Fortune Brands Innovations, Inc. 2026 Q2 Earnings Call

Good afternoon, everyone, welcome to the Fortune Brands Innovations second quarter 2026 earnings call. Hopefully, everyone has had a chance to review our earnings release. The earnings release, earnings presentation, and audio replay of this call can be found on the Investors section of our fbin.com website. I want to remind everyone that the forward-looking statements we make on the call today, either in our prepared remarks or in the associated question and answer session, are based on current expectations and market outlook and are subject to certain risks and uncertainties that may cause actual results to differ materially from those currently anticipated. These risks are detailed in our various filings with the SEC. The company does not undertake any obligation to update or revise any forward-looking statements, except as required by law.

Any references to operating profit or margin, earnings per share, or free cash flow on today's call will focus on our results on a before charges and gains basis, unless otherwise specified. Please visit our website for our reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. With me on the call today are Jesse Singh, our new Chief Executive Officer, David Barry, our Chief Operating Officer, and Ashley George, our interim Chief Financial Officer. Following our prepared remarks, we have allowed time to address questions. With that, I will turn the call over to Jesse.

Jesse? Thank you, Curt, good afternoon, everyone.

I'm honored and energized to join Fortune Brands Innovations as Chief Executive Officer. Many thanks to the board for its confidence and to Dave and the leadership team for the decisive actions they've taken over the past two quarters. I'd also like to thank the Fortune Brands team for their hard work through a period of change. I have been here a month, and what I've seen so far has made me even more excited about the long-term opportunity to accelerate growth and expand margins. We have truly exceptional brands, talented people, and decades of strong customer relationships, and our results over the last few years have lagged our potential. We have great core businesses, including Moen, Therma-Tru, and Master Lock.

We also have two relevant adjacencies that have become core to the company in our Flo by Moen and our Yale Connected Locks business. We believe we have clear opportunities to expand our position and grow the market in each of these opportunities. We must continue to invest and expand in our core while nurturing our adjacencies. We also have very good people who want to do the right thing, but we as management have created conflicting priorities for our team members. Too much of our focus went to internal and corporate distractions and not enough to our customers. Our customers should be the center of everything we do. Our intent is to get back to basics, better service, better products, and a simpler, more customer-focused organization. Ultimately, this should lead to a more efficient organization with better execution.

As part of this, we must address underperformance in parts of our core. Our Water Innovations business, for example, has a strong position in the market but has lagged recently. This is driven by several factors, including service and supply chain challenges. We see opportunities in each of our businesses to improve the customer experience and to drive more focused innovation. Our doors business has an opportunity to drive incremental material conversion to our more resilient products. Our Security business has an opportunity to expand into additional categories, and we see opportunity for secular growth in our connected businesses. We are developing plans to address our gaps and realize these opportunities. These plans may require incremental investments and resources to improve our service levels and to accelerate our new product development. We believe these actions will yield better long-term opportunity, growth, and profitability.

As part of our increased focus on the business, we intend to streamline our corporate cost structure and shift more resources to our customer-facing businesses. There is real work underway, starting with the previously announced $70 million cost program and a detailed review of the portfolio to better align our resources with our core brands. We will continue to evaluate additional actions as needed to create a higher performing business. By the end of the year, we intend to have the business realigned against these priorities. We will lay out more specifics on our plans over the next quarter or two, and you should expect to see progress against them during 2027. For the third quarter and the balance of the year, we are assuming a similar operating environment and commercial performance to what Dave and Ashley outlined last quarter.

Our updated 2026 guidance is an acknowledgement that we may need to make investments in the company to enhance execution and drive long-term value creation and growth. While it will take time, I am confident that we can build a stronger company that will deliver improved results and shareholder value. We are taking the steps to ensure long-term growth and margin expansion. With that, let me turn it over to Dave.

Thanks, Jesse, and welcome. I'm looking forward to working together to improve execution and operational discipline in the company. As Jesse laid out his near-term priorities, my focus today is the specific actions to help us realize these objectives. As Jesse noted, we are investing more aggressively in the near term to enhance execution and service, supported in part by the anticipated net tariff refund we recognized in the second quarter. On our last call, we laid out our near-term priorities to improve performance and committed to taking decisive actions to achieve those priorities. On today's call, I'll provide an update on the actions we've taken, as well as share additional color on the specific steps that are underway. These are aligned to the priorities Jesse described: execution, including improving the customer experience and accelerating new product development, cost structure, and portfolio.

Starting with execution, there are still areas of underperformance that are impacting results. We will continue to invest in improving our execution while working to streamline our business. For example, last quarter, I described our efforts to reinvigorate our new product pipeline. These efforts remain underway, and we continue to build momentum into 2027. I'll point to two recent launches as indicators of our progress: Moen's SwivelControl faucet and Master Lock's Elite padlock. The recently launched SwivelControl kitchen faucet is engineered to lock in place, providing better directional control, hands-free operation, and automatic redocking. In conjunction with this rollout, we also launched a retrofit wand that allows existing Moen faucets to be equipped with the SwivelControl feature. Initial response from consumers and our channel partners has been positive.

On the Security side, the Master Lock Elite padlock brings meaningful innovation to consumers and pros, including improved security features and enhanced materials. The lock's attributes address the number one concern of consumers: vulnerability to forced entry. The product so far is exceeding our sales expectations. We believe it will continue to gain placement across channels through the balance of the year. As I also noted last quarter, our sales and operations planning process has not kept pace with the needs of the business and our customers, which has contributed to service gaps. While we work to implement sustainable fixes, we are spending incrementally to ensure service targets are met. This performance is felt most acutely in Water, as our service challenges and related investments impacted top and bottom-line results in the quarter.

While we are making progress in improving our capabilities, we are not where we need to be. We are prioritizing investments in our operations to improve service levels and accelerate new product development. On the first quarter call, I spoke about optimizing our cost structure to enhance our business unit-led organization and simplifying our structure. During the quarter, we began the process of moving our brand, marketing, and advertising teams back into the BUs. Over the past several years, we had centralized these capabilities, which created distance from our business unit teams, resulting in unnecessary cost and slowed execution. Bringing these functions back into the BUs puts brand and commercial decisions closer to the customer, removes layers, and accelerates decision-making.

In addition, work is underway to reduce corporate costs, and we have confidence in achieving the previously discussed annualized run rate savings target of approximately $70 million by the first quarter of 2027, with $15 million landing in 2026. Further, we are actively exploring all aspects of our cost structure, and we anticipate ongoing efforts to better align our structure to business results. Lastly, we also highlighted the portfolio as an area of opportunity, and our strategic review of Fiberon is underway, following through on the commitment we made last quarter to allocate capital and resources to our highest return opportunities. This is a deliberate step to concentrate investment and management attention on our core brands where we have a clear right to win. We continue to evaluate select portions of our portfolio to drive additional improvements.