Good afternoon, everyone. My name is Joe, and I will be your conference operator today. Welcome to the Fortune Brands Fourth Quarter 2024 Earnings Conference. All lines are muted to prevent background noise. Following the speakers' remarks, we will open the call for a Q&A session.

At this time, I'd like to turn the call over to Leigh Avsec, Executive Vice President of External Affairs. Please go ahead..

Good afternoon, everyone. And welcome to the Fortune Brands Innovations Fourth Quarter and Full Year 2024 Earnings Call and Webcast. Hopefully, everyone has had the chance to review the earnings release issued earlier. The earnings release and the audio replay of the webcast of this call can be found in the Investor section of our website, fbin.com.

I want to remind everyone that the forward-looking statements we make on the call today, either in our prepared remarks or 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 income, margin, EBITDA, earnings per share, or cash flow on today's call will focus on our results on a non-GAAP before charges and gains basis unless otherwise specified. Please visit our website for reconciliation.

Joining me on the call today are Nicholas Fink, our Chief Executive Officer, and David Barry, our Chief Financial Officer. Following our prepared remarks, we have allowed time to address some questions. I will now turn the call over to Nicholas Fink..

design, dependability, and innovation. We once again won America's Most Trusted Faucet Brand and plan to leverage that strong consumer and pro sentiment in the face of the number of impostor and counterfeit brands in the marketplace. We will continue to invest in our key priorities, including branding and marketing, and our digital products.

These targeted investments will help drive our strategy to grow the core and accelerate digital and connected products. 2024 represented a tipping point for our Moen Flow smart water leak detection business, and we expect this to only accelerate in 2025.

Our sales pipeline is substantial, and even with conservative conversion estimates, we have the opportunity to realize significant sales. We will continue to invest in this growth opportunity, both to support product functionality as well as marketing and other activation efforts.

We believe the current focus on insurance and affordability, together with our leading position in this space, will result in outperformance. Our House of Rohl portfolio, which now includes Emtek, grew in the fourth quarter as our brand, product, and showroom strategy resonated with luxury consumers and designers.

We opened a new manufacturing and distribution facility in the UK to better serve our customers, which will continue to come online in 2025. We are also still rolling out our synergy wins for Rohl and Emtek, particularly in showrooms.

We are excited about the future of our luxury portfolio as our powerhouse brands continue to delight consumers and designers alike. Finally, China was again a headwind in this segment. We have replatformed the cost structure of the business given the challenging market. As a result, any future decline should not have a significant impact on our P&L.

We believe the market has largely stabilized at the bottom, although we will have one more quarter of challenging comparables. Now turning to Outdoors. Our fourth-quarter sales were down 2% with low single-digit point-of-sale growth in the segment, driven by doors. Our margins were 18.2%, an increase of 430 basis points over the fourth quarter of 2023.

For the full year, outdoor sales were up 1%, and we saw an impressive 310 basis points of margin growth. In 2024, we benefited from our strong relationships with the big builders, accelerated the evolution of the brands in our outdoor segment, and introduced exciting new product innovations.

Looking forward to 2025, our focus is on continuing to grow our doors brand by leveraging our strong brand position and channel relationships, coupled with innovation. We are particularly excited about the potential for our Larson brand.

We recently unveiled our new Larson Perfect Seal product reset at our retail partner, and the initial results from a refreshed and innovative approach to this category are very encouraging. We expect to have over 1,700 stores with refreshed product displays by the middle of 2025. Turning to Security.

As I already mentioned, our security segment was impacted by a third-party software outage at our distribution centers, which exacerbated a soft sales environment and customer demand. Our teams are laser-focused on delivering on our commitment to our customers, and I thank them for their tireless work to recover from these challenges.

Our fourth-quarter sales and margin performance reflect these issues. Our fourth-quarter sales were down 17%. Excluding the impact of the software outage, fourth-quarter sales were down approximately 10%. Our margins were 9.3% because of the impact of the outage, as well as the expected timing of investments related to our Yale business.

For the full year 2024, our sales were $694 million, down 4%, and organic sales, excluding the software outage, were down approximately 10%. For the full year, margins were a 10 basis point increase versus last year.

The performance of this segment in 2024 did not meet our standards, and we have identified critical areas for us to focus on as we work to address these challenges directly and head-on. We have already taken actions under David's leadership, and I am confident that we will improve this business.

We have made progress on some exciting brand and product work, which will be unveiled in 2025, including the first major branding campaign from Master Lock in several decades. We have already seen proof of our brand strategy in action.

For example, recent safe advertising highlighting the performance and trustworthiness of our brand accelerated point of sale, which further improved after the recent tragic LA fires.

As consumers face this terrible crisis, and as it was highlighted around the globe, the work that we have done around helping people understand what our brand stands for—namely safety, dependability, and quality—became even more important and gives us confidence in our larger strategy of focusing on meaningful brand and innovation.

We saw significant point-of-sale growth in those markets where consumers were focused on these attributes. Looking forward to 2025, we have a new proven leader, a renewed focus on differentiating our iconic brand and product, and a robust partnership pipeline for Yale.

We are rolling out a connected lockout tagout solution and see it as a breakout opportunity for our security business. To recap, 2024 was a year of transformation and execution for Fortune Brands amidst a dynamic external environment.

Our teams built new assets across brands, innovation, and digital, which will accelerate growth as we deploy them in the marketplace. Our margin results and market outperformance in key parts of our portfolio give us confidence in the future.

We took decisive steps this year to better position ourselves, and I am proud of what our teams achieved in 2024. In 2025, which David will speak to in greater detail, we will focus on driving above-market growth and accelerating our areas of advantage.

We will look to sustainably grow margins and continue investing behind our most strategic opportunities. We will execute our larger strategy of focusing on our supercharged categories. We expect 2025 to be another breakout year for our connected products.

We will take concrete actions in our business to ensure that we are best positioned for long-term growth. Additionally, we will manage any period of continued volatility, responding quickly and remaining agile while actively positioning Fortune Brands Innovations for the future. I will now turn the call over to David Barry..

Thanks, Nicholas. As a reminder, my comments will focus on results before charges and gains to best reflect ongoing business performance. All comparisons will be made against the same period last year unless otherwise noted. Before I begin, I would like to take a moment to address my new role.

I have found my experiences as CFO to be incredibly rewarding, and I am grateful to all those with whom I've built relationships, including many of you on the call today. I look forward to the next phase of my career and journey with Fortune Brands in my role as President of our Security and Connected Product businesses.

I am fully confident in the long-term growth opportunities of both of these businesses, and I am excited to help advance our value creation. In the meantime, I will be assisting with the search for our next CFO and will partner closely with my successor, ensuring a very smooth transition.

As Nicholas highlighted, our teams focused on a tight set of priorities amidst a dynamic external market while continuing to best position the company for the future. For the fourth quarter, sales were $1.1 billion, down 5%, and organic sales were down 1% when adjusting for the impact of China and excluding the one-time event.

Consolidated operating income was $181.6 million, and total company operating margin was 16.4%. EPS were $0.98. Fourth-quarter free cash flow was approximately $212 million. For the full year, sales were $4.6 billion, flat versus last year, and organic sales were down 2%, excluding the impact of China and the one-time disruptions in the fourth quarter.

Consolidated operating income was $780.6 million. Total company operating margin was 16.9%, a 90 basis point improvement. Our EPS were $4.12. Our total free cash flow generation was an impressive $475 million. Now let me provide more color on our segment results. Beginning with Water Innovations, sales for the fourth quarter were $645 million, down 3%.

Organic sales were up 2% excluding the impact of China and the hurricane. For the year, sales were flat, with organic sales excluding China and the impact of the hurricane down 2%. Water Innovations' operating income was $152.6 million in the fourth quarter. Operating income for the full year was $603.8 million.

Operating margin was 23.7% for the quarter and 23.5% for the full year. Consistent with our returns-focused investment strategy, our Moen brand investments are generating results as we focus on accelerating the consumer and channel awareness of our new-to-world Flow technology and invested in our core brand.

As we discussed, we selectively focused on the portions of our portfolio with the highest potential for returns. In our luxury portfolio, we made key investments in capacity for our House of Rohl products. Now as one combined entity with Emtek, we are excited about the future of our luxury brand.

In China, sales declined 30% in the fourth quarter and 31% for the full year. While the market seems to have stabilized, we do expect another challenging comparable in the first quarter of 2025 due to lapping accelerated completion in Q1 2024. Looking to 2025 and beyond, this business will continue to provide innovation and growth optionality.

As a result of its replatformed size, it is no longer a material portion of our business, and future declines, if any, should be less impactful to our P&L. Turning to Outdoors, fourth-quarter net sales were $303 million, down 2%. For the full year, sales were $1.4 billion, up 1%.

For doors, sales were flat in the quarter and up low single digits for the year. Decking sales were down mid-teens in the quarter and were down low teens for the full year as a result of a softer demand environment and destocking. Outdoor segment operating income was $55.2 million during the quarter, up 29%.

Operating income for the full year was $218 million, an increase of 25%. Segment operating margin for Outdoors was 18.2% in the quarter, an increase of 430 basis points, and 16.1% for the full year, a 310 basis point increase. Outdoors delivered a strong sales and operating margin year.

These impressive margin results are a direct impact of the work we are doing to drive innovation and expand distribution for our leading brands. Finally, turning to Security. As Nicholas discussed, we were impacted in the fourth quarter by a third-party software outage which impacted our distribution center.

Fourth-quarter sales were $157 million, down 17%, or down 10% when adjusting for the outage. Our fourth-quarter operating margins were 9.3%. Full-year sales decreased 4% to $694 million, and organic sales decreased around 10% when adjusting for the impact of the software outage.

Our full-year operating margins were a 10 basis point increase versus last year. The performance of this segment in 2024 did not meet our standards, and we have identified critical areas for us to focus on as we work to address these challenges directly and head-on.

We have already taken actions under David's leadership, and I am confident that we will improve this business. We've made progress on some exciting brand and product work, which will be unveiled in 2025, including the first major branding campaign from Master Lock in several decades. We have already seen proof of our brand strategy in action.

For example, recent safe advertising highlighting the performance and trustworthiness of our brand accelerated point of sale, which further improved after the recent tragic LA fires.

As consumers face this terrible crisis, and as it was highlighted around the globe, the work that we have done around helping people understand what our brand stands for—namely safety, dependability, and quality—became even more important and gives us confidence in our larger strategy of focusing on meaningful brand and innovation.

We saw significant point-of-sale growth in those markets where consumers were focused on these attributes. Looking forward to 2025, we have a new proven leader, a renewed focus on differentiating our iconic brand and product, and a robust partnership pipeline for Yale.

We are rolling out a connected lockout tagout solution and see it as a breakout opportunity for our security business. To recap, 2024 was a year of transformation and execution for Fortune Brands amidst a dynamic external environment.

Our teams built new assets across brands, innovation, and digital, which will accelerate growth as we deploy them in the marketplace. Our margin results and market outperformance in key parts of our portfolio give us confidence in the future.

We took decisive steps this year to better position ourselves, and I am proud of what our teams achieved in 2024. In 2025, which David will speak to in greater detail, we will focus on driving above-market growth and accelerating our areas of advantage.

We will look to sustainably grow margins and continue investing behind our most strategic opportunities. We will execute our larger strategy of focusing on our supercharged categories. We expect 2025 to be another breakout year for our connected products.

We will take concrete actions in our business to ensure that we are best positioned for long-term growth. Additionally, we will manage any period of continued volatility, responding quickly and remaining agile while actively positioning Fortune Brands Innovations for the future. I will now turn the call over to David Barry..

Thanks, Nicholas. As a reminder, my comments will focus on results before charges and gains to best reflect ongoing business performance. All comparisons will be made against the same period last year unless otherwise noted. Before I begin, I would like to take a moment to address my new role.

I have found my experiences as CFO to be incredibly rewarding, and I am grateful to all those with whom I've built relationships, including many of you on the call today. I look forward to the next phase of my career and journey with Fortune Brands in my role as President of our Security and Connected Product businesses.

I am fully confident in the long-term growth opportunities of both of these businesses, and I am excited to help advance our value creation. In the meantime, I will be assisting with the search for our next CFO and will partner closely with my successor, ensuring a very smooth transition.

As Nicholas highlighted, our teams focused on a tight set of priorities amidst a dynamic external market while continuing to best position the company for the future. For the fourth quarter, sales were $1.1 billion, down 5%, and organic sales were down 1% when adjusting for the impact of China and excluding the one-time event.

Consolidated operating income was $181.6 million, and total company operating margin was 16.4%. EPS were $0.98. Fourth-quarter free cash flow was approximately $212 million. For the full year, sales were $4.6 billion, flat versus last year, and organic sales were down 2%, excluding the impact of China and the one-time disruptions in the fourth quarter.

Consolidated operating income was $780.6 million. Total company operating margin was 16.9%, a 90 basis point improvement. Our EPS were $4.12. Our total free cash flow generation was an impressive $475 million. Now let me provide more color on our segment results. Beginning with Water Innovations, sales for the fourth quarter were $645 million, down 3%.

Organic sales were up 2% excluding the impact of China and the hurricane. For the year, sales were flat, with organic sales excluding China and the impact of the hurricane down 2%. Water Innovations' operating income was $152.6 million in the fourth quarter. Operating income for the full year was $603.8 million.

Operating margin was 23.7% for the quarter and 23.5% for the full year. Consistent with our returns-focused investment strategy, our Moen brand investments are generating results as we focus on accelerating the consumer and channel awareness of our new-to-world Flow technology and invested in our core brand.

As we discussed, we selectively focused on the portions of our portfolio with the highest potential for returns. In our luxury portfolio, we made key investments in capacity for our House of Rohl products. Now as one combined entity with Emtek, we are excited about the future of our luxury brand.

In China, sales declined 30% in the fourth quarter and 31% for the full year. While the market seems to have stabilized, we do expect another challenging comparable in the first quarter of 2025 due to lapping accelerated completion in Q1 2024. Looking to 2025 and beyond, this business will continue to provide innovation and growth optionality.

As a result of its replatformed size, it is no longer a material portion of our business, and future declines, if any, should be less impactful to our P&L. Turning to Outdoors, fourth-quarter net sales were $303 million, down 2%. For the full year, sales were $1.4 billion, up 1%.

For doors, sales were flat in the quarter and up low single digits for the year. Decking sales were down mid-teens in the quarter and were down low teens for the full year as a result of a softer demand environment and destocking. Outdoor segment operating income was $55.2 million during the quarter, up 29%.

Operating income for the full year was $218 million, an increase of 25%. Segment operating margin for Outdoors was 18.2% in the quarter, an increase of 430 basis points, and 16.1% for the full year, a 310 basis point increase. Outdoors delivered a strong sales and operating margin year.

These impressive margin results are a direct impact of the work we are doing to drive innovation and expand distribution for our leading brands. Finally, turning to Security. As Nicholas discussed, we were impacted in the fourth quarter by a third-party software outage which impacted our distribution center.

Fourth-quarter sales were $157 million, down 17%, or down 10% when adjusting for the outage. Our fourth-quarter operating margins were 9.3%. Full-year sales decreased 4% to $694 million, and organic sales decreased around 10% when adjusting for the impact of the software outage.

Our full-year operating margins were a 10 basis point increase versus last year. The performance of this segment in 2024 did not meet our standards, and we have identified critical areas for us to focus on as we work to address these challenges directly and head-on.

We have already taken actions under David's leadership, and I am confident that we will improve this business. We've made progress on some exciting brand and product work, which will be unveiled in 2025, including the first major branding campaign from Master Lock in several decades. We have already seen proof of our brand strategy in action.

For example, recent safe advertising highlighting the performance and trustworthiness of our brand accelerated point of sale, which further improved after the recent tragic LA fires.

As consumers face this terrible crisis, and as it was highlighted around the globe, the work that we have done around helping people understand what our brand stands for—namely safety, dependability, and quality—became even more important and gives us confidence in our larger strategy of focusing on meaningful brand and innovation.

We saw significant point-of-sale growth in those markets where consumers were focused on these attributes. Looking forward to 2025, we have a new proven leader, a renewed focus on differentiating our iconic brand and product, and a robust partnership pipeline for Yale.

We are rolling out a connected lockout tagout solution and see it as a breakout opportunity for our security business. To recap, 2024 was a year of transformation and execution for Fortune Brands amidst a dynamic external environment.

Our teams built new assets across brands, innovation, and digital, which will accelerate growth as we deploy them in the marketplace. Our margin results and market outperformance in key parts of our portfolio give us confidence in the future.

We took decisive steps this year to better position ourselves, and I am proud of what our teams achieved in 2024. In 2025, which David will speak to in greater detail, we will focus on driving above-market growth and accelerating our areas of advantage.

We will look to sustainably grow margins and continue investing behind our most strategic opportunities. We will execute our larger strategy of focusing on our supercharged categories. We expect 2025 to be another breakout year for our connected products.

We will take concrete actions in our business to ensure that we are best positioned for long-term growth. Additionally, we will manage any period of continued volatility, responding quickly and remaining agile while actively positioning Fortune Brands Innovations for the future. I will now turn the call over to David Barry..

Thanks, Nicholas. As a reminder, my comments will focus on results before charges and gains to best reflect ongoing business performance. All comparisons will be made against the same period last year unless otherwise noted. Before I begin, I would like to take a moment to address my new role.

I have found my experiences as CFO to be incredibly rewarding, and I am grateful to all those with whom I've built relationships, including many of you on the call today. I look forward to the next phase of my career and journey with Fortune Brands in my role as President of our Security and Connected Product businesses.

I am fully confident in the long-term growth opportunities of both of these businesses, and I am excited to help advance our value creation. In the meantime, I will be assisting with the search for our next CFO and will partner closely with my successor, ensuring a very smooth transition.

As Nicholas highlighted, our teams focused on a tight set of priorities amidst a dynamic external market while continuing to best position the company for the future. For the fourth quarter, sales were $1.1 billion, down 5%, and organic sales were down 1% when adjusting for the impact of China and excluding the one-time event.

Consolidated operating income was $181.6 million, and total company operating margin was 16.4%. EPS were $0.98. Fourth-quarter free cash flow was approximately $212 million. For the full year, sales were $4.6 billion, flat versus last year, and organic sales were down 2%, excluding the impact of China and the one-time disruptions in the fourth quarter.

Consolidated operating income was $780.6 million. Total company operating margin was 16.9%, a 90 basis point improvement. Our EPS were $4.12. Our total free cash flow generation was an impressive $475 million. Now let me provide more color on our segment results. Beginning with Water Innovations, sales for the fourth quarter were $645 million, down 3%.

Organic sales were up 2% excluding the impact of China and the hurricane. For the year, sales were flat, with organic sales excluding China and the impact of the hurricane down 2%. Water Innovations' operating income was $152.6 million in the fourth quarter. Operating income for the full year was $603.8 million.

Operating margin was 23.7% for the quarter and 23.5% for the full year. Consistent with our returns-focused investment strategy, our Moen brand investments are generating results as we focus on accelerating the consumer and channel awareness of our new-to-world Flow technology and invested in our core brand.

As we discussed, we selectively focused on the portions of our portfolio with the highest potential for returns. In our luxury portfolio, we made key investments in capacity for our House of Rohl products. Now as one combined entity with Emtek, we are excited about the future of our luxury brand.

In China, sales declined 30% in the fourth quarter and 31% for the full year. While the market seems to have stabilized, we do expect another challenging comparable in the first quarter of 2025 due to lapping accelerated completion in Q1 2024. Looking to 2025 and beyond, this business will continue to provide innovation and growth optionality.

As a result of its replatformed size, it is no longer a material portion of our business, and future declines, if any, should be less impactful to our P&L. Turning to Outdoors, fourth-quarter net sales were $303 million, down 2%. For the full year, sales were $1.4 billion, up 1%.

For doors, sales were flat in the quarter and up low single digits for the year. Decking sales were down mid-teens in the quarter and were down low teens for the full year as a result of a softer demand environment and destocking. Outdoor segment operating income was $55.2 million during the quarter, up 29%.

Operating income for the full year was $218 million, an increase of 25%. Segment operating margin for Outdoors was 18.2% in the quarter, an increase of 430 basis points, and 16.1% for the full year, a 310 basis point increase. Outdoors delivered a strong sales and operating margin year.

These impressive margin results are a direct impact of the work we are doing to drive innovation and expand distribution for our leading brands. Finally, turning to Security. As Nicholas discussed, we were impacted in the fourth quarter by a third-party software outage which impacted our distribution center.

Fourth-quarter sales were $157 million, down 17%, or down 10% when adjusting for the outage. Our fourth-quarter operating margins were 9.3%. Full-year sales decreased 4% to $694 million, and organic sales decreased around 10% when adjusting for the impact of the software outage.

Our full-year operating margins were a 10 basis point increase versus last year. The performance of this segment in 2024 did not meet our standards, and we have identified critical areas for us to focus on as we work to address these challenges directly and head-on.

We have already taken actions under David's leadership, and I am confident that we will improve this business. We've made progress on some exciting brand and product work, which will be unveiled in 2025, including the first major branding campaign from Master Lock in several decades. We have already seen proof of our brand strategy in action.

For example, recent safe advertising highlighting the performance and trustworthiness of our brand accelerated point of sale, which further improved after the recent tragic LA fires.

As consumers face this terrible crisis, and as it was highlighted around the globe, the work that we have done around helping people understand what our brand stands for—namely safety, dependability, and quality—became even more important and gives us confidence in our larger strategy of focusing on meaningful brand and innovation.

We saw significant point-of-sale growth in those markets where consumers were focused on these attributes. Looking forward to 2025, we have a new proven leader, a renewed focus on differentiating our iconic brand and product, and a robust partnership pipeline for Yale.

We are rolling out a connected lockout tagout solution and see it as a breakout opportunity for our security business. To recap, 2024 was a year of transformation and execution for Fortune Brands amidst a dynamic external environment.

Our teams built new assets across brands, innovation, and digital, which will accelerate growth as we deploy them in the marketplace. Our margin results and market outperformance in key parts of our portfolio give us confidence in the future.

We took decisive steps this year to better position ourselves, and I am proud of what our teams achieved in 2024. In 2025, which David will speak to in greater detail, we will focus on driving above-market growth and accelerating our areas of advantage.

We will look to sustainably grow margins and continue investing behind our most strategic opportunities. We will execute our larger strategy of focusing on our supercharged categories. We expect 2025 to be another breakout year for our connected products.

We will take concrete actions in our business to ensure that we are best positioned for long-term growth. Additionally, we will manage any period of continued volatility, responding quickly and remaining agile while actively positioning Fortune Brands Innovations for the future. I will now turn the call over to David Barry..

Thanks, Nicholas. As a reminder, my comments will focus on results before charges and gains to best reflect ongoing business performance. All comparisons will be made against the same period last year unless otherwise noted. Before I begin, I would like to take a moment to address my new role.

I have found my experiences as CFO to be incredibly rewarding, and I am grateful to all those with whom I've built relationships, including many of you on the call today. I look forward to the next phase of my career and journey with Fortune Brands in my role as President of our Security and Connected Product businesses.

I am fully confident in the long-term growth opportunities of both of these businesses, and I am excited to help advance our value creation. In the meantime, I will be assisting with the search for our next CFO and will partner closely with my successor, ensuring a very smooth transition.

As Nicholas highlighted, our teams focused on a tight set of priorities amidst a dynamic external market while continuing to best position the company for the future. For the fourth quarter, sales were $1.1 billion, down 5%, and organic sales were down 1% when adjusting for the impact of China and excluding the one-time event.

Consolidated operating income was $181.6 million, and total company operating margin was 16.4%. EPS were $0.98. Fourth-quarter free cash flow was approximately $212 million. For the full year, sales were $4.6 billion, flat versus last year, and organic sales were down 2%, excluding the impact of China and the one-time disruptions in the fourth quarter.

Consolidated operating income was $780.6 million. Total company operating margin was 16.9%, a 90 basis point improvement. Our EPS were $4.12. Our total free cash flow generation was an impressive $475 million. Now let me provide more color on our segment results. Beginning with Water Innovations, sales for the fourth quarter were $645 million, down 3%.

Organic sales were up 2% excluding the impact of China and the hurricane. For the year, sales were flat, with organic sales excluding China and the impact of the hurricane down 2%. Water Innovations' operating income was $152.6 million in the fourth quarter. Operating income for the full year was $603.8 million.

Operating margin was 23.7% for the quarter and 23.5% for the full year. Consistent with our returns-focused investment strategy, our Moen brand investments are generating results as we focus on accelerating the consumer and channel awareness of our new-to-world Flow technology and invested in our core brand.

As we discussed, we selectively focused on the portions of our portfolio with the highest potential for returns. In our luxury portfolio, we made key investments in capacity for our House of Rohl products. Now as one combined entity with Emtek, we are excited about the future of our luxury brand.

In China, sales declined 30% in the fourth quarter and 31% for the full year. While the market seems to have stabilized, we do expect another challenging comparable in the first quarter of 2025 due to lapping accelerated completion in Q1 2024. Looking to 2025 and beyond, this business will continue to provide innovation and growth optionality.

As a result of its replatformed size, it is no longer a material portion of our business, and future declines, if any, should be less impactful to our P&L. Turning to Outdoors, fourth-quarter net sales were $303 million, down 2%. For the full year, sales were $1.4 billion, up 1%.

For doors, sales were flat in the quarter and up low single digits for the year. Decking sales were down mid-teens in the quarter and were down low teens for the full year as a result of a softer demand environment and destocking. Outdoor segment operating income was $55.2 million during the quarter, up 29%.

Operating income for the full year was $218 million, an increase of 25%. Segment operating margin for Outdoors was 18.2% in the quarter, an increase of 430 basis points, and 16.1% for the full year, a 310 basis point increase. Outdoors delivered a strong sales and operating margin year.

These impressive margin results are a direct impact of the work we are doing to drive innovation and expand distribution for our leading brands. Finally, turning to Security. As Nicholas discussed, we were impacted in the fourth quarter by a third-party software outage which impacted our distribution center.

Fourth-quarter sales were $157 million, down 17%, or down 10% when adjusting for the outage. Our fourth-quarter operating margins were 9.3%. Full-year sales decreased 4% to $694 million, and organic sales decreased around 10% when adjusting for the impact of the software outage.

Our full-year operating margins were a 10 basis point increase versus last year. The performance of this segment in 2024 did not meet our standards, and we have identified critical areas for us to focus on as we work to address these challenges directly and head-on.

We have already taken actions under David's leadership, and I am confident that we will improve this business. We've made progress on some exciting brand and product work, which will be unveiled in 2025, including the first major branding campaign from Master Lock in several decades. We have already seen proof of our brand strategy in action.

For example, recent safe advertising highlighting the performance and trustworthiness of our brand accelerated point of sale, which further improved after the recent tragic LA fires.

As consumers face this terrible crisis, and as it was highlighted around the globe, the work that we have done around helping people understand what our brand stands for—namely safety, dependability, and quality—became even more important and gives us confidence in our larger strategy of focusing on meaningful brand and innovation.

We saw significant point-of-sale growth in those markets where consumers were focused on these attributes. Looking forward to 2025, we have a new proven leader, a renewed focus on differentiating our iconic brand and product, and a robust partnership pipeline for Yale.

We are rolling out a connected lockout tagout solution and see it as a breakout opportunity for our security business. To recap, 2024 was a year of transformation and execution for Fortune Brands amidst a dynamic external environment.

Our teams built new assets across brands, innovation, and digital, which will accelerate growth as we deploy them in the marketplace. Our margin results and market outperformance in key parts of our portfolio give us confidence in the future.

We took decisive steps this year to better position ourselves, and I am proud of what our teams achieved in 2024. In 2025, which David will speak to in greater detail, we will focus on driving above-market growth and accelerating our areas of advantage.

We will look to sustainably grow margins and continue investing behind our most strategic opportunities. We will execute our larger strategy of focusing on our supercharged categories. We expect 2025 to be another breakout year for our connected products.

We will take concrete actions in our business to ensure that we are best positioned for long-term growth. Additionally, we will manage any period of continued volatility, responding quickly and remaining agile while actively positioning Fortune Brands Innovations for the future. I will now turn the call over to David Barry..

Thanks, Nicholas. As a reminder, my comments will focus on results before charges and gains to best reflect ongoing business performance. All comparisons will be made against the same period last year unless otherwise noted. Before I begin, I would like to take a moment to address my new role.

I have found my experiences as CFO to be incredibly rewarding, and I am grateful to all those with whom I've built relationships, including many of you on the call today. I look forward to the next phase of my career and journey with Fortune Brands in my role as President of our Security and Connected Product businesses.

I am fully confident in the long-term growth opportunities of both of these businesses, and I am excited to help advance our value creation. In the meantime, I will be assisting with the search for our next CFO and will partner closely with my successor, ensuring a very smooth transition.

As Nicholas highlighted, our teams focused on a tight set of priorities amidst a dynamic external market while continuing to best position the company for the future. For the fourth quarter, sales were $1.1 billion, down 5%, and organic sales were down 1% when adjusting for the impact of China and excluding the one-time event.

Consolidated operating income was $181.6 million, and total company operating margin was 16.4%. EPS were $0.98. Fourth-quarter free cash flow was approximately $212 million. For the full year, sales were $4.6 billion, flat versus last year, and organic sales were down 2%, excluding the impact of China and the one-time disruptions in the fourth quarter.

Consolidated operating income was $780.6 million. Total company operating margin was 16.9%, a 90 basis point improvement. Our EPS were $4.12. Our total free cash flow generation was an impressive $475 million. Now let me provide more color on our segment results. Beginning with Water Innovations, sales for the fourth quarter were $645 million, down 3%.

Organic sales were up 2% excluding the impact of China and the hurricane. For the year, sales were flat, with organic sales excluding China and the impact of the hurricane down 2%. Water Innovations' operating income was $152.6 million in the fourth quarter. Operating income for the full year was $603.8 million.

Operating margin was 23.7% for the quarter and 23.5% for the full year. Consistent with our returns-focused investment strategy, our Moen brand investments are generating results as we focus on accelerating the consumer and channel awareness of our new-to-world Flow technology and invested in our core brand.

As we discussed, we selectively focused on the portions of our portfolio with the highest potential for returns. In our luxury portfolio, we made key investments in capacity for our House of Rohl products. Now as one combined entity with Emtek, we are excited about the future of our luxury brand.

In China, sales declined 30% in the fourth quarter and 31% for the full year. While the market seems to have stabilized, we do expect another challenging comparable in the first quarter of 2025 due to lapping accelerated completion in Q1 2024. Looking to 2025 and beyond, this business will continue to provide innovation and growth optionality.

As a result of its replatformed size, it is no longer a material portion of our business, and future declines, if any, should be less impactful to our P&L. Turning to Outdoors, fourth-quarter net sales were $303 million, down 2%. For the full year, sales were $1.4 billion, up 1%.

For doors, sales were flat in the quarter and up low single digits for the year. Decking sales were down mid-teens in the quarter and were down low teens for the full year as a result of a softer demand environment and destocking. Outdoor segment operating income was $55.2 million during the quarter, up 29%.

Operating income for the full year was $218 million, an increase of 25%. Segment operating margin for Outdoors was 18.2% in the quarter, an increase of 430 basis points, and 16.1% for the full year, a 310 basis point increase. Outdoors delivered a strong sales and operating margin year.

These impressive margin results are a direct impact of the work we are doing to drive innovation and expand distribution for our leading brands. Finally, turning to Security. As Nicholas discussed, we were impacted in the fourth quarter by a third-party software outage which impacted our distribution center.

Fourth-quarter sales were $157 million, down 17%, or down 10% when adjusting for the outage. Our fourth-quarter operating margins were 9.3%. Full-year sales decreased 4% to $694 million, and organic sales decreased around 10% when adjusting for the impact of the software outage.

Our full-year operating margins were a 10 basis point increase versus last year. The performance of this segment in 2024 did not meet our standards, and we have identified critical areas for us to focus on as we work to address these challenges directly and head-on.

We have already taken actions under David's leadership, and I am confident that we will improve this business. We've made progress on some exciting brand and product work, which will be unveiled in 2025, including the first major branding campaign from Master Lock in several decades. We have already seen proof of our brand strategy in action.

For example, recent safe advertising highlighting the performance and trustworthiness of our brand accelerated point of sale, which further improved after the recent tragic LA fires.

As consumers face this terrible crisis, and as it was highlighted around the globe, the work that we have done around helping people understand what our brand stands for—namely safety, dependability, and quality—became even more important and gives us confidence in our larger strategy of focusing on meaningful brand and innovation.

We saw significant point-of-sale growth in those markets where consumers were focused on these attributes. Looking forward to 2025, we have a new proven leader, a renewed focus on differentiating our iconic brand and product, and a robust partnership pipeline for Yale.

We are rolling out a connected lockout tagout solution and see it as a breakout opportunity for our security business. To recap, 2024 was a year of transformation and execution for Fortune Brands amidst a dynamic external environment.

Our teams built new assets across brands, innovation, and digital, which will accelerate growth as we deploy them in the marketplace. Our margin results and market outperformance in key parts of our portfolio give us confidence in the future.

We took decisive steps this year to better position ourselves, and I am proud of what our teams achieved in 2024. In 2025, which David will speak to in greater detail, we will focus on driving above-market growth and accelerating our areas of advantage.

We will look to sustainably grow margins and continue investing behind our most strategic opportunities. We will execute our larger strategy of focusing on our supercharged categories. We expect 2025 to be another breakout year for our connected products.

We will take concrete actions in our business to ensure that we are best positioned for long-term growth. Additionally, we will manage any period of continued volatility, responding quickly and remaining agile while actively positioning Fortune Brands Innovations for the future. I will now turn the call over to David Barry..

Thanks, Nicholas. As a reminder, my comments will focus on results before charges and gains to best reflect ongoing business performance. All comparisons will be made against the same period last year unless otherwise noted. Before I begin, I would like to take a moment to address my new role.

I have found my experiences as CFO to be incredibly rewarding, and I am grateful to all those with whom I've built relationships, including many of you on the call today. I look forward to the next phase of my career and journey with Fortune Brands in my role as President of our Security and Connected Product businesses.

I am fully confident in the long-term growth opportunities of both of these businesses, and I am excited to help advance our value creation. In the meantime, I will be assisting with the search for our next CFO and will partner closely with my successor, ensuring a very smooth transition.

As Nicholas highlighted, our teams focused on a tight set of priorities amidst a dynamic external market while continuing to best position the company for the future. For the fourth quarter, sales were $1.1 billion, down 5%, and organic sales were down 1% when adjusting for the impact of China and excluding the one-time event.

Consolidated operating income was $181.6 million, and total company operating margin was 16.4%. EPS were $0.98. Fourth-quarter free cash flow was approximately $212 million. For the full year, sales were $4.6 billion, flat versus last year, and organic sales were down 2%, excluding the impact of China and the one-time disruptions in the fourth quarter.

Consolidated operating income was $780.6 million. Total company operating margin was 16.9%, a 90 basis point improvement. Our EPS were $4.12. Our total free cash flow generation was an impressive $475 million. Now let me provide more color on our segment results. Beginning with Water Innovations, sales for the fourth quarter were $645 million, down 3%.

Organic sales were up 2% excluding the impact of China and the hurricane. For the year, sales were flat, with organic sales excluding China and the impact of the hurricane down 2%. Water Innovations' operating income was $152.6 million in the fourth quarter. Operating income for the full year was $603.8 million.

Operating margin was 23.7% for the quarter and 23.5% for the full year. Consistent with our returns-focused investment strategy, our Moen brand investments are generating results as we focus on accelerating the consumer and channel awareness of our new-to-world Flow technology and invested in our core brand.

As we discussed, we selectively focused on the portions of our portfolio with the highest potential for returns. In our luxury portfolio, we made key investments in capacity for our House of Rohl products. Now as one combined entity with Emtek, we are excited about the future of our luxury brand.

In China, sales declined 30% in the fourth quarter and 31% for the full year. While the market seems to have stabilized, we do expect another challenging comparable in the first quarter of 2025 due to lapping accelerated completion in Q1 2024. Looking to 2025 and beyond, this business will continue to provide innovation and growth optionality.

As a result of its replatformed size, it is no longer a material portion of our business, and future declines, if any, should be less impactful to our P&L. Turning to Outdoors, fourth-quarter net sales were $303 million, down 2%. For the full year, sales were $1.4 billion, up 1%.

For doors, sales were flat in the quarter and up low single digits for the year. Decking sales were down mid-teens in the quarter and were down low teens for the full year as a result of a softer demand environment and destocking. Outdoor segment operating income was $55.2 million during the quarter, up 29%.

Operating income for the full year was $218 million, an increase of 25%. Segment operating margin for Outdoors was 18.2% in the quarter, an increase of 430 basis points, and 16.1% for the full year, a 310 basis point increase. Outdoors delivered a strong sales and operating margin year.

These impressive margin results are a direct impact of the work we are doing to drive innovation and expand distribution for our leading brands. Finally, turning to Security. As Nicholas discussed, we were impacted in the fourth quarter by a third-party software outage which impacted our distribution center.

Fourth-quarter sales were $157 million, down 17%, or down 10% when adjusting for the outage. Our fourth-quarter operating margins were 9.3%. Full-year sales decreased 4% to $694 million, and organic sales decreased around 10% when adjusting for the impact of the software outage.

Our full-year operating margins were a 10 basis point increase versus last year. The performance of this segment in 2024 did not meet our standards, and we have identified critical areas for us to focus on as we work to address these challenges directly and head-on.

We have already taken actions under David's leadership, and I am confident that we will improve this business. We've made progress on some exciting brand and product work, which will be unveiled in 2025, including the first major branding campaign from Master Lock in several decades. We have already seen proof of our brand strategy in action.

For example, recent safe advertising highlighting the performance and trustworthiness of our brand accelerated point of sale, which further improved after the recent tragic LA fires.

As consumers face this terrible crisis, and as it was highlighted around the globe, the work that we have done around helping people understand what our brand stands for—namely safety, dependability, and quality—became even more important and gives us confidence in our larger strategy of focusing on meaningful brand and innovation.

We saw significant point-of-sale growth in those markets where consumers were focused on these attributes. Looking forward to 2025, we have a new proven leader, a renewed focus on differentiating our iconic brand and product, and a robust partnership pipeline for Yale.

We are rolling out a connected lockout tagout solution and see it as a breakout opportunity for our security business. To recap, 2024 was a year of transformation and execution for Fortune Brands amidst a dynamic external environment.

Our teams built new assets across brands, innovation, and digital, which will accelerate growth as we deploy them in the marketplace. Our margin results and market outperformance in key parts of our portfolio give us confidence in the future.

We took decisive steps this year to better position ourselves, and I am proud of what our teams achieved in 2024. In 2025, which David will speak to in greater detail, we will focus on driving above-market growth and accelerating our areas of advantage.

We will look to sustainably grow margins and continue investing behind our most strategic opportunities. We will execute our larger strategy of focusing on our supercharged categories. We expect 2025 to be another breakout year for our connected products.

We will take concrete actions in our business to ensure that we are best positioned for long-term growth. Additionally, we will manage any period of continued volatility, responding quickly and remaining agile while actively positioning Fortune Brands Innovations for the future. I will now turn the call over to David Barry..

Thanks, Nicholas. As a reminder, my comments will focus on results before charges and gains to best reflect ongoing business performance. All comparisons will be made against the same period last year unless otherwise noted. Before I begin, I would like to take a moment to address my new role.

I have found my experiences as CFO to be incredibly rewarding, and I am grateful to all those with whom I've built relationships, including many of you on the call today. I look forward to the next phase of my career and journey with Fortune Brands in my role as President of our Security and Connected Product businesses.

I am fully confident in the long-term growth opportunities of both of these businesses, and I am excited to help advance our value creation. In the meantime, I will be assisting with the search for our next CFO and will partner closely with my successor, ensuring a very smooth transition.

As Nicholas highlighted, our teams focused on a tight set of priorities amidst a dynamic external market while continuing to best position the company for the future. For the fourth quarter, sales were $1.1 billion, down 5%, and organic sales were down 1% when adjusting for the impact of China and excluding the one-time event.

Consolidated operating income was $181.6 million, and total company operating margin was 16.4%. EPS were $0.98. Fourth-quarter free cash flow was approximately $212 million. For the full year, sales were $4.6 billion, flat versus last year, and organic sales were down 2%, excluding the impact of China and the one-time disruptions in the fourth quarter.

Consolidated operating income was $780.6 million. Total company operating margin was 16.9%, a 90 basis point improvement. Our EPS were $4.12. Our total free cash flow generation was an impressive $475 million. Now let me provide more color on our segment results. Beginning with Water Innovations, sales for the fourth quarter were $645 million, down 3%.

Organic sales were up 2% excluding the impact of China and the hurricane. For the year, sales were flat, with organic sales excluding China and the impact of the hurricane down 2%. Water Innovations' operating income was $152.6 million in the fourth quarter. Operating income for the full year was $603.8 million.

Operating margin was 23.7% for the quarter and 23.5% for the full year. Consistent with our returns-focused investment strategy, our Moen brand investments are generating results as we focus on accelerating the consumer and channel awareness of our new-to-world Flow technology and invested in our core brand.

As we discussed, we selectively focused on the portions of our portfolio with the highest potential for returns. In our luxury portfolio, we made key investments in capacity for our House of Rohl products. Now as one combined entity with Emtek, we are excited about the future of our luxury brand.

In China, sales declined 30% in the fourth quarter and 31% for the full year. While the market seems to have stabilized, we do expect another challenging comparable in the first quarter of 2025 due to lapping accelerated completion in Q1 2024. Looking to 2025 and beyond, this business will continue to provide innovation and growth optionality.

As a result of its replatformed size, it is no longer a material portion of our business, and future declines, if any, should be less impactful to our P&L. Turning to Outdoors, fourth-quarter net sales were $303 million, down 2%. For the full year, sales were $1.4 billion, up 1%.

For doors, sales were flat in the quarter and up low single digits for the year. Decking sales were down mid-teens in the quarter and were down low teens for the full year as a result of a softer demand environment and destocking. Outdoor segment operating income was $55.2 million during the quarter, up 29%.

Operating income for the full year was $218 million, an increase of 25%. Segment operating margin for Outdoors was 18.2% in the quarter, an increase of 430 basis points, and 16.1% for the full year, a 310 basis point increase. Outdoors delivered a strong sales and operating margin year.

These impressive margin results are a direct impact of the work we are doing to drive innovation and expand distribution for our leading brands. Finally, turning to Security. As Nicholas discussed, we were impacted in the fourth quarter by a third-party software outage which impacted our distribution center.

Fourth-quarter sales were $157 million, down 17%, or down 10% when adjusting for the outage. Our fourth-quarter operating margins were 9.3%. Full-year sales decreased 4% to $694 million, and organic sales decreased around 10% when adjusting for the impact of the software outage.

Our full-year operating margins were a 10 basis point increase versus last year. The performance of this segment in 2024 did not meet our standards, and we have identified critical areas for us to focus on as we work to address these challenges directly and head-on.

We have already taken actions under David's leadership, and I am confident that we will improve this business. We've made progress on some exciting brand and product work, which will be unveiled in 2025, including the first major branding campaign from Master Lock in several decades. We have already seen proof of our brand strategy in action.

For example, recent safe advertising highlighting the performance and trustworthiness of our brand accelerated point of sale, which further improved after the recent tragic LA fires.

As consumers face this terrible crisis, and as it was highlighted around the globe, the work that we have done around helping people understand what our brand stands for—namely safety, dependability, and quality—became even more important and gives us confidence in our larger strategy of focusing on meaningful brand and innovation.

We saw significant point-of-sale growth in those markets where consumers were focused on these attributes. Looking forward to 2025, we have a new proven leader, a renewed focus on differentiating our iconic brand and product, and a robust partnership pipeline for Yale.

We are rolling out a connected lockout tagout solution and see it as a breakout opportunity for our security business. To recap, 2024 was a year of transformation and execution for Fortune Brands amidst a dynamic external environment.

Our teams built new assets across brands, innovation, and digital, which will accelerate growth as we deploy them in the marketplace. Our margin results and market outperformance in key parts of our portfolio give us confidence in the future.

We took decisive steps this year to better position ourselves, and I am proud of what our teams achieved in 2024. In 2025, which David will speak to in greater detail, we will focus on driving above-market growth and accelerating our areas of advantage.

We will look to sustainably grow margins and continue investing behind our most strategic opportunities. We will execute our larger strategy of focusing on our supercharged categories. We expect 2025 to be another breakout year for our connected products.

We will take concrete actions in our business to ensure that we are best positioned for long-term growth. Additionally, we will manage any period of continued volatility, responding quickly and remaining agile while actively positioning Fortune Brands Innovations for the future. I will now turn the call over to David Barry..

recent safe advertising highlighting the performance and trustworthiness of our brand accelerated point of sale, which further improved after the recent tragic LA fires.

As consumers face this terrible crisis, and as it was highlighted around the globe, the work that we have done around helping people understand what our brand stands for—namely safety, dependability, and quality—became even more important and gives us confidence in our larger strategy of focusing on meaningful brand and innovation.

We saw significant point-of-sale growth in those markets where consumers were focused on these attributes. Looking forward to 2025, we have a new proven leader, a renewed focus on differentiating our iconic brand and product, and a robust partnership pipeline for Yale.

We are rolling out a connected lockout tagout solution and see it as a breakout opportunity for our security business. To recap, 2024 was a year of transformation and execution for Fortune Brands amidst a dynamic external environment.

Our teams built new assets across brands, innovation, and digital, which will accelerate growth as we deploy them in the marketplace. Our margin results and market outperformance in key parts of our portfolio give us confidence in the future.

We took decisive steps this year to better position ourselves, and I am proud of what our teams achieved in 2024. In 2025, which I will speak to in greater detail, we will focus on driving above-market growth and accelerating our areas of advantage.

We will look to sustainably grow margins and continue investing behind our most strategic opportunities. We will execute our larger strategy of focusing on our supercharged categories. We expect 2025 to be another breakout year for our connected products.

We will take concrete actions in our business to ensure that we are best positioned for long-term growth. Additionally, we will manage any period of continued volatility, responding quickly and remaining agile while actively positioning Fortune Brands Innovations for the future. I will now pass the call back to Leigh Avsec..

Thank you, David. That concludes our prepared remarks. We will now begin to take a limited number of questions. Since there may be a number of you who would like to ask a question, I will ask that you limit your initial questions to two and then reenter the queue to ask additional questions.

I will now turn the call back over to the operator to begin the question and answer session. Operator, can you open the line for questions? Thank you..

Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Susan Maklari with Goldman Sachs. Please proceed..

Good afternoon, everyone..

Hi, Susan. That's my first Hi there..

You know, you did a nice job of outlining a lot of the initiatives and the actions that you've taken over the last twelve months in your remarks.

I guess, given the environment that we're coming into in 2025, can you talk a bit about how we should be thinking about those efforts as we do look to this year, put some context perhaps around what some of them can mean for the business over the coming quarters?.

Sure. I'd be happy to. And I'll give you some context and then maybe David can then mention some of that as we kind of think of how it moves through the year. But if I take a step back, just look at 2024, I mean, obviously, it was still a challenging although stabilizing towards the end of the year macro environment.

And within that certainly some choppiness. But if I step back and kind of look at what were the big profit drivers of the business, and where do we look to see those? You know, if I look at water, you know, we take China out of the mix, which does create a lot of noise in the hurricanes. We had at the end of the year.

You know, we got water growing 2% in the quarter. So nice growth there. I look at, you know, somewhere like Furniture, which is the profit engine of the outdoors business, you know, grew well above 2% in the fourth quarter.

And so you had some really big parts of the core that are growing really nicely, and we're driving more momentum, I'll touch on that, into those. Then look at kind of future core. Right? We talked about the flow point of sale, that's retail and e-commerce point of sale. Being up. Over 100% in the quarter of flow itself.

Inclusive of insurance, grew over 200% in the quarter and 100% for the year. And that momentum we see continuing in 2025. And so that boasts big profit drivers with momentum as well as future core momentum. Certainly, as I said in the remarks, security is a hot spot. Point of sale was down mid-single digits, so better than the reported result by far.

But there is work to do there. To get that before that we're going. We've got some innovation coming and some brand work for the first time in a very, very long time. Coming for that business that we believe is gonna drive some real differentiation. So, you know, when I take a step back, I look at that.

We've done a lot of work in the year to build digital assets. In the connected business those are coming online. You've seen the performance in flow in particular.

We built marketing assets, which are a product of bringing the company together in a more aligned way and leveraging our marketing team across the entire business, I think you're gonna see those really for the first time ever come to life in 2025. We have a very solid marketing plan with solid investment behind it. And their innovation efforts.

I mean, you'll see new products in places like Mars Select. You're gonna see, as I referenced already, you know, very innovative display. Rolling out in a place like Larson. So a lot of really solid assets developed in 2024, to drive growth in 2025.

And then, you know, final point, you know, let's David some color if he wants, is we do lack a lot of noise in 2024. That won't be there. So, you know, we see China's actually normalized and stabilized in terms of quarterly sales. There's noise in the left that goes away after the first quarter.

Then, you know, we walked away from a lot of commoditized business in 2024, things like steel doors or window lineals. Safety. And as we work through those laps, that was, you know, 150 to 200 basis points of headwind just in those. You don't have those repeat? In 2025.

That gives us a lot of confidence in our outperformance of the market just based on the momentum of the other things I described..

Yeah. And, Susan, I'm happy to give a bit of context around our guide, and what's implied sequentially throughout the year. I think, you know, one point as we step back and look at it, we are erring on the side of conservatism from a market standpoint, given the current environment.

But accelerating areas where we have growth momentum to drive, like, 200 basis points of market outperformance regardless of the macro backdrop. So I'll start with that. If I step back and look at our first half, second half sales cadence, there's 49% of sales in the first half. We expect 51% in the second half.

So a very normal seasonal build for us across the year. And, again, importantly, the guide does not include a significant ramp in the market in the back half. We're going to see a normal seasonal level of sales. You translate those sales to prior year comps, and you have the first half down around 1% the second half up around 4%.

But again, very seasonal, cadence across the year from a sales perspective. Nicholas touched on some of the reasons to believe, but, you know, fully lapped low margin business, we've exited China being challenging in the first quarter. We expect it to be roughly flat the balance of the year. We're digital accelerating through the year.

And then the non-repeating impact from the fourth quarter headwinds. So I feel confident in the sales guide we have that there isn't this big back half ramp, you know, driven by the market or other characteristics. Looking specifically at the first quarter, Susan, I'd say sales, that'll be our lowest quarter for the year.

And again, inclusive of China, we see sales down around 4%. China's gonna be a 2 percentage point headwind. So that's low single-digit POS in the first quarter, and that's roughly what we've seen year to date. Our trends support that.

And then looking at margin cadence, I say there are three things that we have really good visibility to given our inventory positions and lead times. So one, we see the timing of some operational costs and absorption coming off the P&L in hitting the first quarter specifically, those are gonna reverse out as we move through the year.

We have some incremental investment timing, and then we have those favorable prior year comps in the fourth quarter that won't repeat.

So as I look at our margin cadence, I see, you know, first half down or first half operating margin of 14.5% to 15% with the first quarter around 12% to 13%, including about 225 basis points of margin compression from those ops costs that ultimately reverse out that leaves the second half margin of around 20%.

And again, no reasons to believe as we look at it. The cadence of those operational costs moving through and the absorption moving through the continued ramp of digital driving mix, and non-repeated one-times in the fourth quarter, they're gonna boost that margin as we get there in the back half.

So but I think we're taking a prudent approach to the year and really looking to accelerate the growth momentum that we have and have really good line of sight to what's coming on off our balance sheet and in and out of the cost bar as we move through..

Okay. That's very helpful. Thank you both. And maybe just following up, it sounds from your remarks that the high end of the market is still holding on fairly well given what you've seen in Rohl and some of the other parts of the business.

Just any commentary on how you're thinking about the state of the consumer coming into the year? And what you are seeing across the different price points and how maybe that could play out over the coming quarters?.

Yeah. I'd say, look, you know, the consumer generally, I think, is still being very cautious. The way, you know, even in the start of the year, we're seeing a consumer behave pretty similar to Q4. You know, I would say even the point of sale, which, you know, we get daily read if we want. Is almost tracking maybe just slightly under.

Which was consistent with how they tracked last year. On a dollar basis. So I think in general, the consumer is still very cautious, the general consumer. But you're absolutely right. At the higher end, we're seeing a lot of resilience.

And, you know, to see that performance at a House of Rohl is great, and the House of Rohl's got a lot of stuff coming online. This year. So you're seeing a lot of back to resilience will continue to lead into that.

And then, you know, for the rest of the portfolio, we've done a lot of work in 2024 that will roll out in 2025 to really better hit on the differentiation around our brands. And you heard a lot in the prepared remarks around the trustworthiness, the safety.

And, you know, we've seen a lot I've talked about it before, you know, what we call counterfeit or impostor products in the marketplace. That are very sharply priced. And I'm not talking about private label that's been around with competitors that that's no problem.

I'm talking about things that claim falsely claim to have product attributes or safety standards that they don't. We're going to we've already started to talk about some of that in our safes business. It's seen very strong response. On point of sale level. We're not gonna get talking about it more in water. And in other parts of security.

And I think as you do then really sort of give into those reasons to believe, you know, why should a consumer pay for these products? I think absent that, there's a lot of consumer caution. I think with that, we see strong consumer response..

Okay. That's helpful. Thank you both for all the color, and good luck with everything..

Thank you. The next question comes from the line of Matthew Bouley with Barclays. Please proceed..

Good evening, everyone. Thank you for taking the questions. Can I ask on connected products? I think you spoke about 150 basis points additive to growth in 2025. I guess just a few questions if you can kind of level set us. I think I heard you say $214 million as a starting point, and correct me if I'm wrong. From 2024.

So can you speak to the building blocks of the 150 basis points? Is that coming already in Q1, or does it kind of ramp through the year? And, you know, kind of what do you have clear line of sight to already versus kind of additional milestones we should be looking forward to?.

Hey, Matthew. It's David. Happy to touch on that. And as Nicholas mentioned in his remarks, made significant progress in this space. And as I move into my role to work closer with this team, I'm really focused on executing sales activation and conversion.

While also expanding the aperture on our strategy and where we can play and where we have the right to win. So I'm excited to do that as I get into this role. So if we look at what's embedded in the guide, it correct full-year impact on growth for the total Fortune growth is 150 basis points.

You know, the first half probably 100-ish basis points of growth. The second half maybe closer to 200, maybe a bit more than that. Of growth. And remember in the second half, we're comping the Yale inventory reduction. So this is net sales growth that we're talking about and not POS. I mean, we continue to see POS ramp strongly.

You know, it's up in the up, you know, 70-77%, you know, 70 to 80% in the first quarter of this year already. So that trend is continued for water. And we see POS growth on the security side as well in our core channels.

It's really just on the partnership side, bringing new products in, transitioning old products out, and getting that back to growth as we expect to occur, you know, by about second quarter to third quarter. Excited. I mean, the momentum is continuing to build.

The team continues to fill the top of the funnel from a partnership standpoint, and we're really focused on pulling those sales through the funnel and executing..

Okay. Got it. Thank you for that. And then secondly, I wanted to touch on the tariffs, which you had mentioned at the top. I think you said maybe low double-digit or 10% in or line of sight to getting below 10% in China, and I think you said Mexico was similar.

Can you just elaborate a little bit on, I guess, what you could do specifically with Mexico? Since, you know, this is obviously newer this time relative to a few years ago.

And then Canada as well, and specifically any other kind of international sourcing that we should consider given the kind of uncertainty for how this is all gonna play out? So just kind of any framework around the tariffs there. Thank you..

Yeah, Matthew. I'll start with just giving you some conceptually and philosophically how we approach it. David can give you some of the specifics. But yeah.

And we've talked about this really over the last few years, but remember, like, going back, we circumvented this tariff thing since plywood tariffs first hit, I think, around 2017, we had to move $100 million worth of spend, and we did that very quickly. As the team has really built a very strong bench in managing tariffs.

Our philosophy over the last couple of years has really been around supply chain agility versus trying to pick a specific geography to bet on.

And so doing things I don't even know if it's a competitively sensitive detail that, you know, doing things around the portfolio that allows us to move products very, very quickly and then building out redundant supplier networks that allow us to move things very, very quickly around the place.

And so, you know, while it's, you know, certainly been interesting to watch exactly where a tariff may land or may not land, we've done a lot of work to be able to move very quickly as that happens. And so that's been the approach, and I'll tell you, I'm glad we had it versus making, you know, a singular bet on one geography.

You know, the other thing I'll just add spent a lot of time with Leigh Avsec, who also made she's external affairs. You know, in DC, talking to the administration, and, you know, it's clear that there certainly is the idea of, you know, trade and balance tariffs, but there is an idea around universal tariffs.

And, you know, to the extent that that comes to fruition, we have a very strong North American and US Medivac today. You know, we're vertically integrated in some parts of the business and still have maintained, you know, a very strong manufacturing footprint. In all other parts. Of the business.

And so, you know, we view that as potentially actually being quite a competitive advantage given that we can combine this flexibility with our existing footprint with a great workforce here, and we think we can very, very quickly move to service our consumers and customers in a competitively advantaged way..

Yeah. And, Matthew, I would add just to clear what's in the guidance. We have the impact from the 10% incremental China included in the guide, and we also believe our EPS range captures any potential impact from Mexico and Canada.

You know, given what Nicholas said, the team is working on, you know, for Mexico specifically and for Canada actually, the, you know, structuring options, you know, different ways to think about our US content in those products. To reduce our exposure and ultimately, you know, reduce the price that we would take in the market.

But ultimately, while we work, all of our internal levers and actions, at the end of the day, what's left will pass through and then invest behind what we passed through to tell the story of our brands and why they are superior..

Great. Thanks, guys. Good luck..

Thank you. The next question comes from the line of Michael Rehaut with JPMorgan. Please proceed..

Thanks for taking my questions. Good afternoon, everyone. First question, I wanted just to circle back to the organic growth ambitions or guidance. You kind of highlighted obviously digital contributing 150 out of the 250 basis points of growth above the market.

I think in prior years, you know, you've kind of been given guidance often laid out maybe 100 to 150 basis points of growth above your end market. So you know, I think some people were maybe thinking of the digital opportunity as something above and beyond your normal above-market growth opportunity. So yeah.

When you think about the 50 basis points outside of the digital that's contributing to the top line, maybe being a little less than before, any thoughts around, you know, let's say the core portfolio and the opportunity to contribute to above-market growth versus digital.

I know certainly, you know, you're kind of thinking them together, but, you know, at the same time, I think most people view digital as kind of an incremental opportunity to the core business.

So just any thoughts around, you know, growth contributions from the non-digital side of the business, how you think about that over the next couple of years?.

Alright. Look. I think that's a very fair challenge. You know, you look at 2024, as we said earlier, we did walk away from some low-margin business, and we did it very purposely as we concentrated the efforts of the business on the digital side.

Right? In order to achieve what we've achieved in digital, you know, when we've had to make choices around, you know, do we pursue things that were, like, OEM products for millennials, etcetera? You know, we've chosen to focus there where we know the future growth is going to be.

And so, as we built this year's plan, we certainly want to see the core outperform. And we do, as I said earlier, have just some real assets that we're deploying into the market. There is some innovation that's coming that you'll see hit. That is very exciting.

There are, you know, branding assets and there are more dollars going against driving those branding assets into the market and telling that story. And so we expect that to deliver. But I think as we just designed this year, it's still in a challenging market. And with a lot going on. We put some conservatism around that.

I certainly think as you see the consumer stabilize and you see the activity that we have in the marketplace resonate and, you know, hopefully, we'll be, you know, targeting something in excess of that 50 basis points from the core..

I think that's fair. It might be a couple of things I'd add. No. We still have China down about 30% in the first quarter. If you have if you have you have pushed that through Fortune, you know, that's 25 probably 25 to 40 basis points of headwind. Hello? Smooths out going forward, but it impacts the year.

And then, you know, we're talking about we're not pleased where core security is, and then there's still some work to do at the beginning part of the year to get that portfolio back for performing and back performing above market. Which we intend to fully do..

Okay. No. Those are fair points. And I appreciate it. I guess, secondly, you know, maybe just circling back to the tariffs for a moment. I believe, David, you just said that the China and potential Mexico tariffs are reflected in the guide.

What does that mean in terms of how we should think about volume versus in that zero to three percent guide? I would assume that, you know, when you're trying to offset the impact of tariffs, then it would appear that your guide is reflecting the ability to offset most, if not all, of the impact of tariffs.

That, you know, most companies, you know, I think, kind of take a price first supply chain, simultaneous. Where you're not gonna get the full impact of the supply chain. So I'd assume that there's some price in that guide and, you know, part of your view around being able to include tariffs in the guidance and maybe have a minimal impact.

Maybe just if you can address some of those points there?.

Yeah. Let me clarify a couple of things. So the China impact of 10% is fully embedded in the guide. Our EPS range would cover Mexico and Canada, though if those go into effect, I think our sales and margin would look different.

Right? Because we would take more price, to cover the dollars and margin would probably look a little bit different as a result of that. So that's two points. Right? There's China, fully in the guide. Less than, you know, low single-digit price across the whole portfolio.

It's or, you know, 1% less than 1% price across the whole portfolio to cover Mexico, Canada, your point, yes, we would expect to cover that impact through price and supply chain actions, but that hasn't been flowed through kind of the sales and margin piece because it's still uncertain..

And as David said, very manageable price. From what we see certainly today..

And actually, you know, with the China fees, like, the, you know, the removal of the de minimis exemption is actually an opportunity for us. Right? I mean, that we talked about these impostor brands and a lot of them are using that loophole to ship directly to our consumers in the US.

If that goes away and stays, that is an opportunity for our team to take care..

Great. Thanks so much..

Thank you. The next question comes from the line of Adam Baumgarten with Zelman and Associates. Please proceed..

Hey, everyone. Good evening. Just on gross margin, it really stepped up nicely in 2024. From 2023.

Can you maybe talk about the drivers behind that and how sustainable that is going forward?.

Yeah. And I'm happy to do it. You know, it's been on a nice trend all year. Right? And we talked about some of the actions we've taken, like, closing our Milwaukee plant for security. To help boost our gross margins. Our continuous improvement initiatives as a result of our new aligned supply chain driving incremental sourcing.

And then some product mix benefits as the portfolio continues to shift to higher margin opportunities. So we do think it is sustainable. I think it is the right jumping-off point as we look forward to 2025.

As I mentioned in my talking through the guidance in the phasing, there'll be some lumpiness in the quarters based on how some of our inventory is moving from the balance sheet into the P&L at a higher cost base, but that'll even itself out through the year. As we look at the full year, then we do expect gross margin expansion again in 2025..

Okay. Great. And then just on the share repurchases, you know, big authorization here. It looks like based on the guide and the share count that you're not building in any repurchases beyond maybe the January number that you gave.

I guess, is that just conservatism? Do you still expect to, you know, repurchase shares in 2025 given the authorization?.

Yes. So I'd say consistent with our guiding practice, we put in share repurchase authorization to offset dilution, so that's what's in the guide. It's our intent to be aggressive when we see dislocations in our share price. You know, we're generating a lot of cash and pursuing incremental opportunities to reduce our working capital.

We have some process improvements going into effect this quarter and looking at some other working capital initiatives. To actually even accelerate our cash flow guide above and beyond where it is today. So we'll be aggressive when the opportunity exists. To buy back shares and still be mindful of our leverage target.

But I think given the cash generation we're able to do that and still delever down towards where we wanna be..

Yeah. And I just had I, you know, to refine. We're very focused on that cash generation. So this year, we're I mean, 2024, we're very pleased with cash generation over 100%. Targeting in 2025 to be somewhere between 115% and 125%. Right? So targeting $600 million-ish.

As David said, there's some initiatives we have in mind that we think we can get even more out, and I think as David described, the phasing of margins for the year. You'll see us be able to turn some inventory into cash earlier in the year.

And, you know, while that has a short-term margin impact, that cash generation, particularly when we see dislocations, can be a very favorable thing. So we're very focused on it. And we think it's something that we can use to really create shareholder value here..

Okay. Great. Thanks..

The next question comes from the line of John Lovallo with UBS. Please proceed..

Hey, guys. Thank you for taking my questions as well. Maybe the first one just on the CapEx outlook of $100 million to $140 million. I mean, that's down pretty meaningfully obviously year over year. It almost seems like it could be approaching kind of maintenance CapEx levels.

Am I thinking about that correctly? And are you comfortable with the ability to, you know, continue investing in growth?.

Yeah. Yes. Absolutely. So maintenance CapEx, John, for us is about 1% of sales. So, you know, call it in that $50 million range. So this would include growth capital. Why it's stepping down? You know, as a reminder, we've put in incremental capacity over the past couple of years.

I think we've been clear that that CapEx rate of 2023 and 2024 were not the go-forward rates for this business. You know, that said, we now have capacity and as volume comes back, you know, we have more efficient newer capacity in certain parts of the business which will lever substantially through the P&L.

But part of that strong cash flow generation is actually getting back to what is more like that 2% to 3% of sales CapEx rate, which is our longer-term target and still leaves us plenty of capital for growth. We're not starving the business for any growth initiatives by any stretch..

I'd just say to go a little further on it, I mean, just over the last few years, yeah, I've mentioned, I think, within the remarks, we've opened just in last year until this year, two new facilities for water. We put more capacity into outdoors, obviously, with the footprint moves in security, incremental capacity going in there, more insights.

Actually, the business is now really well capacitized. And, you know, we're confident that over the next few years, we're gonna be able to not just generate a lot of cash, but really grow into that capacity and leverage through it. So, you know, from that perspective, I think we're actually in a really good spot.

And the fact that we've been able to grow while doing this, I think it's a testament to how we've been leveraging the Fortune Brands advantage across the entire company to be super efficient. We're deploying extra cash into capacity.

We're deploying cash into things like digital and yet growing margins at the same time, which really sets us off as volumes come through to drive a lot of leverage to the business..

Okay. That's helpful. And then maybe just a point of clarification. I thought last year at this time, you guys had talked about digital sales kind of running at an annualized rate of $250 million. I mean, in that context, the $214 million that you guys printed in 2024 seems a bit light. So I wanted to ask that.

And then just on the Flow portion, can you provide any more color on the other insurance company wins?.

Yeah. Why don't I start I can give a few more specifics. Let's say, firstly, on the, you know, on the dollar, we wanted to sort of give it for the year. And then as we progress through 2025, we'll, you know, we'll tell you what the run rate is. Flow, performing as we said, you know, exceptionally well.

We see a lot of business now coming online, and then you know, Yale, sort of interesting as we integrated that business and brought it on board, we've always said, sort of mid-cycle startup, and, you know, it kind of acts like it so they sign big partnerships. I think we said 14 in 2024. But then you also exit old products, you exit old partnerships.

And so there is choppiness in the number, and we saw a lot of that choppiness in 2024, frankly. Where it actually went backward. But as the 14 new partnerships ramp, then it returns to growth.

I think part of our objective for that business needs to be to we need to smooth that out, which we will do by maintaining and building those B2B partnerships, but also building out more of a B2C business as we have in Flow. So you have as we do in Flow, so the B2B insurance, we have the B2C business, and you get a much smoother ramp.

So that good choppiness in the number, but I'd say if you step back from that and you look at what we're signing up and when you look at what's going in, we're absolutely delighted with it.

And then, you know, from the insurance partnership perspective, you know, there are a variety of flavors from let's say, affiliates recommended to discounts to mandate.

You know, the reason we talk a lot about farmers and the reason we think Farmers is a milestone deal is really it was the first where an insurer says, you know, this is mandated for a certain subset of homes. If you want to continue insurance, we have to take cost out of the system. You have to put the product in.

We continue to sign up insurance of all three types. And we'll, you know, continue to do that, and watch it ramp. I think you'll see more happen, and it's somewhat regulatory where it can happen, but I think you'll see more happen in both that discount as well as the mandate.

Another thing that we talked about we're gonna start trialing in this quarter is a subscription recurring revenue model around this business, which we think will make it much, much easier not just for those consumers, to absorb the cost, but also for the insurer to mandate it because the, you know, entry-level price point, if you will, will be a much, much lower number than the cost of installing a device, you know, from the get-go.

I will tell you though, financials actually work out much better for us in the long run because you develop lifetime customers, and the lifetime value of those customers is far greater than a single one-time sale, but we view that as the next big milestone step forward in bringing these partnerships to life..

Great. Thank you..

Thank you. This concludes our Q&A session. And this concludes today's conference as well. You may disconnect your lines at this time. And enjoy the rest of your day..