What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-07-31 compared with 2025-05-07 · 91 added, 56 removed, 120 unchanged (55% of the section changed)

20 unchanged sentences

We believe the Company’s track record reflects the long-term attractiveness and potential of the categories we serve and our leading brands.

We believe the long-term outlook for our products remain favorable, and our strategic advantages, including the set of capabilities we refer to as the Fortune Brands Advantage, will helps us to continue to achieve profitable organic growth over time.

We believe the long-term outlook for our products remains favorable, and our strategic advantages, including the set of capabilities we refer to as the Fortune Brands Advantage, will helps us to continue to achieve profitable organic growth over time.

We continue to believe our most attractive opportunities are to invest in profitable organic growth initiatives, pursue accretive strategic acquisitions, non-controlling equity investments, and joint ventures, and return cash to stockholders through a combination of dividends and repurchases of shares of our common stock under our share repurchase program as explained in further detail under “Liquidity and Capital Resources” below.

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However, we believe we are well positioned to manage the continued slow-down in the housing market as we believe the fundamental drivers of the housing market remain intact.

We have been and may continue to be impacted by near-term supply, labor and freight constraints, a volatile geopolitical environment, as well as increased rates of inflation, increased interest rates, unfavorable fluctuations in foreign exchange rates and the ongoing and worsening costs of tariffs (including recent U.S.

tariffs announced or imposed on China, Canada, Mexico and other countries and any reciprocal actions taken by such countries).

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RESULTS OF OPERATIONS

Thirteen Weeks Ended March 29, 2025 Compared to Thirteen Weeks Ended March 30, 2024

Twenty-Six Weeks Ended June 28, 2025 Compared To Twenty-Six Weeks Ended June 29, 2024

(In millions)

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Operating income

The following discussion of consolidated results of operations and segment results refers to the thirteen weeks ended March 29, 2025 compared to the thirteen weeks ended March 30, 2024.

The following discussion of consolidated results of operations and segment results refers to the twenty-six weeks ended June 28, 2025 compared to the twenty-six weeks ended June 29, 2024.

Consolidated results of operations should be read in conjunction with segment results of operations.

Net sales decreased by $113.0 million, or 4.8%, primarily due to lower sales volume in the U.S.

as well as in our international markets ($28.9 million) and unfavorable foreign exchange ($6.6 million), partially offset by incremental sales from a prior year acquisition ($6.5 million).

as well as in our international markets ($59.8 million) and unfavorable foreign exchange ($6.5 million), partially offset by higher product pricing (including price increases implemented to offset or partially offset tariff impacts) and lower customer sales incentives.

Cost of products sold

Cost of products sold decreased by $43.6 million, or 7.0%, primarily due to the lower sales volume, lower transportation costs and productivity improvements in all of our segments as a result of strategic sourcing initiatives and manufacturing efficiencies.

Cost of products sold decreased by $82.2 million, or 6.2%, primarily due to the lower sales volume, lower transportation costs and productivity improvements in all of our segments as a result of strategic sourcing initiatives and manufacturing efficiencies, partially offset by significant cost inflation.

Selling, general and administrative expenses

Selling, general and administrative expenses increased by $3.3 million, or 1.1%, primarily due to higher restructuring-related charges, higher research and development expenses and higher advertising and marketing costs, partially offset by lower headcount-related expenses and lower freight and shipping expenses.

Selling, general and administrative expenses increased by $22.4 million, or 3.5%, primarily due to higher restructuring-related charges ($16.6 million), higher distribution costs and higher customer credit losses, partially offset by lower headcount-related expenses.

Restructuring charges

Restructuring charges of $24.8 million are primarily attributable to costs associated with the previously announced decision to consolidate our U.S.

regional offices into one campus headquarters and related organizational and personnel changes, product-line rationalizations within our Outdoors segment, and plant closures in both our Water and Security segments.

Restructuring charges of $38.5 million in the twenty-six weeks ended June 28, 2025 are primarily attributable to costs associated with the decision to consolidate the Company's U.S.

regional offices into one campus headquarters and its related organizational and personnel changes ($33.5 million), product-line rationalizations within our Outdoors segment, plant closures in both our Water and Security segments and headcount-reduction actions across all segments

Operating income

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Interest expense

Interest expense decreased $1.5 million to $28.6 million primarily due to lower commercial paper borrowings net of repayments during the thirteen weeks ended March 29, 2025, as compared to the thirteen weeks ended March 30, 2024 ($280.0 million in 2025 versus $375.0 million in 2024).

Other (income) expense, net

Other income, net, was $1.0 million in the thirteen weeks ended March 29, 2025, compared to other expense, net of $0.1 million in the thirteen weeks ended March 30, 2024.

The increase in other income, net is primarily due to an increase in interest income partially offset by an increase in foreign currency transaction expense and an increase in net periodic benefit expense.

The effective income tax rates for the thirteen weeks ended March 29, 2025, and thirteen weeks ended March 30, 2024, were 25.9% and 23.0%, respectively.

The difference between the Company’s effective income tax rate for the thirteen weeks ended March 29, 2025, and the U.S.

statutory rate of 21% primarily relates to state income taxes and foreign income taxed at higher rates.

The difference between the Company’s effective income tax rate for the thirteen weeks ended March 30, 2024, and the U.S.

statutory rate of 21% primarily relates to state income taxes and foreign income taxed at higher rates, partially offset by a valuation allowance release and tax credits.

Net income was $51.4 million in the thirteen weeks ended March 29, 2025, compared to $96.4 million in the thirteen weeks ended March 30, 2024.

The decrease in net income was due to lower operating income ($58.4 million), partly offset by lower income tax expense ($10.8 million), lower interest expense ($1.5 million) and higher other income ($1.1 million).

Interest expense decreased by $2.6 million, or 4.2%, primarily due to lower interest rates on current-period commercial paper borrowings, partially offset by higher commercial paper borrowings net of repayments during the twenty-six weeks ended June 28, 2025, as compared to the twenty-six weeks ended June 29, 2024 ($637.4 million in 2025 versus $104.7 million in 2024).

Other income, net

Other income, net, was $8.2 million in the twenty-six weeks ended June 28, 2025, compared to $3.6 million in the twenty-six weeks ended June 29, 2024.

The increase in other income, net is primarily due to an increase in interest income ($3.1 million) and a decrease in foreign currency transaction expense ($3.0 million), partially offset by an increase in net periodic benefit expense ($4.5 million).

The effective income tax rates for the twenty-six weeks ended June 28, 2025 and twenty-six weeks ended June 29, 2024 were 30.1% and 22.2%, respectively.

The difference between the Company’s effective income tax rate for the twenty-six weeks ended June 28, 2025, and the U.S.

statutory rate of 21% primarily relates to state income taxes, including the state income tax impacts of legal entity restructuring, foreign income taxed at higher rates, and dividend withholding tax, partially offset by decreases in uncertain tax positions.

The difference between the Company’s effective income tax rate for the twenty-six weeks ended June 29, 2024, and the U.S.

statutory rate of 21% primarily relates to state income taxes and foreign income taxed at higher rates, partially offset by a favorable benefit related to a valuation allowance release, decreases in uncertain tax positions, and tax credits.

Net income was $151.6 million in the twenty-six weeks ended June 28, 2025, compared to $230.2 million in the twenty-six weeks ended June 29, 2024.

The decrease in net income was due to lower operating income ($85.9 million), partially offset by lower interest expense ($2.6 million) and higher other income ($4.6 million).

Results By Segment

Net sales decreased by $59.9 million, or 9.6%, primarily due to lower sales unit volume (including a sales volume decline within our China business of approximately $21.3 million), higher customer sales incentives and unfavorable foreign exchange ($5.4 million), partially offset by the impact of higher product pricing and the incremental sales from a prior year acquisition ($6.5 million).

Operating income decreased by $38.1 million, or 27.0%, primarily due to the lower sales volume and higher restructuring and restructuring-related charges ($10.0 million), partially offset by productivity improvements as a result of strategic sourcing initiatives and manufacturing efficiencies and lower transportation costs.

Net sales decreased by $10.3 million, or 3.3%, primarily due to lower sales unit volume for our exterior doors products and lower product pricing, partially offset by lower customer sales incentives and favorable product mix.

Net sales decreased by $72.6 million, or 5.7%, primarily due to lower sales unit volume (including a sales volume decline within our China business of approximately $46.4 million) and unfavorable foreign exchange ($5.9 million), partially offset by higher product pricing (including price increases implemented to offset or partially offset tariff impacts) and lower customer sales incentives.

Operating income decreased by $32.9 million, or 11.3%, primarily due to the lower sales volume, higher restructuring and restructuring-related charges ($17.0 million) and significant cost inflation, partially offset by productivity improvements as a result of strategic sourcing initiatives and manufacturing efficiencies, higher product pricing (including price increases implemented to offset or partially offset tariff impacts), lower customer sales incentives and lower transportation costs.

Net sales decreased by $20.8 million, or 3.0%, primarily due to lower sales unit volume, partially offset by higher product pricing (including price increases implemented to offset or partially offset tariff impacts), lower customer sales incentives and favorable product mix.

Operating income decreased by $21.3 million, or 24.8%, primarily due to the lower sales unit volume, higher restructuring and restructuring-related charges ($0.8 million) and significant cost inflation, partially offset by higher product pricing (including price increases implemented to offset or partially offset tariff impacts) and productivity improvements as a result of strategic sourcing initiatives and manufacturing efficiencies.

Net sales decreased by $19.6 million, or 5.4%, primarily due to lower sales unit volume and unfavorable foreign exchange ($0.6 million).

Operating income decreased by $14.8 million, or 27.7%, primarily due to the lower sales unit volume and higher restructuring and restructuring-related charges ($1.4 million), partially offset by productivity improvements as a result of strategic sourcing initiatives and manufacturing efficiencies.

Net sales decreased by $6.3 million, or 3.7%, primarily due to lower sales unit volume and unfavorable foreign exchange ($1.2 million), partially offset by lower customer sales incentives.

Operating income decreased by $3.1 million, or 16.2%, primarily due to the lower sales unit volume, partially offset by productivity improvements as a result of strategic sourcing initiatives and manufacturing efficiencies.

Corporate expenses

Corporate expenses increased by $16.9 million, or 21.9%, primarily due to higher restructuring and restructuring-related charges ($19.9 million), partially offset by lower headcount-related costs.

Thirteen Weeks Ended June 28, 2025 Compared To Thirteen Weeks Ended June 29, 2024

(In millions)

Operating Income (Loss)

Corporate expenses

Operating income

The following discussion of consolidated results of operations and segment results refers to the thirteen weeks ended June 28, 2025 compared to the thirteen weeks ended June 29, 2024.

Consolidated results of operations should be read in conjunction with segment results of operations.

Net sales decreased by $36.7 million, or 3.0%, primarily due to lower sales volume in the U.S.

as well as in our international markets ($35.8 million), partially offset by higher product pricing (including price increases implemented to offset or partially offset tariff impacts) and lower customer sales incentives.

Cost of products sold

Cost of products sold decreased by $38.9 million, or 5.6%, primarily due to the lower sales volume, lower transportation costs and productivity improvements in all of our segments as a result of strategic sourcing initiatives and manufacturing efficiencies, partially offset by significant cost inflation.

Selling, general and administrative expenses

Selling, general and administrative expenses increased by $19.1 million, or 6.0%, primarily due to higher restructuring-related charges ($12.2 million), higher distribution costs and higher customer credit losses, partially offset by lower headcount-related expenses.

Restructuring charges

Restructuring charges of $13.7 million in the thirteen weeks ended June 28, 2025 are primarily attributable to costs associated with the decision to consolidate our U.S.

regional offices into one campus headquarters and related organizational and personnel changes as well as headcount-reduction actions across all segments.

Operating income

Operating income decreased by $27.5 million, or 13.8%, primarily due to the lower sales volume and higher restructuring and restructuring-related charges ($11.5 million), partially offset by lower transportation costs and productivity improvements in all of our segments as a result of strategic sourcing initiatives and manufacturing efficiencies as well as lower headcount-related costs.

Interest expense

Interest expense decreased by $1.1 million, or 3.4%, primarily due to lower interest rates on current-period commercial paper borrowings, partially offset by higher commercial paper borrowings net of repayments during the thirteen weeks ended June 28, 2025, as compared to the thirteen weeks ended June 29, 2024 ($358.0 million of net borrowings in 2025 versus $269.0 million of net repayments in 2024).

Other income, net

Other income, net, was $7.3 million in the thirteen weeks ended June 28, 2025, compared to $3.7 million in the thirteen weeks ended June 29, 2024.

The increase in other income, net is primarily due to a decrease in foreign currency transaction expense ($3.9 million), partially offset by an increase in net periodic benefit expense ($2.3 million).

The effective income tax rates for the thirteen weeks ended June 28, 2025 and thirteen weeks ended June 29, 2024 were 32.1% and 21.5%, respectively.

The difference between the Company’s effective income tax rate for the thirteen weeks ended June 28, 2025, and the U.S.

The difference between the Company’s effective income tax rate for the thirteen weeks ended June 29, 2024, and the U.S.

statutory rate of 21% primarily relates to state income taxes and foreign income taxed at higher rates, partially offset by a favorable benefit related decreases in uncertain tax positions and tax credits.

Net income was $100.3 million in the thirteen weeks ended June 28, 2025, compared to $133.9 million in the thirteen weeks ended June 29, 2024.

The decrease in net income was due to lower operating income ($27.5 million) and higher income tax expense ($10.8 million), partially offset by higher other income ($3.6 million).

Results By Segment

Net sales decreased by $12.7 million, or 1.9%, primarily due to lower sales unit volume (including a sales volume decline within our China business of approximately $24.7 million), partially offset by higher product pricing (including price increases implemented to offset or partially offset tariff impacts) and lower customer sales incentives.

Operating income increased by $5.1 million, or 3.4%, primarily due to higher product pricing (including price increases implemented to offset or partially offset tariff impacts), lower customer sales incentives, and productivity improvements as a result of strategic sourcing initiatives and manufacturing efficiencies, partially offset by lower sales volume and higher restructuring and restructuring-related charges ($7.0 million).

Net sales decreased by $10.6 million, or 2.7%, primarily due to lower sales unit volume, partially offset by higher product pricing (including those related to tariffs).

Operating income decreased by $9.7 million, or 18.7%, primarily due to the lower sales unit volume and material cost inflation, partially offset by lower restructuring and restructuring-related charges ($5.0 million), higher product pricing (including those related to tariffs) and productivity improvements as a result of strategic sourcing initiatives and manufacturing efficiencies.

Net sales decreased by $13.4 million, or 7.0%, primarily due to lower sales unit volume, partially offset by favorable foreign exchange ($0.6 million).

Operating income decreased by $11.7 million, or 34.0%, primarily due to the lower sales unit volume and higher restructuring and restructuring-related charges ($1.8 million).

Corporate expenses increased by $11.2 million, or 29.5%, primarily due to higher restructuring and restructuring-related charges ($7.7 million) as well as higher professional fees.

LIQUIDITY AND CAPITAL RESOURCES

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Our operating income is generated by our subsidiaries.

We believe our operating cash flows, including funds available under the credit facility and access to capital markets, provide sufficient liquidity to support the Company’s working capital requirements, capital expenditures and service of indebtedness, as well as to finance acquisitions, repurchase shares of our common stock and pay dividends to stockholders, as the Board of Directors deems appropriate both for the 12-month period following March 29, 2025 and in the long-term.

Our cash flows from operations, borrowing availability and overall liquidity are subject to certain risks and uncertainties, including those described in the section of our Annual Report on Form 10-K for the year ended December 28, 2024 entitled “Item 1A.

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Long-Term Debt

As of March 29, 2025, the Company had aggregate outstanding notes in the principal amount of $2.7 billion, with varying maturities (the “Notes”).

In June 2025, we repaid our 4.000% senior unsecured notes issued in June 2015 at their maturity date using a combination of cash on hand and commercial paper borrowings.

At June 28, 2025, the Company had aggregate outstanding notes in the principal amount of $2.2 billion, with varying maturities (the “Notes”).

The Notes are unsecured senior obligations of the Company.

In addition, we believe that we have the ability to obtain alternative sources of financing if required.

The following table provides a summary of the Company’s outstanding Notes, including the net carrying value of the Notes, net of underwriting commissions, price discounts and debt issuance costs as of March 29, 2025 and December 28, 2024:

Net Carrying Value

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Maturity Date

March 29, 2025

June 28, 2025

December 28, 2024

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In addition, the Company's ratio of consolidated debt minus certain cash and cash equivalents to consolidated EBITDA generally may not exceed 3.5 to 1.0.

On March 29, 2025 and December 28, 2024, there were no outstanding borrowings under this facility.

As of March 29, 2025, we were in compliance with all covenants under this facility.

We currently have uncommitted bank lines of credit in China, which provide for unsecured borrowings for working capital of up to $30.5 million in aggregate as of March 29, 2025 and December 28, 2024, respectively.

There were no outstanding balances as of March 29, 2025 and December 28, 2024.

There were no outstanding borrowings under this facility as of June 28, 2025 and December 28, 2024.

As of June 28, 2025, we were in compliance with all covenants under this facility.

We currently have uncommitted bank lines of credit in China, which provide for unsecured borrowings for working capital of up to $30.5 million in aggregate as of June 28, 2025 and December 28, 2024, respectively.

There were no outstanding balances as of June 28, 2025 and December 28, 2024.

Commercial Paper

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The Company expects to use any issuances under the Commercial Paper Program for general corporate purposes.

Outstanding borrowings under the Commercial Paper Program as of March 29, 2025 and December 28, 2024 were $279.4 million and zero, respectively.

Outstanding borrowings under the Commercial Paper Program as of June 28, 2025 and December 28, 2024 were $637.4 million and zero, respectively.

Cash and Seasonality

On March 29, 2025, we had non-restricted cash and cash equivalents of $340.0 million, of which $306.0 million was held at non-U.S.

On June 28, 2025, we had non-restricted cash and cash equivalents of $234.7 million, of which $187.2 million was held at non-U.S.

subsidiaries.

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Share Repurchases and Dividends

On February 6, 2025, the Company announced that on February 4, 2025, the Company's Board of Directors authorized the repurchase of up to $1 billion of shares of the Company’s outstanding common stock over the next two years on the open market or in privately negotiated transactions or otherwise (including pursuant to a Rule 10b5-1 trading plan, block trades and accelerated share repurchase transactions), which share repurchase authorization will expire on February 4, 2027, in accordance with applicable securities laws.

The $1 billion share repurchase authorization replaced the then existing authorization, effective on February 4, 2025, that otherwise would have expired on January 29, 2026.

In the thirteen weeks ended March 29, 2025, we repurchased 2.6 million shares of our outstanding common stock under the Company’s share repurchase program for $175.0 million.

As of March 29, 2025, the Company’s total remaining share repurchase authorization under its share repurchase program was approximately $900.0 million.

In the twenty-six weeks ended June 28, 2025, we repurchased 3.8 million shares of our outstanding common stock under the Company’s share repurchase program for $237.8 million.

As of June 28, 2025, the Company’s total remaining share repurchase authorization under its share repurchase program was approximately $837.2 million.

The share repurchase program does not obligate the Company to repurchase any specific dollar amount or number of shares and may be suspended or discontinued at any time.

In the thirteen weeks ended March 29, 2025, we paid dividends in the amount of $30.5 million to the Company’s stockholders.

In the twenty-six weeks ended June 28, 2025, we paid dividends in the amount of $60.6 million to the Company’s stockholders.

Our Board of Directors will continue to evaluate dividend payment opportunities on a quarterly basis.

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Our subsidiaries are not limited by long-term debt or other agreements in their abilities to pay cash dividends or to make other distributions with respect to their capital stock or other payments to the Company.

On July 16, 2025, the Company's Board declared a cash dividend of $0.25 per common share payable on September 10, 2025 to stockholders of record at the close of business on August 22, 2025.

On February 29, 2024, we acquired 100% of the outstanding equity interests of Wise Water Solutions, LLC, doing business as Springwell Water Filtration Systems ("SpringWell") for a purchase price of $105.6 million, net of cash acquired of $1.4 million.

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The results of SpringWell are reported as part of the Water Innovations ("Water") segment.

We have not included pro forma financial information as the transaction is immaterial to our condensed consolidated statements of comprehensive income.

The fair value allocated to assets acquired and liabilities assumed as of February 29, 2024, was $105.6 million, which includes $85.2 million of goodwill.

Goodwill includes expected sales and cost synergies and is expected to be deductible for income tax purposes.

We periodically review our portfolio of brands and evaluate potential strategic transactions and other capital initiatives to increase stockholder value.

Below is a summary of cash flows for the thirteen weeks ended March 29, 2025 and the thirteen weeks ended March 30, 2024.

Below is a summary of cash flows for the twenty-six weeks ended June 28, 2025 and June 29, 2024.

'(In millions)

Thirteen Weeks Ended March 29, 2025

Thirteen Weeks Ended March 30, 2024

Net cash used in operating activities

Twenty-Six Weeks Ended

June 28, 2025

Twenty-Six Weeks Ended June 29, 2024

Net cash provided by operating activities

Net cash used in investing activities

Net cash provided by financing activities

Net cash (used in) provided by financing activities

Effect of foreign exchange rate changes on cash

Net decrease in cash and cash equivalents

Net cash used in operating activities was $83.4 million in the thirteen weeks ended March 29, 2025, compared to net cash used in operating activities of $71.3 million in the thirteen weeks ended March 30, 2024.

The increase in cash used of $12.1 million was primarily due to lower net income and changes in working capital items (primarily accounts receivable, inventories and accounts payable) as well as changes in accrued expenses and accrued taxes.

Net cash used in investing activities was $29.2 million in the thirteen weeks ended March 29, 2025, compared to net cash used in investing activities of $169.8 million in the thirteen weeks ended March 30, 2024.

The decrease in cash used of $140.6 million reflects the cash used in the SpringWell acquisition in February 2024 ($105.2 million) as well as a decrease in capital expenditures.

Net cash provided by financing activities was $68.0 million in the thirteen weeks ended March 29, 2025, compared to net cash provided by financing activities of $238.7 million in the thirteen weeks ended March 30, 2024.

The decrease in cash provided of $170.7 million was primarily due to lower net borrowings under our commercial paper program as well as higher shares repurchases in 2025 as compared to 2024.

Net cash provided by operating activities was $66.0 million in the twenty-six weeks ended June 28, 2025, compared to net cash provided by operating activities of $190.2 million in the twenty-six weeks ended June 29, 2024.

The decrease in cash provided of $124.2 million was primarily due to lower net income in 2025 and an increase in accounts receivable and inventory balances compared to the prior period, partially offset by an increase in accrued expenses and other liabilities.

Net cash used in investing activities was $57.0 million in the twenty-six weeks ended June 28, 2025, compared to net cash used in investing activities of $230.2 million in the twenty-six weeks ended June 29, 2024.

The decrease in cash used of $173.2 million primarily relates to a decrease in acquisition activity in 2025 and lower capital expenditures in 2025 as compared to 2024.

Net cash used in financing activities was $165.3 million in the twenty-six weeks ended June 28, 2025, compared to net cash provided by financing activities of $9.7 million in the twenty-six weeks ended June 29, 2024.

The increase in cash used of $175 million was primarily due to higher net debt repayments in 2025 as compared to 2024 ($90.0 million) and higher share repurchases in 2025 compared to 2024 ($87.6 million).

Pension Plans

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As of December 28, 2024, the fair value of our total pension plan assets was $177.1 million, representing funding of approximately 95% of the accumulated qualified benefit obligation liability.

During the thirteen weeks ended March 29, 2025, we made no pension contributions.

During the twenty-six weeks ended June 28, 2025, we made no pension contributions.

For the foreseeable future, we believe that we have sufficient liquidity to meet the minimum funding that may be required by the Pension Protection Act of 2006.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis