Fortune Brands Innovations, Inc. Q3 FY2025 earnings call

• Transformation Progress: Welcomed over 500 associates into new campus headquarters in Chicago land area, achieving hiring commitments 2 years earlier than planned. The new campus supports business unit-led organizational design with dedicated centers of excellence, driving increased collaboration and execution.
• Macro Environment: Macro environment uneven with cautious consumer sentiment and mixed housing activity. However, signs of stabilization in U.S. housing market with rate cuts, rising home inventory, and pent-up demand in repair and remodel. Balanced portfolio provides stability and growth potential.
• Segment Highlights: Water segment outperformed market, with Moen executing strategic promotions and gaining share. Outdoors segment saw point-of-sale outperformance, with LARSON's retail aisle reset driving growth. Security segment made progress with brand campaigns and new retail placements. Digital portfolio scaling with over 5 million registered users.

Water: Sales were $619 million, down 3% versus Q3 2024. Excluding China, net sales were roughly flat. Operating income was $151 million, down $5 million compared to last year, with an operating margin of 24.4%, down 20 basis points. Outdoors: Sales were $345 million, roughly flat versus last year. Operating income was $53 million, down $8 million compared to last year, with an operating margin of 15.5%, a decrease of 250 basis points. Security: Sales were $186 million, up 5%, with operating income of $33 million, down $1 million year-over-year. Operating margin was 17.8%, down 150 basis points. Digital Portfolio: Over 5 million registered users across digital platforms, on track to approach $300 million in annualized sales by the end of 2025.

• Narrowed EPS guidance, expecting to finish the year near the low end of prior range. Full-year free cash flow expected $400 million to $420 million. Water: Operating margin expected 23% to 24% for full year. Outdoors and Security: Expect margins in fourth quarter to be similar to third quarter. Digital: On track to approach $300 million annualized sales by end of 2025.

• Tariff impacts, with need to offset tariff effects through supply chain actions, cost-out opportunities, and strategic pricing. - Macroeconomic uncertainties affecting consumer sentiment and housing activity. - Inventory dynamics in certain segments, such as lack of seasonal inventory build in Outdoors impacting margins.

Q: On pricing strategy, how have outcomes been and future thinking?

A: Nick Fink stated disciplined pricing approach, covering tariffs through supply chain, cost-out, and pricing, now focusing on driving volume through data capabilities.

Q: On digital sales run rate and growth, how to think about 2026 and beyond?

A: Approaching $300 million annualized sales by end of 2025, excited about Flow's subscription service and Yale's progress, with confidence in $1 billion goal by 2030.

Q: On tariff dynamics and Water margins in 4Q, ballpark margin impact and top line lean?

A: Water margin expected 23%-24% in 4Q, with margin decline due to mix and spend, focusing on promotional activity and volume lean.