Fortune Brands Adds Norcraft to Cabinet Business

Zacks

In line with its strategy of achieving growth through acquisitions, Fortune Brands Home & Security, Inc. FBHS announced that it has penned a deal to buy kitchen and bathroom cabinetry producer, Norcraft Companies Inc. Shares of the company jumped 6.1% following the announcement.

This acquisition, which is anticipated to close in the second quarter of 2015, will cost Fortune Brands $25.50 per share, with an enterprise value of nearly $600 million. The company intends to sponsor this deal with its current credit facility.

Further, Fortune Brands plans to extend a tender offer for all Norcraft shares over the next fortnight, after which the latter will become part of the former’s cabinet business. However, the entire deal is subject to various terms and conditions, including the tender of a majority of Norcraft’s stock.

Fortune Brands currently carries a Zacks Rank #4 (Sell). The company recently posted its fourth-quarter 2014 results, wherein both top and bottom lines came in below expectations.

The company’s quarterly adjusted earnings from continuing operations of 44 cents per share soared 37.5% year over year but fell short of the Zacks Consensus Estimate of 50 cents. Net sales advanced 7.8% year over year to $1,039.6 million, backed by growth witnessed in most segments. However, sales missed the Zacks Consensus Estimate of $1,131 million.

Coming back to yesterday’s announcement, the addition of Norcraft to Fortune Brands is likely to benefit both companies, as it will combine two premium cabinet businesses. Norcraft, which reported annual sales of $376 million in 2014, is renowned for its solid relations in the dealer network along with its spectacular management.

With its robust experience, Norcraft is likely to enhance Fortune Brands’ growth by expanding its product range and market reach. On the other hand, Norcraft will leverage Fortune Brands’ strong resources and scale of operations. Overall, both the companies are deemed to be a complementary fit, which will likely drive results and boost shareholder value.

Fortune Brands has been keen on achieving growth via strategic acquisitions, given its solid balance sheet which provides it with financial flexibility. As evidence, the company recently acquired Sentry Safe, a leading manufacturer of personal safes. The acquisition is expected to widen the offerings of the company’s Master Lock division, while adding to its leading market position and strong consumer base worldwide.

Stocks to Consider

Better-ranked stocks in the retail sector include Restoration Hardware Holdings, Inc. RH, Ross Stores Inc. ROST and The Kroger Co. KR, each with a Zacks Rank #2 (Buy).

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