Fortune Brands Innovations' Q3 2025: Contradictions Emerge on Sustainability, Digital Growth, Tariff Impact, and Pricing Strategies

Date of Call: October 30, 2025

Financials Results

• Revenue: $1.1B consolidated sales in Q3 2025, roughly flat YOY (Water $619M, down 3% YOY; Outdoors $345M, roughly flat YOY; Security $186M, up 5% YOY).
• EPS: $1.09 per share (Q3 2025).
• Operating Margin: 17.9% consolidated operating margin, down 80 bps YOY.

Guidance:

• EPS guidance narrowed; expect to finish 2025 near the low end of the prior range.
• Full-year free cash flow now expected $400M–$420M (was reduced reflecting lower operating income and higher working capital and restructuring charges).
• Water full-year operating margin expected 23%–24%.
• Outdoors full-year segment margins expected 13%–14%.
• Security full-year margins expected 15.5%–16.5%.
• Tariffs: expect to fully offset 2025 in-year impact and substantially mitigate annualized 2026 impact (~low $200M) via supply-chain actions, cost-out and strategic pricing.
• 2026 planning: no formal guidance; base planning assumes a flat market and management expects to outperform.

Business Commentary:

* Sales Performance and Market Outperformance: - Fortune Brands Innovations reported sales of $1.1 billion for Q3 2025, remaining flat year-over-year, while excluding the impact of China, sales increased by 1%. - Excluding China, they saw low single-digit point-of-sale growth, outperforming the market by 200 basis points. - This performance was driven by strategic pricing actions, cost efficiency initiatives, and strong execution across their brands, particularly in Moen's targeted promotional activities and Moen's market share gains in wholesale.

• Digital Transformation and Growth:
• Fortune Brands' digital portfolio has over 5 million registered users, with significant growth in Flow, their connected water platform, and new retail placements for digital security solutions like the Yale Assure Lock.
• The company aims to reach $300 million in annualized sales by the end of 2025, reflecting strong momentum and strategic investments in digital capabilities.

• This growth is attributed to successful partnerships, consumer adoption, and the value proposition of innovative products like Flow's leak protection service.

• Outdoor Segment Performance:

• The outdoor segment reported sales of $345 million, with sales benefiting from LARSON's retail aisle reset and Fiberon's increased sales in both retail and wholesale.
• The segment point-of-sale outperformed the end market by over 300 basis points.

• Growth was supported by strategic marketing initiatives in LARSON and effective cost management, despite external market pressures.

• Revenue Mix and Margin Impact:

• The company's operating margin was 17.9%, with segment margins reflecting lower volumes and higher material costs, particularly in outdoors and security.
• Operating income in security was down 1 million year-over-year, influenced by product mix and increased investments in product development.
• These trends were partially offset by strategic pricing actions and disciplined cost management, though higher material costs impacted margins.

Sentiment Analysis:

Overall Tone: Positive

• Management repeatedly stated outperformance: "solid sales performance and outperformed our end market," Q3 margins and EPS delivered, digital business tracking ahead of plan (approaching $300M annualized), and: "we believe we are well positioned to continue outperforming our end market" while narrowing guidance and maintaining investment posture.

Q&A:

• Question from Susan Maklari (Goldman Sachs): My first question is on the pricing strategy. Nick, thank you for all the comments on that and the approach that you've taken there this year. I guess given that, can you talk a bit about how the outcomes have come together? Have they been in line with what you have expected as you approach the pricing? And how you're thinking about this going forward?
  Response: Pricing was implemented early and in small increments; tariff-related pricing for 2025 is largely behind them, mitigated by supply-chain actions and cost-outs, and management will now selectively promote and use data-driven elasticity to drive volume and share.

• Question from Susan Maklari (Goldman Sachs): Maybe building on that, one of the things that Fortune has historically done really well is outperforming the market and gaining share in periods of weakness. How is your investment in data helping you better target those share gains and sustain growth as things normalize?
  Response: Enhanced analytics and faster SKU-level/customer insights allow rapid, precise pricing, promotions and assortment decisions; capabilities are still early innings but materially improve targeting and speed-to-insight.

• Question from Michael Rehaut (JPMorgan): First, I wanted to hit -- just to get a dial in a little bit more in terms of what was driving the 100 basis point decline in segment margin guidance for Outdoor and Security, particularly as we're kind of sitting here at the end of the third quarter, kind of curious what's changed in the last 90 days to drive that type of decline? And if the third quarter margins in either segments in part reflected maybe some of that change in outlook or performance?
  Response: Outdoors: Q3 lacked the usual seasonal, margin‑rich inventory build (low-double-digit decline vs prior year), creating an adverse mix that will reverse when inventory is rebuilt; Security: mix shift with some B2B pullback and higher R&D/marketing investments (Master campaign) weighed on margins.

• Question from Michael Rehaut (JPMorgan): On digital, you're on track to hit ~$300M annualized by year-end. Can you dimensionalize those sales between plumbing and security, and directionally how to think about growth beyond that toward the $1B goal?
  Response: Digital is tracking ahead of prior expectations (was ~$250M, approaching $300M annualized); Flow is the strongest contributor with a new subscription launch; security (Yale) is ramping with partnerships—management will provide clearer, regular digital metrics next year and remains committed to the $1B by 2030 ambition.

• Question from Philip Ng (Jefferies): You've pushed through pricing on plumbing; does that put you in a position to play offense? Any color on end markets, retail channels or early reads on placements for 2026?
  Response: Yes—having largely implemented tariff pricing and reduced China exposure, they can selectively redeploy mitigation gains to promote and drive volume; Water is gaining share across major retailers and e-commerce is improving with a refreshed team.

• Question from Philip Ng (Jefferies): Can you flag areas where you've had wins that give confidence you can outgrow the market and any directional help on margins?
  Response: Multiple unit-level tailwinds: Water share gains and retail wins (Moen, House of Rohl luxury growth); Outdoors: LARSON aisle reset, Fiberon improvements and Therma‑Tru expected benefit from anti-dumping duties; Security: Master campaign and Yale/connected products; expect to outperform a flat market but specific quantification for 2026 not provided.

• Question from Michael Dahl (RBC Capital Markets): Can you clarify the tariff dynamic and, inclusive of recent China exposure reductions, what the gross annualized tariff impact is now?
  Response: CFO: prior estimates were $80M in 2025 and $260M annualized for 2026; updated view keeps ~$80M for 2025 baked in and reduces annualized exposure to the low-$200M range; copper impact is de minimis (~$3M); China-sourced COGS expected to be ~10% by year-end.

• Question from Michael Dahl (RBC Capital Markets): On Water margins for Q4, given promotional choices and guide range, can you ballpark Q4 margin impact and how you're leaning on top line?
  Response: Water full-year margin guide unchanged at 23%–24%; Q4 implied margin around ~23% (a modest sequential increase vs prior year); margin drivers are mix and promotional spend, which management may flex.

• Question from John Lovallo (UBS): We're ~10 months into the year and ranges remain wide; what could swing results directionally in the next couple months and any segment-level leaning today? Also, how comfortable are you with the current portfolio and any potential changes?
  Response: Swings come mainly from inventory/channel timing and mix; management runs to full-year guidance not quarter-to-quarter and is focused on execution post-transformation; portfolio is being continuously evaluated but no imminent divestiture—M&A only if accretive and strategically aligned.

• Question from Trevor Allinson (Wolfe Research): You mentioned a flat market for 2026. Given slowing builder starts, is the assumption that R&R growth offsets new construction weakness? How do you think about growth by market?
  Response: Management expects repair & remodel (largest segment) to be low-single-digit up next year while single-family new construction down low-single-digits, netting a roughly flat overall market; builders are more tied to completions (less volatile) and they will tightly manage SG&A/hiring if demand weakens.

• Question from Trevor Allinson (Wolfe Research): A competitor announced a large price increase early next year—do you expect future offsets to tariffs to be via avenues other than pricing, and what was Water pricing YOY in Q3?
  Response: They state they have covered tariff impacts as known today dollar-for-dollar and will take disciplined, incremental pricing where appropriate but do not expect a second‑round catch-up; management did not disclose a specific Water Q3 YOY price percentage.

Contradiction Point 1

Sustainability and Environmental Initiatives

It highlights inconsistencies in the company's commitment and progress on sustainability and environmental initiatives, which are crucial for long-term reputation and regulatory compliance.

Has the pricing strategy positioned Fortune to take offensive action, and how will you approach end markets and channels? - Philip Ng (Jefferies LLC, Research Division)

2025Q3: We are making meaningful progress on our sustainability initiatives, reducing CO2 emissions and water usage and enhancing recycling. We continue to be recognized as an industry leader and innovator in our environmental efforts. - Nicholas Fink(CEO)

好的，我现在需要处理用户的这个请求。用户是一位专业的金融文章作者，需要将美股上市公司财报电话会议中的问题简化。首先，我得仔细理解用户的具体要求。用户提供的原始问题是：“Can you elaborate on the progress of the Connected Products business, particularly the upcoming subscription model? How should we think about its impact on 2025 sales and 2026 outlook? Also, what is happening with market share in the water business?” 用户希望将问题简化，保持原意，符合美式英语习惯，并且只输出问题，保留问号。我需要确保没有多余的装饰词，同时结构清晰。首先，处理第一个问题。原问题有两个部分，关于Connected Products业务的进展和订阅模式，以及2025和2026的影响。可能需要合并成一个更简洁的问题，比如询问订阅模式的进展及其对未来的销售影响。第二个问题关于水业务的市场份额，需要简化成直接询问市场份额的变化情况。需要注意的是，用户要求仅输出生成的问题，所以不需要额外解释。同时，要确保符合美式英语的语法和用词习惯，比如使用“impact on”而不是其他表达方式。检查是否有冗余的词汇，比如“elaborate on the progress”可以简化为“update on the Connected Products business”，而“upcoming subscription model”可以保留为“subscription model”。将两个时间点合并成“2025 sales and 2026 outlook”保持简洁。最后，确保每个问题以问号结尾，并且没有多余的连接词，比如“Also”可以去掉，用分号或分号分隔两个问题。但用户可能希望分开两个问题，所以可能需要分成两个独立的问题。不过原问题中用了一个问号分隔两个部分，但用户可能希望每个问题单独存在。可能需要将两个问题分开，但原问题中有两个问号？需要确认用户是否需要将两个问题分开还是合并。根据用户的例子，可能希望每个问题单独列出，所以可能需要拆分成两个问题。但原问题中的两个问题可能被用户视为一个包含两个部分的问题，所以可能需要合并成一个更简洁的问题。例如：“What is the current status of the Connected Products business's subscription model and its projected impact on 2025 sales and 2026 outlook?” 然后第二个问题：“How is the water business's market share evolving?”但用户可能希望将这两个问题合并成一个，所以可能需要调整。需要仔细分析原问题的结构。原问题有两个主要部分：Connected Products的订阅模式及其影响，以及水业务的市场份额。因此，可能需要分成两个问题，每个问题单独简洁。最终，确保每个问题简洁，没有冗余，符合美式英语，并且正确使用问号。例如：1. What is the current status of the Connected Products business's subscription model and its projected impact on 2025 sales and 2026 outlook?2. How is the water business's market share evolving?但用户可能希望将两个问题合并为一个，如果原问题中的两个部分是同一主题的话。但根据原问题的结构，用户可能希望分开处理。因此，正确的处理方式是将两个问题分开，但用户提供的示例可能希望合并。需要再仔细检查用户的示例是否有类似情况。用户提供的示例输入可能有多个问题，但输出是否分开？根据用户提供的示例，可能希望每个问题单独列出，所以可能需要两个问题。但用户给出的示例输出可能是一个问题，所以需要确认。例如，用户给出的示例输入可能包含多个问题，但输出可能是一个合并后的问题。比如原问题中有两个部分，可能合并成一个，但需要根据内容判断。可能用户希望将两个问题合并成一个，但需要保持清晰。例如：“What is the current status of the Connected Products business's subscription model and its projected impact on 2025 sales and 2026 outlook, and how is the water business's market share evolving?” 但这样可能过长，但用户可能接受。或者，可能用户希望分成两个问题，每个问题简洁。但用户要求输出且仅输出生成的问题，所以可能需要两个问题，每个以问号结尾。但用户可能希望合并成一个，如果可能的话。根据用户的指示，“输出且仅输出生成的简化后的问题”，所以可能需要将两个问题合并成一个，但保持结构清晰。例如：What is the current status of the Connected Products business's subscription model and its projected impact on 2025 sales and 2026 outlook, and how is the water business's market share evolving?但用户可能希望分开，因为原问题中有两个独立的问题。所以最终可能需要两个问题：1. What is the current status of the Connected Products business's subscription model and its projected impact on 20 - Matthew Bouley (Barclays)

2025Q2: We are committed to reducing our own environmental impact. We are deliberately setting aggressive targets for ourselves, including reducing our CO2 emissions and water usage. Over the past few years, we have successfully reduced our per-product water usage by over 50% and reduced our per-product CO2 emissions by over 25%. - Nicholas Fink(CEO)

Contradiction Point 2

Digital Business Growth Expectations

It involves differing expectations for the growth and impact of the digital business on sales, which are critical for strategic planning and investor expectations.

Can you outline the digital business's sales and growth outlook and expected growth beyond 2025? - Michael Rehaut (JPMorgan Chase & Co, Research Division)

2025Q3: Flow has shown strong growth, and the leak protection service launched. Digital business on track for $300 million in 2025. Expect continued growth, with definitive metrics to be provided in the future. - Nicholas Fink(CEO)

What is the current update on Connected Products' progress, especially the subscription model rollout? How will the subscription model affect 2025 sales and 2026 guidance? What is the current market share trend in the water business? - Matthew Bouley (Barclays)

2025Q2: The Connected Products business is seeing significant momentum with 5 million active users and 220,000 digital device activations in Q2. The business is expected to reach an annual sales run rate of $300 million by year-end. - Nicholas Fink(CEO)

Contradiction Point 3

Tariff Impact and Mitigation Strategies

It involves differing statements regarding the impact and mitigation of tariffs, which have significant implications for the company's financial performance and strategic responses to external economic factors.

Can you clarify the impact of tariffs, including the reduction in China tariffs? - Michael Dahl (RBC Capital Markets)

2025Q3: Tariffs have decreased, with $80 million impact in 2025, and low $200 million range in 2026. China tariffs reduced to 10%. - Jonathan Baksht(CFO)

Can you discuss the tariff impact and mitigation strategies? - Phil Ng (Jefferies)

2025Q1: The initial impact of tariffs is $200 million in 2025 and $525 million annualized. Mitigation will be primarily through supply chain actions and cost-out activities, with significant pricing actions across channels. - David Barry(CFO)

Contradiction Point 4

Digital Sales and Growth Projections

It involves differing expectations and projections for the growth of digital sales, which is a critical area for future company growth and investor expectations.

What are the sales and growth expectations for the digital business, and how should we view growth beyond 2025? - Michael Rehaut (JPMorgan Chase & Co, Research Division)

2025Q3: Flow has shown strong growth, and the leak protection service launched. Digital business on track for $300 million in 2025. Expect continued growth, with definitive metrics to be provided in the future. - Nicholas Fink(CEO)

How will the 150 basis points of growth from connected products in 2025 be distributed throughout the year? - Matthew Bouley (Barclays)

2024Q4: Digital sales are expected to contribute 150 basis points of growth by the end of 2025. We expect a ramp in the second half as we lap Yale inventory reductions and move through partnership activations. - David Barry(CFO)

Contradiction Point 5

Impact of Tariffs and Pricing Strategy

It involves the company's strategy to mitigate the impact of tariffs and its pricing approach, which directly impact profitability and competitiveness.

How does the pricing strategy align with expectations? How is the data investment driving share gains? - Susan Maklari (Goldman Sachs Group, Research Division)

2025Q3: With early pricing actions, tariffs were covered off. Data analytics enhance precision in pricing and promotions. Advanced analytics offer quicker insights, aiding in targeting and promoting volume. Investment in digital capabilities is yielding early results, with more improvements expected. - Nicholas Fink(CEO)

How should we assess the impact of tariffs on volume versus price? - Michael Rehaut (JPMorgan)

2024Q4: Our strategy involves supply chain agility and redundancy, allowing us to move quickly as needed. We are focused on leveraging our North American manufacturing base as a competitive advantage. We have strong relationships with the administration and are prepared for potential trading balance tariffs. - Nicholas Fink(CEO)