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    FBIN
    Earnings call· Jun 2026(Q2 FY26)

    Fortune Brands Innovations Q2 FY26 earnings call FBIN

    Aug 4, 2026 Source

    Executive summary

    Fortune Brands Innovations Q2 FY26 — Strategic Reinvestment and Operational Streamlining

    Fortune Brands Innovations is undergoing a strategic realignment under its new CEO, focusing on improving execution, customer experience, and product development. The company is leveraging tariff refunds to make incremental investments in service and innovation, while also streamlining its corporate cost structure and reviewing its portfolio. While these actions impact near-term profitability, management is confident they will drive long-term growth and margin expansion, with initial progress expected in 2027.

    Highlights

    5

    • Consolidated operating income increased 18.4% to $236 million, with a margin of 20.4%, benefiting from tariff refunds.

    • Security segment sales grew 3.8%, with new products contributing almost 200 basis points to growth.

    • Free cash flow for the quarter was $179 million, a significant increase from $119 million last year.

    • The company is on track to achieve an annualized run rate savings target of $70 million by Q1 2027, with $15 million expected in 2026.

    • New product launches, including Moen's SwivelControl faucet and Master Lock's Elite padlock, are receiving positive initial responses and exceeding sales expectations.

    Concerns

    5

    • Total company sales were down 4% to $1.2 billion, primarily driven by underperformance in the Water segment.

    • Water segment sales declined 6.5% (5.4% excluding China) due to service level challenges, discrete share losses, and softness in new construction demand.

    • Full-year EPS guidance (excluding tariff benefit) was updated to $2.70-$3.00, reflecting incremental investments and slightly lower sales growth.

    • Water segment's underlying operating margin decreased by 700 basis points (excluding tariff benefit) due to unfavorable price/cost, volume deleverage, and higher costs to serve customers.

    • The R&R end market is expected to be down low single digits, and single-family new construction down mid-single digits for the year.

    Guidance & targets

    11
    CategoryTargetConfidence
    Full-year net sales
    down low-single digits
    high materiality
    High
    Full-year EPS
    $3.22 to $3.52
    high materiality
    High
    Full-year EPS (excluding tariff benefit)
    $2.70 to $3.00
    high materiality
    High
    Full-year free cash flow
    incorporates net cash proceeds of $56 million from the tariff refunds received to-date, partially offset by the reduction in our forecasted operating income in the second half of the year
    medium materiality
    High
    Q3 net sales
    down between 1% and 2%
    medium materiality
    High
    Q3 EPS
    $0.72 and $0.76
    medium materiality
    High
    Q3 operating margin
    between 12.5% and 13%
    medium materiality
    High
    Second half margins
    up approximately 100 basis points versus the first half
    medium materiality
    High
    Net debt-to-EBITDA
    below 2.5x
    high materiality
    High
    Annualized run rate savings target
    $70 million
    medium materiality
    High
    Annualized run rate savings target (2026 portion)
    $15 million
    medium materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Water
    Sales impacted by service level challenges, carryover of discrete share losses from H1 2025, and softness in new construction-related demand in wholesale channel, partially offset by e-commerce growth. Underlying margin decline driven by unfavorable price/cost, volume deleverage, and higher cost to serve. Luxury segment (House of Rohl) outperformed Moen.
    Operating income: $179 millionOperating income growth: up 7.9%Sales excluding China: down 5.4%Operating margin benefit from tariff refunds: 1,090 basis pointsUnderlying margin decline (excluding tariff benefit): 700 basis points
    		$605 milliondown 6.5%—29.5%
    Outdoors
    Sales driven by softer new construction-related demand in wholesale, partially offset by retail growth and positive pricing. Larson performed well. Improved operating performance, partially offset by lower volume and higher tariff, commodity, and freight costs.
    Operating income: $56 millionOperating income growth: up 14.2%Sales excluding Fiberon: down 1.5%Operating margin benefit from tariff refunds: 130 basis points
    		$365 milliondown 3.8%—15.2%
    Security
    Growth in commercial, retail, and e-commerce channels. Benefited from new product launches (Yale, Master Lock) and Master Lock retail packaging refresh. Improved operating performance, partially offset by higher tariff, commodity, and freight costs.
    Operating income: $50 millionOperating income growth: up 88.2%New products contribution to sales growth: almost 200 basis pointsOperating margin benefit from tariff refunds: 1,030 basis points
    		$184 millionup 3.8%—26.8%

    Operational metrics

    19
    Total company sales
    $1.2 billiondown 4%
    Q2 FY26

    The decline in sales was primarily driven by our Water segment, partially offset by areas of growth in Outdoors & Security.

    Consolidated operating income
    $236 millionup 18.4%
    Q2 FY26

    Both operating income and EPS benefited from anticipated net tariff refunds.

    EPS
    $1.35
    Q2 FY26

    Both operating income and EPS benefited from anticipated net tariff refunds.

    Gross tariff refunds recognized
    $122 million
    Q2 FY26

    $104 million recognized as reduction in cost of goods, $18 million recognized as reduction in inventory.

    Operating income benefit from net tariff refunds
    $81 million
    Q2 FY26

    Net of directly attributable variable compensation expense.

    Cash inflow from tariff refunds
    $9 million
    Q2 FY26

    In the second quarter, we had a cash inflow of $9 million from tariff refunds.

    Gross proceeds from tariff refunds collected
    $56 million
    YTD through July 31

    We expect to receive the majority before year-end 2026.

    Net debt
    $2.3 billion
    Q2 FY26 end
    Net debt-to-EBITDA
    2.7x
    Q2 FY26 end

    Working to reduce leverage below 2.5x through a reduction in debt levels funded through free cash flow generation.

    Cost program annualized run rate savings target
    $70 million
    Annualized

    Work is underway to reduce corporate costs.

    Incremental investments (EPS impact)
    $0.20
    Full-year FY26

    Approximately $0.20 of investment that Jesse outlined, predominantly hit through OpEx, mostly in SG&A.

    Volume impact from service constraints (EPS impact)
    $0.10
    Full-year FY26

    Volume directly attributable to service constraints.

    Commodity and freight inflation increase
    $10 millionincrease from prior estimate
    FY26

    Driven across brass, copper, aluminum, and freight.

    Capital expenditures guidance
    $110 million to $125 million
    FY26

    Lower than in years past, but well-positioned to absorb incremental volume.

    Prior year Q3 variable comp unwind benefit
    $25 million
    Q3 FY25

    We're comping that benefit from last year.

    New products contribution to Security sales growth
    almost 200 basis points
    Q2 FY26

    We expect these initiatives to continue to benefit the back half of the year.

    R&R end market growth
    down low single digits
    FY26

    We continue to expect the R&R end market to be down low single digits for the year.

    Single-family new construction end market growth
    down mid-single digits
    FY26

    Our guidance does not contemplate a recovery in single-family new construction in 2026.

    Doors material conversion
    55%
    Current

    Doors are probably 55% converted right now away from wood and steel.

    Industry KPIs

    8
    MetricValueDetails
    Price costlow-single digits%
    Order backlog—
    Book to bill ratio—
    Data center hvac exposure—
    Organic operating leverage—
    Service aftermarket attach—
    Order lead times placement horizon—
    Orders bookings growth by vertical—

    Product announcements

    2
    ProductTypeDetails
    Moen's SwivelControl faucetlaunch
    Master Lock Elite padlocklaunch

    Deals & partnerships

    1
    FiberonStrategic review underway to allocate capital and resources to highest return opportunities.

    The strategic review of Fiberon is a deliberate step to concentrate investment and management attention on core brands where the company has a clear right to win.

    Risks & headwinds

    4
    Service level challenges and supply chain disruption in Water segmentOngoing through H2 FY26

    Impacted Water segment sales by 2.5 percentage points and underlying operating margin by 200 basis points in Q2.

    Mitigation: Incremental investments in operations, premium freight, DCs, and potentially higher-cost suppliers to improve service levels and accelerate new product development. Resetting S&OP processes.

    Inflation in input costs (oil, derivatives, freight, brass, copper, aluminum)Ongoing through FY26

    Commodity and freight inflation increased by $10 million to $90 million for FY26. Price/cost unfavorable in Q3, favorable in Q4.

    Mitigation: Monitoring geopolitical backdrop; assessing commodity increases against pricing for 2027 planning.

    Softness in new construction and R&R end marketsFY26

    R&R end market expected down low single digits for FY26; single-family new construction down mid-single digits for FY26.

    Mitigation: Focus on resilient luxury categories in R&R; prioritizing volume where winning; expanding into R&R oriented side of the business for Water and Doors.

    Tariff exposureOngoing

    Overall ongoing tariff exposure remains largely unchanged despite new Section 232 and 301 tariffs replacing expiring IEPA and Section 122 tariffs. $100 million year-on-year increase in tariffs hitting P&L in FY26.

    Mitigation: Recognized tariff refunds used for investments; assessing impact for future pricing.

    What to watch in Q3 FY26

    5

    Water segment service level improvement

    Early 2027
    CurrentService challenges impacted Q2 sales and margin.
    TargetSustainable fixes implemented, reduced premium freight/costs to serve.

    Why it matters

    Critical for Water segment's top and bottom line recovery and customer satisfaction.

    While we are making progress in improving our capabilities, we are not where we need to be, and we are prioritizing investments in our operations to improve service levels and accelerate new product development.

    Q&A highlights

    6

    What are the primary strengths and weaknesses identified after one month in the CEO role?

    CEO Jesse Singh expressed increased optimism about long-term growth and margin potential, citing diverse portfolio, strong brands, talented people, and growth opportunities in material conversion and market expansion. Challenges include improving service levels, simplifying the complex organization, and addressing underperformance in parts of the core business.

    “I came into the role assuming that this business had long-term sustainable growth potential and margin potential capacity. I'd tell you coming in, after the first month, if anything, I'm even more optimistic about that long-term opportunity.”

    asked by Keith Hughes · answered by Jesse Singh

    2 min read6 chapters

    Detailed Narrative

    01

    New Leadership and Strategic Focus

    Jesse Singh, the new Chief Executive Officer, outlined a strategic vision focused on returning to core principles: better service, better products, and a simpler, customer-focused organization. He emphasized leveraging strong brands like Moen, Therma-Tru, and Master Lock, while nurturing adjacencies such as Moen Flo and Yale connected locks. The strategy aims to streamline corporate costs and reallocate resources to customer-facing businesses, addressing underperformance in segments like Water and capitalizing on opportunities for material conversion in Doors and expansion in connected businesses.

    02

    Operational Improvements and Investments

    The company is making incremental investments to enhance execution and service, particularly in the Water segment, which has faced service and supply chain challenges🌐. These investments are partly supported by anticipated tariff refunds. Efforts include reinvigorating the new product pipeline, with recent launches like Moen's SwivelControl faucet and Master Lock's Elite padlock showing positive early results. Management acknowledged that past systems and organizational changes led to supply chain disruption🌐 and service issues, and they are now resetting to proven processes to restore stability.

    03

    Cost Structure Optimization and Organizational Realignment

    Fortune Brands is actively optimizing its cost structure, including moving brand, marketing, and advertising teams back into business units to improve efficiency and decision-making closer to the customer. The company is on track to achieve its previously announced annualized run rate savings target of $70 million by Q1 2027, with $15 million expected to be realized in 2026. This realignment is part of a broader effort to create a more efficient and higher-performing business.

    04

    Portfolio Review and Capital Allocation

    A strategic review of Fiberon is underway, aiming to concentrate investment and management attention on core brands that offer the highest return opportunities. The company plans to prioritize organic investment over M&A while balancing share repurchases with achieving a near-term net debt-to-EBITDA target of below 2.5x. This disciplined approach to capital allocation is intended to drive long-term value creation.

    05

    Market Conditions and Input Costs

    The repair and remodel (R&R) end market is expected to be down low single digits for the year, showing resilience in luxury categories. Single-family new construction is anticipated to be down mid-single digits, with no recovery contemplated in 2026 guidance. Input costs, particularly for oil, derivatives, and freight, continue to accelerate, and no relief from commodity inflation is assumed before year-end. Despite new Section 232 and 301 tariffs replacing expiring ones, the overall ongoing tariff exposure remains largely unchanged.

    06

    Tariff Refunds and Financial Impact

    In Q2, Fortune Brands recognized $122 million in gross tariff refunds, with $104 million reducing cost of goods and $18 million reducing inventory. This resulted in an $81 million benefit to operating income and a $0.52 benefit to EPS in the quarter. The company received $9 million in cash from refunds in Q2, with total gross proceeds of $56 million collected through July 31, and expects to receive the majority of remaining refunds before year-end 2026.

    AI-generated summary of the company’s earnings call. Not investment advice.