Did Fortune Brands (NYSE: FO) sneak a dose of its premium liquors into the national water supply, or did we get some decent news out of the housing market this week? With new home sales and mortgage applications both on the rise in February, might the worst be over for Fortune Brands' home and hardware unit?
Contributing 32% of 2008 pre-charge operating income, Fortune's home products portfolio figures prominently in the company's overall success. The thing is, similar to the spirits segment, home products strongly tilt toward the premium end of the spectrum. With the exception of the Master Lock name, which could see a safety-inspired sales surge in line with the brisk handgun business reported by Cabela's (NYSE: CAB), Fortune's line of cabinets, windows, doors, and Moen faucets looks vulnerable to a possible shift in homeowner psychology.
To advance the analysis, let's break out the sweet smell of gingerbread and fairy tales and assume that February's numbers indicate the beginning of housing market stabilization. Concerns remain. For example, might homeowners -- given the fact that they miraculously managed to remain homeowners -- experience a multi-year bout of contentment without the assistance of brand spanking new casement windows? Similarly, remodeling projects could take backseat to a preference for paying down debt.
As for necessary repairs, until the economy has demonstrated good behavior for several quarters, Mr. and Mrs. Fix-it may GPS-program their shopping cart for only the most affordable products. Take the Moen faucet name, for instance, which is a top revenue contributor for Fortune Brands at $850 million in 2008 sales. Numerous private companies offer alternative products in addition to the plumbing divisions of Masco (NYSE: MAS) and Black and Decker (NYSE: BDK). Moreover, Moen's luxury ShowHouse line, which targets a demographic that shops at Nordstrom (NYSE: JWN) and Saks (NYSE: SKS), looks poised for a period of trickling sales, if not outright rust.
However, according to Fortune Brands, Moen is the No. 1 faucet brand in North America. Moreover, management has clearly tapped into important trends: KB Home (NYSE: KBH) recently announced that they will install Moen water-saving faucets in all new homes.
Indeed, there is a strong list of positives on Moen and Fortune's other home-related names, that is, as long as the overall economic environment is positive. When it comes to buying Fortune Brands shares, I'd wait for a clear indication that such is the case.
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