Margins matter. The more Fortune Brands
Here's the current margin snapshot for Fortune Brands and some of its sector and industry peers and direct competitors. These numbers don’t reflect any changes from the recently announced breakup of Fortune, of course.
Company |
TTM Gross Margin |
TTM Operating Margin |
TTM Net Margin |
---|---|---|---|
Fortune Brands | 43.9% | 12.5% | 6.3% |
Smith & Wesson Holding |
32.1% | 8.3% | 6.6% |
Stanley Black & Decker |
38.2% | 10.4% | 1.7% |
Callaway Golf |
39.4% | 0.1% | (0.2%) |
Source: Capital IQ, a division of Standard & Poor's. TTM = trailing 12 months.
Unfortunately, that table doesn't tell us much about where Fortune Brands has been, or where it's going. A company with rising gross and operating margins often fuels its growth by increasing demand for its products. If it sells more units while keeping costs in check, its profitability increases. Conversely, a company with gross margins that inch downward over time is often losing out to competition, and possibly engaging in a race to the bottom on prices. If it can't make up for this problem by cutting costs -- and most companies can't -- then both the business and its shares face a decidedly bleak outlook.
Of course, over the short term, the kind of economic shocks we recently experienced can drastically affect a company's profitability. That's why I like to look at five fiscal years' worth of margins, along with the results for the trailing 12 months (TTM), the latest fiscal year, and the latest fiscal quarter (LFQ). You can't always reach a hard conclusion about your company's health, but you can better understand what to expect, and what to watch.
Here's the margin picture for Fortune Brands over the past few years.
Source: Capital IQ, a division of Standard & Poor's. Dollar amounts in millions. FY= fiscal year. TTM = trailing 12 months.
(Because of seasonality in some businesses, the numbers for the last period on the right -- the TTM figures -- aren't always comparable to the FY results preceding them.)
Here's how the stats break down:
- Over the past five years, gross margin peaked at 44.3% and averaged 43.5%. Operating margin peaked at 18.5% and averaged 16.1%. Net margin peaked at 10.4% and averaged 7.5%.
- TTM gross margin is 43.9%, 40 basis points better than the five-year average. TTM operating margin is 12.5%, 360 basis points worse than the five-year average. TTM net margin is 6.3%, 120 basis points worse than the five-year average.
With recent TTM operating margins below historical averages, Fortune Brands has some work to do. Perhaps this performance will improve with the recently announced breakup of Fortune into three distinct companies.
If you take the time to read past the headlines and crack a filing now and then, you're probably ahead of 95% of the market's individual investors. To stay ahead, learn more about how I use analysis like this to help me uncover the best returns in the stock market. Got an opinion on the margins at Fortune Brands? Let us know in the comments below.
- Add Fortune Brands to My Watchlist.
- Add Smith & Wesson Holding to My Watchlist.
- Add Stanley Black & Decker to My Watchlist.
- Add Callaway Golf to My Watchlist.