We are excited about the future of our luxury portfolio as our powerhouse brands continue to delight consumers and designers alike. Finally, China was again a headwind in this segment. We have replatformed the cost structure of the business given the challenging market. As a result, any future decline should not have a significant impact on our P&L. We believe the market has largely stabilized at the bottom, although we will have one more quarter of challenging comparables. Now turning to Outdoors. Our fourth-quarter sales were down 2% with low single-digit point-of-sale growth in the segment, driven by doors. Our margins were 18.2%, an increase of 430 basis points over the fourth quarter of 2023. For the full year, outdoor sales were up 1%, and we saw an impressive 310 basis points of margin growth. In 2024, we benefited from our strong relationships with the big builders, accelerated the evolution of the brands in our outdoor segment, and introduced exciting new product innovations. Looking forward to 2025, our focus is on continuing to grow our doors brand by leveraging our strong brand position and channel relationships, coupled with innovation. We are particularly excited about the potential for our Larson brand. We recently unveiled our new Larson Perfect Seal product reset at our retail partner, and the initial results from a refreshed and innovative approach to this category are very encouraging. We expect to have over 1,700 stores with refreshed product displays by the middle of 2025. Turning to Security. As I already mentioned, our security segment was impacted by a third-party software outage at our distribution centers, which exacerbated a soft sales environment and customer demand. Our teams are laser-focused on delivering on our commitment to our customers, and I thank them for their tireless work to recover from these challenges. Our fourth-quarter sales and margin performance reflect these issues. Our fourth-quarter sales were down 17%. Excluding the impact of the software outage, fourth-quarter sales were down approximately 10%. Our margins were 9.3% because of the impact of the outage, as well as the expected timing of investments related to our Yale business. For the full year 2024, our sales were $694 million, down 4%, and organic sales, excluding the software outage, were down approximately 10%. For the full year, margins were a 10 basis point increase versus last year. The performance of this segment in 2024 did not meet our standards, and we have identified critical areas for us to focus on as we work to address these challenges directly and head-on. We have already taken actions under David's leadership, and I am confident that we will improve this business. We have made progress on some exciting brand and product work, which will be unveiled in 2025, including the first major branding campaign from Master Lock in several decades. We have already seen proof of our brand strategy in action. For example, recent safe advertising highlighting the performance and trustworthiness of our brand accelerated point of sale, which further improved after the recent tragic LA fires. As consumers face this terrible crisis, and as it was highlighted around the globe, the work that we have done around helping people understand what our brand stands for—namely safety, dependability, and quality—became even more important and gives us confidence in our larger strategy of focusing on meaningful brand and innovation. We saw significant point-of-sale growth in those markets where consumers were focused on these attributes. Looking forward to 2025, we have a new proven leader, a renewed focus on differentiating our iconic brand and product, and a robust partnership pipeline for Yale. We are rolling out a connected lockout tagout solution and see it as a breakout opportunity for our security business. To recap, 2024 was a year of transformation and execution for Fortune Brands amidst a dynamic external environment. Our teams built new assets across brands, innovation, and digital, which will accelerate growth as we deploy them in the marketplace. Our margin results and market outperformance in key parts of our portfolio give us confidence in the future. We took decisive steps this year to better position ourselves, and I am proud of what our teams achieved in 2024. In 2025, which David will speak to in greater detail, we will focus on driving above-market growth and accelerating our areas of advantage. We will look to sustainably grow margins and continue investing behind our most strategic opportunities. We will execute our larger strategy of focusing on our supercharged categories. We expect 2025 to be another breakout year for our connected products. We will take concrete actions in our business to ensure that we are best positioned for long-term growth. Additionally, we will manage any period of continued volatility, responding quickly and remaining agile while actively positioning Fortune Brands Innovations for the future. I will now turn the call over to David Barry.
David Barry: Thanks, Nicholas. As a reminder, my comments will focus on results before charges and gains to best reflect ongoing business performance. All comparisons will be made against the same period last year unless otherwise noted. Before I begin, I would like to take a moment to address my new role. I have found my experiences as CFO to be incredibly rewarding, and I am grateful to all those with whom I've built relationships, including many of you on the call today. I look forward to the next phase of my career and journey with Fortune Brands in my role as President of our Security and Connected Product businesses. I am fully confident in the long-term growth opportunities of both of these businesses, and I am excited to help advance our value creation. In the meantime, I will be assisting with the search for our next CFO and will partner closely with my successor, ensuring a very smooth transition. As Nicholas highlighted, our teams focused on a tight set of priorities amidst a dynamic external market while continuing to best position the company for the future. For the fourth quarter, sales were $1.1 billion, down 5%, and organic sales were down 1% when adjusting for the impact of China and excluding the one-time event. Consolidated operating income was $181.6 million, and total company operating margin was 16.4%. EPS were $0.98. Fourth-quarter free cash flow was approximately $212 million. For the full year, sales were $4.6 billion, flat versus last year, and organic sales were down 2%, excluding the impact of China and the one-time disruptions in the fourth quarter. Consolidated operating income was $780.6 million. Total company operating margin was 16.9%, a 90 basis point improvement. Our EPS were $4.12. Our total free cash flow generation was an impressive $475 million. Now let me provide more color on our segment results. Beginning with Water Innovations, sales for the fourth quarter were $645 million, down 3%. Organic sales were up 2% excluding the impact of China and the hurricane. For the year, sales were flat, with organic sales excluding China and the impact of the hurricane down 2%. Water Innovations' operating income was $152.6 million in the fourth quarter. Operating income for the full year was $603.8 million. Operating margin was 23.7% for the quarter and 23.5% for the full year. Consistent with our returns-focused investment strategy, our Moen brand investments are generating results as we focus on accelerating the consumer and channel awareness of our new-to-world Flow technology and invested in our core brand. As we discussed, we selectively focused on the portions of our portfolio with the highest potential for returns. In our luxury portfolio, we made key investments in capacity for our House of Rohl products. Now as one combined entity with Emtek, we are excited about the future of our luxury brand. In China, sales declined 30% in the fourth quarter and 31% for the full year. While the market seems to have stabilized, we do expect another challenging comparable in the first quarter of 2025 due to lapping accelerated completion in Q1 2024. Looking to 2025 and beyond, this business will continue to provide innovation and growth optionality. As a result of its replatformed size, it is no longer a material portion of our business, and future declines, if any, should be less impactful to our P&L. Turning to Outdoors, fourth-quarter net sales were $303 million, down 2%. For the full year, sales were $1.4 billion, up 1%. For doors, sales were flat in the quarter and up low single digits for the year. Decking sales were down mid-teens in the quarter and were down low teens for the full year as a result of a softer demand environment and destocking. Outdoor segment operating income was $55.2 million during the quarter, up 29%. Operating income for the full year was $218 million, an increase of 25%. Segment operating margin for Outdoors was 18.2% in the quarter, an increase of 430 basis points, and 16.1% for the full year, a 310 basis point increase. Outdoors delivered a strong sales and operating margin year. These impressive margin results are a direct impact of the work we are doing to drive innovation and expand distribution for our leading brands. Finally, turning to Security. As Nicholas discussed, we were impacted in the fourth quarter by a third-party software outage which impacted our distribution center. Fourth-quarter sales were $157 million, down 17%, or down 10% when adjusting for the outage. Our fourth-quarter operating margins were 9.3%. Full-year sales decreased 4% to $694 million, and organic sales decreased around 10% when adjusting for the impact of the software outage. Our full-year operating margins were a 10 basis point increase versus last year. The performance of this segment in 2024 did not meet our standards, and we have identified critical areas for us to focus on as we work to address these challenges directly and head-on. We have already taken actions under David's leadership, and I am confident that we will improve this business. We've made progress on some exciting brand and product work, which will be unveiled in 2025, including the first major branding campaign from Master Lock in several decades. We have already seen proof of our brand strategy in action. For example, recent safe advertising highlighting the performance and trustworthiness of our brand accelerated point of sale, which further improved after the recent tragic LA fires. As consumers face this terrible crisis, and as it was highlighted around the globe, the work that we have done around helping people understand what our brand stands for—namely safety, dependability, and quality—became even more important and gives us confidence in our larger strategy of focusing on meaningful brand and innovation. We saw significant point-of-sale growth in those markets where consumers were focused on these attributes. Looking forward to 2025, we have a new proven leader, a renewed focus on differentiating our iconic brand and product, and a robust partnership pipeline for Yale. We are rolling out a connected lockout tagout solution and see it as a breakout opportunity for our security business. To recap, 2024 was a year of transformation and execution for Fortune Brands amidst a dynamic external environment. Our teams built new assets across brands, innovation, and digital, which will accelerate growth as we deploy them in the marketplace. Our margin results and market outperformance in key parts of our portfolio give us confidence in the future. We took decisive steps this year to better position ourselves, and I am proud of what our teams achieved in 2024. In 2025, which David will speak to in greater detail, we will focus on driving above-market growth and accelerating our areas of advantage. We will look to sustainably grow margins and continue investing behind our most strategic opportunities. We will execute our larger strategy of focusing on our supercharged categories. We expect 2025 to be another breakout year for our connected products. We will take concrete actions in our business to ensure that we are best positioned for long-term growth. Additionally, we will manage any period of continued volatility, responding quickly and remaining agile while actively positioning Fortune Brands Innovations for the future. I will now turn the call over to David Barry.
David Barry: Thanks, Nicholas. As a reminder, my comments will focus on results before charges and gains to best reflect ongoing business performance. All comparisons will be made against the same period last year unless otherwise noted. Before I begin, I would like to take a moment to address my new role. I have found my experiences as CFO to be incredibly rewarding, and I am grateful to all those with whom I've built relationships, including many of you on the call today. I look forward to the next phase of my career and journey with Fortune Brands in my role as President of our Security and Connected Product businesses. I am fully confident in the long-term growth opportunities of both of these businesses, and I am excited to help advance our value creation. In the meantime, I will be assisting with the search for our next CFO and will partner closely with my successor, ensuring a very smooth transition. As Nicholas highlighted, our teams focused on a tight set of priorities amidst a dynamic external market while continuing to best position the company for the future. For the fourth quarter, sales were $1.1 billion, down 5%, and organic sales were down 1% when adjusting for the impact of China and excluding the one-time event. Consolidated operating income was $181.6 million, and total company operating margin was 16.4%. EPS were $0.98. Fourth-quarter free cash flow was approximately $212 million. For the full year, sales were $4.6 billion, flat versus last year, and organic sales were down 2%, excluding the impact of China and the one-time disruptions in the fourth quarter. Consolidated operating income was $780.6 million. Total company operating margin was 16.9%, a 90 basis point improvement. Our EPS were $4.12. Our total free cash flow generation was an impressive $475 million. Now let me provide more color on our segment results. Beginning with Water Innovations, sales for the fourth quarter were $645 million, down 3%. Organic sales were up 2% excluding the impact of China and the hurricane. For the year, sales were flat, with organic sales excluding China and the impact of the hurricane down 2%. Water Innovations' operating income was $152.6 million in the fourth quarter. Operating income for the full year was $603.8 million. Operating margin was 23.7% for the quarter and 23.5% for the full year. Consistent with our returns-focused investment strategy, our Moen brand investments are generating results as we focus on accelerating the consumer and channel awareness of our new-to-world Flow technology and invested in our core brand. As we discussed, we selectively focused on the portions of our portfolio with the highest potential for returns. In our luxury portfolio, we made key investments in capacity for our House of Rohl products. Now as one combined entity with Emtek, we are excited about the future of our luxury brand. In China, sales declined 30% in the fourth quarter and 31% for the full year. While the market seems to have stabilized, we do expect another challenging comparable in the first quarter of 2025 due to lapping accelerated completion in Q1 2024. Looking to 2025 and beyond, this business will continue to provide innovation and growth optionality. As a result of its replatformed size, it is no longer a material portion of our business, and future declines, if any, should be less impactful to our P&L. Turning to Outdoors, fourth-quarter net sales were $303 million, down 2%. For the full year, sales were $1.4 billion, up 1%. For doors, sales were flat in the quarter and up low single digits for the year. Decking sales were down mid-teens in the quarter and were down low teens for the full year as a result of a softer demand environment and destocking. Outdoor segment operating income was $55.2 million during the quarter, up 29%. Operating income for the full year was $218 million, an increase of 25%. Segment operating margin for Outdoors was 18.2% in the quarter, an increase of 430 basis points, and 16.1% for the full year, a 310 basis point increase. Outdoors delivered a strong sales and operating margin year. These impressive margin results are a direct impact of the work we are doing to drive innovation and expand distribution for our leading brands. Finally, turning to Security. As Nicholas discussed, we were impacted in the fourth quarter by a third-party software outage which impacted our distribution center. Fourth-quarter sales were $157 million, down 17%, or down 10% when adjusting for the outage. Our fourth-quarter operating margins were 9.3%. Full-year sales decreased 4% to $694 million, and organic sales decreased around 10% when adjusting for the impact of the software outage. Our full-year operating margins were a 10 basis point increase versus last year. The performance of this segment in 2024 did not meet our standards, and we have identified critical areas for us to focus on as we work to address these challenges directly and head-on. We have already taken actions under David's leadership, and I am confident that we will improve this business. We've made progress on some exciting brand and product work, which will be unveiled in 2025, including the first major branding campaign from Master Lock in several decades. We have already seen proof of our brand strategy in action. For example, recent safe advertising highlighting the performance and trustworthiness of our brand accelerated point of sale, which further improved after the recent tragic LA fires. As consumers face this terrible crisis, and as it was highlighted around the globe, the work that we have done around helping people understand what our brand stands for—namely safety, dependability, and quality—became even more important and gives us confidence in our larger strategy of focusing on meaningful brand and innovation. We saw significant point-of-sale growth in those markets where consumers were focused on these attributes. Looking forward to 2025, we have a new proven leader, a renewed focus on differentiating our iconic brand and product, and a robust partnership pipeline for Yale. We are rolling out a connected lockout tagout solution and see it as a breakout opportunity for our security business. To recap, 2024 was a year of transformation and execution for Fortune Brands amidst a dynamic external environment. Our teams built new assets across brands, innovation, and digital, which will accelerate growth as we deploy them in the marketplace. Our margin results and market outperformance in key parts of our portfolio give us confidence in the future. We took decisive steps this year to better position ourselves, and I am proud of what our teams achieved in 2024. In 2025, which David will speak to in greater detail, we will focus on driving above-market growth and accelerating our areas of advantage. We will look to sustainably grow margins and continue investing behind our most strategic opportunities. We will execute our larger strategy of focusing on our supercharged categories. We expect 2025 to be another breakout year for our connected products. We will take concrete actions in our business to ensure that we are best positioned for long-term growth. Additionally, we will manage any period of continued volatility, responding quickly and remaining agile while actively positioning Fortune Brands Innovations for the future. I will now turn the call over to David Barry.
David Barry: Thanks, Nicholas. As a reminder, my comments will focus on results before charges and gains to best reflect ongoing business performance. All comparisons will be made against the same period last year unless otherwise noted. Before I begin, I would like to take a moment to address my new role. I have found my experiences as CFO to be incredibly rewarding, and I am grateful to all those with whom I've built relationships, including many of you on the call today. I look forward to the next phase of my career and journey with Fortune Brands in my role as President of our Security and Connected Product businesses. I am fully confident in the long-term growth opportunities of both of these businesses, and I am excited to help advance our value creation. In the meantime, I will be assisting with the search for our next CFO and will partner closely with my successor, ensuring a very smooth transition. As Nicholas highlighted, our teams focused on a tight set of priorities amidst a dynamic external market while continuing to best position the company for the future. For the fourth quarter, sales were $1.1 billion, down 5%, and organic sales were down 1% when adjusting for the impact of China and excluding the one-time event. Consolidated operating income was $181.6 million, and total company operating margin was 16.4%. EPS were $0.98. Fourth-quarter free cash flow was approximately $212 million. For the full year, sales were $4.6 billion, flat versus last year, and organic sales were down 2%, excluding the impact of China and the one-time disruptions in the fourth quarter. Consolidated operating income was $780.6 million. Total company operating margin was 16.9%, a 90 basis point improvement. Our EPS were $4.12. Our total free cash flow generation was an impressive $475 million. Now let me provide more color on our segment results. Beginning with Water Innovations, sales for the fourth quarter were $645 million, down 3%. Organic sales were up 2% excluding the impact of China and the hurricane. For the year, sales were flat, with organic sales excluding China and the impact of the hurricane down 2%. Water Innovations' operating income was $152.6 million in the fourth quarter. Operating income for the full year was $603.8 million. Operating margin was 23.7% for the quarter and 23.5% for the full year. Consistent with our returns-focused investment strategy, our Moen brand investments are generating results as we focus on accelerating the consumer and channel awareness of our new-to-world Flow technology and invested in our core brand. As we discussed, we selectively focused on the portions of our portfolio with the highest potential for returns. In our luxury portfolio, we made key investments in capacity for our House of Rohl products. Now as one combined entity with Emtek, we are excited about the future of our luxury brand. In China, sales declined 30% in the fourth quarter and 31% for the full year. While the market seems to have stabilized, we do expect another challenging comparable in the first quarter of 2025 due to lapping accelerated completion in Q1 2024. Looking to 2025 and beyond, this business will continue to provide innovation and growth optionality. As a result of its replatformed size, it is no longer a material portion of our business, and future declines, if any, should be less impactful to our P&L. Turning to Outdoors, fourth-quarter net sales were $303 million, down 2%. For the full year, sales were $1.4 billion, up 1%. For doors, sales were flat in the quarter and up low single digits for the year. Decking sales were down mid-teens in the quarter and were down low teens for the full year as a result of a softer demand environment and destocking. Outdoor segment operating income was $55.2 million during the quarter, up 29%. Operating income for the full year was $218 million, an increase of 25%. Segment operating margin for Outdoors was 18.2% in the quarter, an increase of 430 basis points, and 16.1% for the full year, a 310 basis point increase. Outdoors delivered a strong sales and operating margin year. These impressive margin results are a direct impact of the work we are doing to drive innovation and expand distribution for our leading brands. Finally, turning to Security. As Nicholas discussed, we were impacted in the fourth quarter by a third-party software outage which impacted our distribution center. Fourth-quarter sales were $157 million, down 17%, or down 10% when adjusting for the outage. Our fourth-quarter operating margins were 9.3%. Full-year sales decreased 4% to $694 million, and organic sales decreased around 10% when adjusting for the impact of the software outage. Our full-year operating margins were a 10 basis point increase versus last year. The performance of this segment in 2024 did not meet our standards, and we have identified critical areas for us to focus on as we work to address these challenges directly and head-on. We have already taken actions under David's leadership, and I am confident that we will improve this business. We've made progress on some exciting brand and product work, which will be unveiled in 2025, including the first major branding campaign from Master Lock in several decades. We have already seen proof of our brand strategy in action. For example, recent safe advertising highlighting the performance and trustworthiness of our brand accelerated point of sale, which further improved after the recent tragic LA fires. As consumers face this terrible crisis, and as it was highlighted around the globe, the work that we have done around helping people understand what our brand stands for—namely safety, dependability, and quality—became even more important and gives us confidence in our larger strategy of focusing on meaningful brand and innovation. We saw significant point-of-sale growth in those markets where consumers were focused on these attributes. Looking forward to 2025, we have a new proven leader, a renewed focus on differentiating our iconic brand and product, and a robust partnership pipeline for Yale. We are rolling out a connected lockout tagout solution and see it as a breakout opportunity for our security business. To recap, 2024 was a year of transformation and execution for Fortune Brands amidst a dynamic external environment. Our teams built new assets across brands, innovation, and digital, which will accelerate growth as we deploy them in the marketplace. Our margin results and market outperformance in key parts of our portfolio give us confidence in the future. We took decisive steps this year to better position ourselves, and I am proud of what our teams achieved in 2024. In 2025, which David will speak to in greater detail, we will focus on driving above-market growth and accelerating our areas of advantage. We will look to sustainably grow margins and continue investing behind our most strategic opportunities. We will execute our larger strategy of focusing on our supercharged categories. We expect 2025 to be another breakout year for our connected products. We will take concrete actions in our business to ensure that we are best positioned for long-term growth. Additionally, we will manage any period of continued volatility, responding quickly and remaining agile while actively positioning Fortune Brands Innovations for the future. I will now turn the call over to David Barry.
David Barry: Thanks, Nicholas. As a reminder, my comments will focus on results before charges and gains to best reflect ongoing business performance. All comparisons will be made against the same period last year unless otherwise noted. Before I begin, I would like to take a moment to address my new role. I have found my experiences as CFO to be incredibly rewarding, and I am grateful to all those with whom I've built relationships, including many of you on the call today. I look forward to the next phase of my career and journey with Fortune Brands in my role as President of our Security and Connected Product businesses. I am fully confident in the long-term growth opportunities of both of these businesses, and I am excited to help advance our value creation. In the meantime, I will be assisting with the search for our next CFO and will partner closely with my successor, ensuring a very smooth transition. As Nicholas highlighted, our teams focused on a tight set of priorities amidst a dynamic external market while continuing to best position the company for the future. For the fourth quarter, sales were $1.1 billion, down 5%, and organic sales were down 1% when adjusting for the impact of China and excluding the one-time event. Consolidated operating income was $181.6 million, and total company operating margin was 16.4%. EPS were $0.98. Fourth-quarter free cash flow was approximately $212 million. For the full year, sales were $4.6 billion, flat versus last year, and organic sales were down 2%, excluding the impact of China and the one-time disruptions in the fourth quarter. Consolidated operating income was $780.6 million. Total company operating margin was 16.9%, a 90 basis point improvement. Our EPS were $4.12. Our total free cash flow generation was an impressive $475 million. Now let me provide more color on our segment results. Beginning with Water Innovations, sales for the fourth quarter were $645 million, down 3%. Organic sales were up 2% excluding the impact of China and the hurricane. For the year, sales were flat, with organic sales excluding China and the impact of the hurricane down 2%. Water Innovations' operating income was $152.6 million in the fourth quarter. Operating income for the full year was $603.8 million. Operating margin was 23.7% for the quarter and 23.5% for the full year. Consistent with our returns-focused investment strategy, our Moen brand investments are generating results as we focus on accelerating the consumer and channel awareness of our new-to-world Flow technology and invested in our core brand. As we discussed, we selectively focused on the portions of our portfolio with the highest potential for returns. In our luxury portfolio, we made key investments in capacity for our House of Rohl products. Now as one combined entity with Emtek, we are excited about the future of our luxury brand. In China, sales declined 30% in the fourth quarter and 31% for the full year. While the market seems to have stabilized, we do expect another challenging comparable in the first quarter of 2025 due to lapping accelerated completion in Q1 2024. Looking to 2025 and beyond, this business will continue to provide innovation and growth optionality. As a result of its replatformed size, it is no longer a material portion of our business, and future declines, if any, should be less impactful to our P&L. Turning to Outdoors, fourth-quarter net sales were $303 million, down 2%. For the full year, sales were $1.4 billion, up 1%. For doors, sales were flat in the quarter and up low single digits for the year. Decking sales were down mid-teens in the quarter and were down low teens for the full year as a result of a softer demand environment and destocking. Outdoor segment operating income was $55.2 million during the quarter, up 29%. Operating income for the full year was $218 million, an increase of 25%. Segment operating margin for Outdoors was 18.2% in the quarter, an increase of 430 basis points, and 16.1% for the full year, a 310 basis point increase. Outdoors delivered a strong sales and operating margin year. These impressive margin results are a direct impact of the work we are doing to drive innovation and expand distribution for our leading brands. Finally, turning to Security. As Nicholas discussed, we were impacted in the fourth quarter by a third-party software outage which impacted our distribution center. Fourth-quarter sales were $157 million, down 17%, or down 10% when adjusting for the outage. Our fourth-quarter operating margins were 9.3%. Full-year sales decreased 4% to $694 million, and organic sales decreased around 10% when adjusting for the impact of the software outage. Our full-year operating margins were a 10 basis point increase versus last year. The performance of this segment in 2024 did not meet our standards, and we have identified critical areas for us to focus on as we work to address these challenges directly and head-on. We have already taken actions under David's leadership, and I am confident that we will improve this business. We've made progress on some exciting brand and product work, which will be unveiled in 2025, including the first major branding campaign from Master Lock in several decades. We have already seen proof of our brand strategy in action. For example, recent safe advertising highlighting the performance and trustworthiness of our brand accelerated point of sale, which further improved after the recent tragic LA fires. As consumers face this terrible crisis, and as it was highlighted around the globe, the work that we have done around helping people understand what our brand stands for—namely safety, dependability, and quality—became even more important and gives us confidence in our larger strategy of focusing on meaningful brand and innovation. We saw significant point-of-sale growth in those markets where consumers were focused on these attributes. Looking forward to 2025, we have a new proven leader, a renewed focus on differentiating our iconic brand and product, and a robust partnership pipeline for Yale. We are rolling out a connected lockout tagout solution and see it as a breakout opportunity for our security business. To recap, 2024 was a year of transformation and execution for Fortune Brands amidst a dynamic external environment. Our teams built new assets across brands, innovation, and digital, which will accelerate growth as we deploy them in the marketplace. Our margin results and market outperformance in key parts of our portfolio give us confidence in the future. We took decisive steps this year to better position ourselves, and I am proud of what our teams achieved in 2024. In 2025, which David will speak to in greater detail, we will focus on driving above-market growth and accelerating our areas of advantage. We will look to sustainably grow margins and continue investing behind our most strategic opportunities. We will execute our larger strategy of focusing on our supercharged categories. We expect 2025 to be another breakout year for our connected products. We will take concrete actions in our business to ensure that we are best positioned for long-term growth. Additionally, we will manage any period of continued volatility, responding quickly and remaining agile while actively positioning Fortune Brands Innovations for the future. I will now turn the call over to David Barry.
David Barry: Thanks, Nicholas. As a reminder, my comments will focus on results before charges and gains to best reflect ongoing business performance. All comparisons will be made against the same period last year unless otherwise noted. Before I begin, I would like to take a moment to address my new role. I have found my experiences as CFO to be incredibly rewarding, and I am grateful to all those with whom I've built relationships, including many of you on the call today. I look forward to the next phase of my career and journey with Fortune Brands in my role as President of our Security and Connected Product businesses. I am fully confident in the long-term growth opportunities of both of these businesses, and I am excited to help advance our value creation. In the meantime, I will be assisting with the search for our next CFO and will partner closely with my successor, ensuring a very smooth transition. As Nicholas highlighted, our teams focused on a tight set of priorities amidst a dynamic external market while continuing to best position the company for the future. For the fourth quarter, sales were $1.1 billion, down 5%, and organic sales were down 1% when adjusting for the impact of China and excluding the one-time event. Consolidated operating income was $181.6 million, and total company operating margin was 16.4%. EPS were $0.98. Fourth-quarter free cash flow was approximately $212 million. For the full year, sales were $4.6 billion, flat versus last year, and organic sales were down 2%, excluding the impact of China and the one-time disruptions in the fourth quarter. Consolidated operating income was $780.6 million. Total company operating margin was 16.9%, a 90 basis point improvement. Our EPS were $4.12. Our total free cash flow generation was an impressive $475 million. Now let me provide more color on our segment results. Beginning with Water Innovations, sales for the fourth quarter were $645 million, down 3%. Organic sales were up 2% excluding the impact of China and the hurricane. For the year, sales were flat, with organic sales excluding China and the impact of the hurricane down 2%. Water Innovations' operating income was $152.6 million in the fourth quarter. Operating income for the full year was $603.8 million. Operating margin was 23.7% for the quarter and 23.5% for the full year. Consistent with our returns-focused investment strategy, our Moen brand investments are generating results as we focus on accelerating the consumer and channel awareness of our new-to-world Flow technology and invested in our core brand. As we discussed, we selectively focused on the portions of our portfolio with the highest potential for returns. In our luxury portfolio, we made key investments in capacity for our House of Rohl products. Now as one combined entity with Emtek, we are excited about the future of our luxury brand. In China, sales declined 30% in the fourth quarter and 31% for the full year. While the market seems to have stabilized, we do expect another challenging comparable in the first quarter of 2025 due to lapping accelerated completion in Q1 2024. Looking to 2025 and beyond, this business will continue to provide innovation and growth optionality. As a result of its replatformed size, it is no longer a material portion of our business, and future declines, if any, should be less impactful to our P&L. Turning to Outdoors, fourth-quarter net sales were $303 million, down 2%. For the full year, sales were $1.4 billion, up 1%. For doors, sales were flat in the quarter and up low single digits for the year. Decking sales were down mid-teens in the quarter and were down low teens for the full year as a result of a softer demand environment and destocking. Outdoor segment operating income was $55.2 million during the quarter, up 29%. Operating income for the full year was $218 million, an increase of 25%. Segment operating margin for Outdoors was 18.2% in the quarter, an increase of 430 basis points, and 16.1% for the full year, a 310 basis point increase. Outdoors delivered a strong sales and operating margin year. These impressive margin results are a direct impact of the work we are doing to drive innovation and expand distribution for our leading brands. Finally, turning to Security. As Nicholas discussed, we were impacted in the fourth quarter by a third-party software outage which impacted our distribution center. Fourth-quarter sales were $157 million, down 17%, or down 10% when adjusting for the outage. Our fourth-quarter operating margins were 9.3%. Full-year sales decreased 4% to $694 million, and organic sales decreased around 10% when adjusting for the impact of the software outage. Our full-year operating margins were a 10 basis point increase versus last year. The performance of this segment in 2024 did not meet our standards, and we have identified critical areas for us to focus on as we work to address these challenges directly and head-on. We have already taken actions under David's leadership, and I am confident that we will improve this business. We've made progress on some exciting brand and product work, which will be unveiled in 2025, including the first major branding campaign from Master Lock in several decades. We have already seen proof of our brand strategy in action. For example, recent safe advertising highlighting the performance and trustworthiness of our brand accelerated point of sale, which further improved after the recent tragic LA fires. As consumers face this terrible crisis, and as it was highlighted around the globe, the work that we have done around helping people understand what our brand stands for—namely safety, dependability, and quality—became even more important and gives us confidence in our larger strategy of focusing on meaningful brand and innovation. We saw significant point-of-sale growth in those markets where consumers were focused on these attributes. Looking forward to 2025, we have a new proven leader, a renewed focus on differentiating our iconic brand and product, and a robust partnership pipeline for Yale. We are rolling out a connected lockout tagout solution and see it as a breakout opportunity for our security business. To recap, 2024 was a year of transformation and execution for Fortune Brands amidst a dynamic external environment. Our teams built new assets across brands, innovation, and digital, which will accelerate growth as we deploy them in the marketplace. Our margin results and market outperformance in key parts of our portfolio give us confidence in the future. We took decisive steps this year to better position ourselves, and I am proud of what our teams achieved in 2024. In 2025, which David will speak to in greater detail, we will focus on driving above-market growth and accelerating our areas of advantage. We will look to sustainably grow margins and continue investing behind our most strategic opportunities. We will execute our larger strategy of focusing on our supercharged categories. We expect 2025 to be another breakout year for our connected products. We will take concrete actions in our business to ensure that we are best positioned for long-term growth. Additionally, we will manage any period of continued volatility, responding quickly and remaining agile while actively positioning Fortune Brands Innovations for the future. I will now turn the call over to David Barry.
David Barry: Thanks, Nicholas. As a reminder, my comments will focus on results before charges and gains to best reflect ongoing business performance. All comparisons will be made against the same period last year unless otherwise noted. Before I begin, I would like to take a moment to address my new role. I have found my experiences as CFO to be incredibly rewarding, and I am grateful to all those with whom I've built relationships, including many of you on the call today. I look forward to the next phase of my career and journey with Fortune Brands in my role as President of our Security and Connected Product businesses. I am fully confident in the long-term growth opportunities of both of these businesses, and I am excited to help advance our value creation. In the meantime, I will be assisting with the search for our next CFO and will partner closely with my successor, ensuring a very smooth transition. As Nicholas highlighted, our teams focused on a tight set of priorities amidst a dynamic external market while continuing to best position the company for the future. For the fourth quarter, sales were $1.1 billion, down 5%, and organic sales were down 1% when adjusting for the impact of China and excluding the one-time event. Consolidated operating income was $181.6 million, and total company operating margin was 16.4%. EPS were $0.98. Fourth-quarter free cash flow was approximately $212 million. For the full year, sales were $4.6 billion, flat versus last year, and organic sales were down 2%, excluding the impact of China and the one-time disruptions in the fourth quarter. Consolidated operating income was $780.6 million. Total company operating margin was 16.9%, a 90 basis point improvement. Our EPS were $4.12. Our total free cash flow generation was an impressive $475 million. Now let me provide more color on our segment results. Beginning with Water Innovations, sales for the fourth quarter were $645 million, down 3%. Organic sales were up 2% excluding the impact of China and the hurricane. For the year, sales were flat, with organic sales excluding China and the impact of the hurricane down 2%. Water Innovations' operating income was $152.6 million in the fourth quarter. Operating income for the full year was $603.8 million. Operating margin was 23.7% for the quarter and 23.5% for the full year. Consistent with our returns-focused investment strategy, our Moen brand investments are generating results as we focus on accelerating the consumer and channel awareness of our new-to-world Flow technology and invested in our core brand. As we discussed, we selectively focused on the portions of our portfolio with the highest potential for returns. In our luxury portfolio, we made key investments in capacity for our House of Rohl products. Now as one combined entity with Emtek, we are excited about the future of our luxury brand. In China, sales declined 30% in the fourth quarter and 31% for the full year. While the market seems to have stabilized, we do expect another challenging comparable in the first quarter of 2025 due to lapping accelerated completion in Q1 2024. Looking to 2025 and beyond, this business will continue to provide innovation and growth optionality. As a result of its replatformed size, it is no longer a material portion of our business, and future declines, if any, should be less impactful to our P&L. Turning to Outdoors, fourth-quarter net sales were $303 million, down 2%. For the full year, sales were $1.4 billion, up 1%. For doors, sales were flat in the quarter and up low single digits for the year. Decking sales were down mid-teens in the quarter and were down low teens for the full year as a result of a softer demand environment and destocking. Outdoor segment operating income was $55.2 million during the quarter, up 29%. Operating income for the full year was $21
