Fortune Brands Innovations Inc (FBIN) 2013 Q1 法說會逐字稿

Good afternoon, my name is Mike and I will be your conference operator today. At this time I would like to welcome everyone to the Fortune Brands Home & Security first-quarter 2013 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions)

Mr. Brian Lantz, Vice President of Investor Relations, you may begin your conference call.

Thank you Mike, and good afternoon everyone and welcome to the Fortune Brands Home & Security quarterly investor conference call and webcast. We are pleased to be here today to provide an update on our progress during the first quarter of 2013. Hopefully everyone has had a chance to review the news release issued earlier. The news release and the audio replay of the webcast of this call can be found in the investor section of our www.FBHS.com website.

I want to remind everyone that the forward-looking statements we make on the call today either in our prepared remarks or in the associated question and answer session, are based on current expectations and a 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, such as our annual report on 10-K. The Company does not undertake to update or revise any forward-looking statements, which speak only to the time at which they are made. Also, any references to operating profit, earnings per share, or cash flow on today's call, will focus on results on a before charges and gains basis, as described in today's news release, unless otherwise specified.

With me on the call today are Chris Klein, our Chief Executive Officer, and Lee Wyatt, our Chief Financial Officer. Following our prepared remarks, we will have ample time to address any questions that you may have. I will now turn the call over to Chris.

Thank you, Brian, and thanks to everyone for joining us today. We're off to a great start to 2013. We delivered solid first-quarter performance driven by both strong sales and profit growth, and we are increasing our annual outlook.

As volume is returning to the market, the competitive advantages that we have built over time are now generating meaningful results. Our strong results reflect our disciplined focus on profitable growth and our aggressive moves over the last several years to grow share, introduce new products, and restructure our operating platforms, all of which position us to leverage the recovering market. We also believe we are now in a position to drive incremental shareholder value.

Let me first spend some time on the first quarter highlights, and then I'll discuss our revised annual outlook, our dividend, and our strategic acquisition. For the quarter, sales were up 11% and EPS was $0.24, up from $0.08 a year ago. Cabinet sales grew 11% as we gained share in all channels and benefited from new construction. Importantly, our focus on profitable growth allowed us to grow cabinet profits by 19% in the quarter.

Moen continued its strong performance with sales growth of 26%, with share gains across the business and profit growth of 52%. Windows and door sales were up 10%, and as expected this segment operating profits improve. Security and storage sales were down 14% as planned, due primarily to lower sales of tool storage products, while profit for the overall segment was up 4%.

Now let me give you some top line highlights by segment. Sales for our cabinet business is up 11% for the quarter and exceeded our expectations. We continue to perform well as the market leader in cabinets with strong results across all channels within the business. The pace of new construction continued to be a key driver, as we again saw strength with dealers and builders in our new construction lines. We're also starting to see more growth in our semi-custom lines as R&R spending improved over last year, while the high end of the market remains challenged.

In the dealer channel, where we are the clear market leader, we are leveraging our portfolio of brands and our strong product and service reputation. We also achieved solid growth in home centers, where we focus on sustainable long-term growth opportunities and where we saw particular strength in our in-stock cabinet programs and our expanded bath vanity programs.

Notably, we grew our Cabinet profits by $19 million in the quarter. This performance again reflects our ability to successfully target growth in channels, markets, and product segments that aren't as promotionally driven, while leveraging our efficient operating platform to improve profitability.

Plumbing sales are up 26% in the first quarter. Moen saw broad sale gains in the US and in our international businesses, particularly China. Gains were strongest in the US in our wholesale business where we achieved volume increases, driven largely by the pace of new construction. Our leading market share with top builders and wholesalers, expansion into the multifamily segment, and upgraded showroom displays is yielding strong sales and improved mix and solid profits.

Moen is also seeing strength at retail with our steady pace of consumer-driven innovations, like MotionSense, a unique hands-free electronic kitchen faucet. Our Microban antimicrobial finishes, and new styles like our Asheville, Banbury, Boardwalk, and Wetherly bath lines.

Internationally, sales in China where they're now approximately 800 Moen branded stores, were again up strong double digits over the prior year, driven by new construction and our continued retail expansion. The team in China continues to build our business with a wider range of price points and with products uniquely tailored to the Chinese market. And the Chinese consumer continues to spend in our category.

Window and door sales were up 10% for the quarter. Door products saw double-digit sales gains, driven by heavily -- by gains in new construction, partially offset by the exit of less profitable retail programs. Window sales increased more modestly as softness continued in the repair/remodel side of the window market, and cool weather in many parts of the country negatively impacted exterior projects. Importantly, for our three housing related segments we saw total sales increased 16% for the quarter, well ahead of the overall market for our products, as we continue to gain share in our categories.

In Security and Storage segment our sales were down 14% in the quarter and profit increased 4%. Sales declined primarily due to the expected challenging comparison for our tool storage products as our largest customer did not repeat a unique post-holiday promotion in the category as they did in the first quarter of 2012. However, we have a number of exciting product initiatives rolling out over the balance of the year and expect full-year storage sales to be at least even with 2012.

Security sales were down slightly to the prior quarter, strength in global safety was offset by softness in Europe. Master Lock innovation continues to hit the mark in both retail and commercial, with new updated versions of well established product lines and exciting new-line extensions. We also began to roll out our new line of commercial electronic access control solutions designed to secure high-value sites such as cellular telephone towers and other storage facilities.

So to sum up the first quarter, I'm excited about our performance, which is a market which continues to be led by significantly stronger new construction, and our repair/remodel market that looks like it's showing some signs of improved growth. This performance demonstrates the strength of our operating model and our ability to generate profitable growth as volume returns and we continue to gain share.

Now let me turn to our revised outlook for 2013. We will then take you through our outlook in more details in a few moments.

From a market perspective, we now see an overall market for our US home products that could be better than our initial assumptions for 2013. New construction remains strong as demand for new homes continues to outstrip supply in many markets across the country. And notably, the pace of repairs and remodel growth has picked up somewhat, even though spending on larger ticket items like cabinets and windows continues to lag, especially at the high end of the market. Importantly, given our businesses are predominantly driven by repair/remodel activity, small changes in the pace of R&R up or down can meaningful impact our outlook and results.

Therefore our revised 2013 outlook is built on an assumption that the US home products market grows at a combined 8% to 10% rate, with new construction growing in the mid-20%s, and repair/remodel growing 4% to 5%, with some lag from purchases of higher-end big-ticket items. Based on that market assumption, and our ability to consistently outperform, we expect our 2013 full-year sales to increase 9% to 11% rate over 2012. With our home products businesses growing faster than that rate, and our Security and Storage businesses growing slower than that rate. We expect our 2013 EPS before charges and gains to be in the range of $1.23 to $1.33.

Now let me turn to our discussion of how we are beginning to use our strategic initiatives to drive incremental shareholder value. First, this week our Board approved the initiation of quarterly cash dividend to shareholders. This is an important step as it reflects the Board's confidence in our performance, long-term cash flow, and strategy for using our strong cash flow to drive incremental shareholder value beyond the recovery.

Second, today we announced that we have signed an agreement to acquire WoodCrafters Home Products, a leading privately owned manufacture of bathroom vanities and vanity sink tops. WoodCrafters will become a part of our cabinet business, where we have historically been strong in the kitchen and will greatly increase our product offerings in the bathroom. WoodCrafters' strength with vanities provides us with both additional innovative products and expanded lower cost North American supply chain, including more capacity in Mexico.

Also important, WoodCrafters comes with a strong seasoned management team and an execution driven culture that will fit perfectly with ours. It will operate as a distinct unit of our cabinet segment with its current management team, staffing, operations, and locations. The unit will report to Dave Randich, President of our cabinet business. And we are thrilled to warmly welcome the 2,000 WoodCrafters associates to our Fortune Brands Home and Security family.

This is a very strategic acquisition that allows us to build on our competitive advantage in cabinets. With the market in the early stages of recovery, and particularly as the repair/remodel market begins to gain momentum, this is a great time to build on our leading position in cabinets and further strengthen our efficient and responsive North American supply chain. As I mentioned before, we intend to be efficient with our cash by investing our businesses, pursuing accretive acquisitions that meet our strategic criteria, and returning cash to shareholders through dividends and share repurchases.

So to sum up, we had another quarter of strong results. We are confident in our ability to continue to outperform on market, which has improved. And we've raised our outlook for 2013.

As volume is returning, the competitive advantages that we have built over time are generating meaningful results. We are also now positioned to drive incremental shareholder value, and therefore initiated a dividend and announce an acquisition. Our strong brands, Management teams, and capital structure provide flexibility to both focus on profitable organic growth, and drive incremental shareholder value with our strong free cash flow.

Now I'd like to turn the call over to Lee who will review our financial performance and provide more details on our revised 2013 outlook.

Thanks, Chris. As Brian mentioned, the majority of my comments will focus on income before charges and gains, which best reflects ongoing business performance. Let me start with our first-quarter results.

Sales were $890 million, up 11% from a year ago, with our home product sales growing 16%. Consolidated operating income for the quarter was $62 million, up $42 million compared to the same quarter last year. EPS were $0.24 for the first quarter, up $0.16, or triple the same quarter last year.

Now let me provide more color on segment results. Our Cabinet sales were $345 million, up $34 million, or 11% over the prior-year quarter, with growth in all channels. Operating income for the segment was $15 million versus a $4 million loss in the prior year, up $19 million, as we benefited from higher sales volume, running through our improved supply chain.

Our strategy of disciplined sales growth is working as planned, as we continue to exceed the overall cabinet market growth while improving profitability. We're seeing a bit more growth in our semi-custom cabinet lines as R&R spending improved over last year, but higher end products remain challenged.

Plumbing sales for the first quarter were $309 million, up $64 million or 26% versus the prior-year quarter. All channels performed well with US wholesale, US retail, and China businesses all experiencing in double-digit sales growth. Operating income was $55 million, up 52%, even as we made incremental brand investments. And importantly, operating margin was 17.8%, 300 basis points higher than the same quarter last year.

Windows and door sales were $124 million, up $11 million or 10% from the prior-year quarter. Within the segment, the door business experienced double-digit growth, while the window business grew low-single digits. The operating loss for this segment was $8 million, around $2.5 million better than last year. And for the full year, we see significant improvement over last year's profit.

First-quarter Security and Storage sales were $112 million, down $18 million or 14% versus the prior-year quarter. The sale decline was primarily due to challenging comparisons caused by an incremental prior-year promotion for tool storage products at our largest customer. This promotion drove storage sales gains of more than 40% in the first quarter of last year. Because this decline was expected, the results were in line with internal plans.

Security products saw strength in global safety offset by softness in Europe. Segment operating income increased 4% to $12 million, which included $3 million of income realized from changes to our benefit structure as we aligned all of our benefit programs ahead of implementation of the new healthcare law, less other charges and investments in the business to support new product launches.

Turning to the balance sheet. Our March 31 balance sheet ended with cash of $259 million. Debt remained at $326 million. Our net debt-to-EBITDA leverage is 0.2 times and we have nothing drawn on our $650 million revolving credit facility.

Let me now provide our thoughts in further detail on our revised outlook for 2013. As discussed previously, our approach to the 2013 planning and annual outlook begins with a market assumption. Our approach also includes continued share gains in addition to overall market growth.

So turning to our outlook details. For the full year 2013, our planning assumption calls for the market for our US home products to be up 8% to 10%, with new construction growing in the mid-20% range, and repair and remodel growing 4% to 5%, with purchases of higher end big-ticket items continuing to lag. Based on this market assumption and continued share gains, we expect our full-year 2013 sales to increase 9% to 11% compared to 2012, with our home product segments growing double digit. We should again outperform our market with all segments increasing.

Based on our market and sales growth assumptions, our expectations for EPS are in the range of $1.23 to $1.33. The midpoint of our guidance represents an increase of 44% over 2012 EPS of $0.89. 2013 free cash flow should be over $200 million after CapEx of approximately $100 million.

Let me now comment on recent actions to use cash to drive incremental returns to shareholders. As we previously stated, over an assumed five-year time horizon that began in 2012, for the housing market to return to a steady state, the strong free cash flow combined with our flexible balance sheet could provide over $2 billion of cash to drive incremental shareholder value. Accordingly, the initiation of a quarterly cash dividend of $0.10 per share was announced earlier this week.

At this dividend level, we are providing shareholders with a reasonable yield, while maintaining a manageable payout ratio of around 30%. The dividend will utilize approximately $50 million of cash in 2013 and $66 million on an annual basis. Importantly, this rate of cash usage will provide the potential to the increase of the dividend in the future and should not materially impact our ability to either invest in the business or make strategic acquisitions.

Turning to our agreement to acquire WoodCrafters. WoodCrafters is a leading provider of bathroom vanities and vanity sink tops to the US home market, with current-year sales of approximately $230 million. The purchase price of $300 million should be equivalent to 7.5 times annual EBITDA. However, over the next couple of years, potential synergies resulting from the acquisition could reduce the purchase multiple to closer to 6 times EBITDA.

Before future synergies, for the year 2014, WoodCrafters could add an incremental $0.11 to $0.13 of EPS to our overall performance. There could also be incremental EPS benefits in 2013 depending on when the acquisition closes. I'd like to point out that while the transaction is planned to close in 2013, the exact timing of the closing remains uncertain due to regulatory approval. Since the incremental sales and EPS impact to our overall 2013 results can not yet be fully determined, we have not included any impact from the acquisition in our 2013 guidance at this point.

In summary, our business model is performing well and we're pleased with our first quarter. You are now seeing the benefits of our structural competitive advantages that should continue as the market recovery generates additional growth. Importantly, we now see sustainable momentum in both the housing market and our business performance that allows us to begin to create incremental shareholder value by initiating a quarterly cash dividend and making a strategic acquisition.

I'll now pass the call back to Brian.

Thanks, Lee. That concludes our prepared remarks for the first quarter. We will now begin taking your questions and we'll continue as time allows.

There are a number of you who would like to ask a question, so 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. Mike?

(Operator Instructions)

Stephen East, ISI Group.

Chris and Lee, if we look at WoodCrafters, if I quickly ran through the numbers there it looked like an EBITDA margin of 17.4%, which is well beyond what is going on right now with you all. What -- how are they generating the large margin and how do you get synergy across the platform for you?

They are in a category that we are in today in bath vanities, and the structure of that category has got pretty good margins in it. They've got a very cost effective supply chain, and that's one of the things that makes it attractive to us. Going forward, the synergies come in part from the cost effective supply chain, most of the manufacturing is done in Mexico, high-quality manufacturing and at a very good cost to us. So that's really what makes this attractive.

It also offers us some product capabilities that we can expand off of. So there really is a lot that make sense. It's an extension of really an existing strategy, and it's really consistent with what we've talked about since we spun off over 1.5 years ago, which is we look for acquisitions that dove tail into strategies that we are already pursuing, and this one accelerates in a category that we are performing well in today. So there's a lot to like about it, and it's a terrific team that have been running the business today.

Okay. That is helpful. And then plumbing sales were off the charts, could you just talk about what's going on there?

We've got strong positions across all channels there. So on the wholesale side, we've got very strong positions with top builders. So as you all have seen the building results, that volume is flowing through that side of our business. We've also got strength in retail. We've rolled out a lot of new products and that's performing well.

Even internationally, we've got strength in China. So it was pretty well across the board, pretty consistent. It's really a byproduct of a couple of years of work here as we've built share positions and intend to roll out new products. You get a little bit of volume, little bit of wind in our sails, and then we take off and that's what you saw.

Yes, all right. Thank you.

Dennis McGill, Zelman & Associates.

Chris just on the last point when you talked about being able to see that margin acceleration; from the first quarter level, where do you see the year ending up if you see the channels unfolding as you expect, new construction at 20% plus, and then mid-single digit type home-improvement, can you see the same type of leverage as you move through the year that you saw in the first quarter?

No, I think we're a little bit ahead of where we'd say we would be if you run the numbers out on our guidance on revenue and then look at the EPS guidance. I think that's in part off the first quarter, some of the investments that we make in the business, launching programs, media spend, other things is a little bit lighter in the first quarter, and so, that kind of evens out over the year. But I think from an overall business momentum standpoint, I'd see us rolling through the balance of the year with continuous strong momentum.

And my question was just specific to plumbing, is that what you are referring to?

Yes, we've got programs -- we've got additional brand spend coming through the business, so you see quite a bit of -- we'll have good leverage throughout the year no doubt about it, but maybe a little bit stronger first quarter because of that spending.

Okay. And then Lee I think you made a comment within the Windows and door segment, that for the full year you expected substantial improvement. Can you maybe just talk through that a little bit more, and then anything that might be different the rest of the year versus what you saw in the first year from the cost side?

Yes, I think we'll see -- you saw very strong sales in the door side, and that will continue on with our expectations around new construction. So I think you will see nice growth there. We wanted to make sure that when you look at the first quarter and you see a loss, that you understand that, that is consistent with what we expected. And as we move through the year and you get more volume, especially driven through doors, that you will do much better than the $4 million to $5 million we made last year in operating profit.

Okay. Thank you.

Stephen Kim, Barclays.

This is actually Freda Zhuo on for Steve, congratulations on a great quarter. So my first question is, just looking at WoodCrafters after the acquisition and the dividend, you are at still pretty healthy leverage, so could you give us an update on what the acquisition pipeline could look like throughout the year? And what kind of transaction multiples are you looking for future acquisitions?

Yes, so I think things are slowly picking up on the acquisition side. I don't think it is where it will be. I think it -- in the case of WoodCrafters this is really a relationship that we had with the company for awhile, and so it may be was an indicative of a return to an active or as active an M&A marketplace. We maintain these kinds of dialogues throughout each of our businesses and so we are looking for places where we can grow that way.

I would say from just an overall marketplace standpoint, there are a few things out there, but I don't think it's picking up to the pace that it will get to, and I think it will pick up over the next 12, 24 months and I think we will have other opportunities. As Lee pointed out as you highlighted, we are still pretty -- still low leverage, so we still have strong cash flows, strong ability to do some things. And so I think we will be able to take advantage of those opportunities as they come forward.

Okay. Great. Thanks. Just turning the attention to Moen in China, what is the market opportunity that you see in that region now that you are at 800 stores? Do you have the terminal size in mind, and is there a margin differential between the plumbing products you sell through Moen in the US and the products you sell in China?

Yes, so, China continues to be a good market for us. We are growing on the ground by opening up more retail which is really working with local wholesale distributors. End market while the overall growth rate in housing has slowed, we are still building about 6.3 million units a year and a lot of those units don't have fixtures in them, so they need to fit them out after the fact, so there is a big backlog of demand there.

So we look at it and say, this is a good long-term growth market. We assess the growth rate in terms of the pace of putting up new stores and expansion really on a quarterly, semiannual basis, and so we put a plan together beginning of the year but then we assess that based on where penetration is going and same-store sales and those sorts of things. And so I don't have a number in mind for where is the endpoint in terms of number of locations. We really look more at the productivity of the locations and try to make sure that we are growing and that the stores we are putting out there are productive stores.

In terms of margin, today we are investing. So while we don't own the stores, we put a little bit of capital in as we are opening, and so as we slow the pace of investment the market will become more profitable. We have distinct products for that market, so we are selling the products that are designed for that market at good, better, best price points, and so it's a profitable market. Is it as strong as where the US market is today? No it is not. I think over time it will get there.

Okay. Great. Thank you so much.

Desi DiPierro, RBC Capital Markets.

Just filling in for Bob. In the Cabinet segment, now that you've started to see some pretty solid sales growth, what are you seeing in terms of the promotional activities that's started to subside from your competitors?

Yes, I think the reality is capacity is getting used up, so the need to be as promotionally driven starts to back away when everybody gets busy. And I think that is the real underlying driver. We started probably 16,18 months ago backing off, and really it was to focus on growing in channels and in places where it wasn't as promotionally driven, and I think as the rest of the market has gotten busy, the competitive environment has followed suit.

So I think we are in a good place there. Is it back to where we would like to see long-term? No, it's still got a little ways to go, but I think it is improved and we are seeing some good growth across retail, across dealer, and across direct to builder. So we are pleased with the pace across all the channels. And so I think we are in a much better place now than we were even six months ago.

Staying on that topic with the strong incremental operating margin about 55%, some of that you would characterize maybe as better pricing or less promotional activity in addition to the operating leverage?

Yes, I think we are getting good productivity out of the plants, and I think our mix is improving as well. So we are seeing average sales price per cabinet improving, and so there is a combination of things going on, promotional backing off a little bit, some new products which carry better prices, and then the mix, both the construction mix as well as the R&R mix is starting to improve a little bit. It's not back to where it will get to, because the high end of the R&R market is still pretty weak, but bottom to mid is improving and that is encouraging.

That's great. Thank you.

Dan Oppenheim, Credit Suisse.

Was wondering and heard some different things in terms of repair/remodel activity as we moved through the first quarter into the second. Wondering if you can talk about that maybe in terms of the Cabinet business at all. And then also the way you talked about the higher-end to lagging, and before you were talking about the cabinets overall lagging, and that's the high-end. And what is your timing as you're looking, what do you think about in terms of timing and any metrics you are seeing on that?

Yes, so we are seeing the bottom end of the market which can be both in stock as well is the bottom end of semi-custom. There is an improved cadence there, which means folks are doing smaller projects. We are starting to see some pickup in the middle of that semi-custom market place which is encouraging. That may be some turn in existing housing sales, you get houses that turnover and folks are coming in and renovating a kitchen.

The higher-end R&R, which is that really big project where they're ripping down the studs and bringing in some of our higher price point products, that piece is still lagging. I don't think that is surprising, I think you start to see sequential improvements in home values, you build confidence, you build more value in the house, credit becomes more available. I think that market comes back, it's just going to take a while. So we're seeing progress against it. I think it's actually unfolding much the way we thought it would.

Okay. In terms of April trends relative to what you're seeing in the first quarter?

April trends I would say are consistent with the guidance we gave for the full year. So I think it's following on the momentum and just it would feel like it's going to drive the top line and the earnings the way we guided for the full year.

Okay. Thank you.

Michael Rehaut, JPMorgan Chase & Co.

Great quarter. I guess I just want to go back to plumbing for a moment. Obviously, tremendous topline results there as well as nice margin expansion, but on the top line, you pointed to improvement across all three of your major channels, what does that mean in terms of share gains? I would assume it -- certainly you're gaining share, but if you could maybe give a little bit more granularity. Are there certain big wins that perhaps you've had on the homebuilder side or on the retail side with some of the new programs? Do you feel that is really where you have been really outpacing the market? Because obviously the delta is -- the difference in your growth versus some of your peers is pretty material.

Yes, I would say, it wouldn't be surprising to you if it's a combination of a lot of things given the size of that growth. So if I look at the wholesale and new construction side of the market, I would say it's a steady cadence over the last three, four years. That team working with the bigger builders and positioning ourselves to be able to expand when market picked up. So it really was one account at a time through that whole period of time and now we're seeing the volume flow through that.

So it feels like it must've happened recently, but it's the cumulative impact of a lot of hard work by a lot of terrific people over a three to four year period, and that is really it on the wholesale side, you are also seeing a little bit of improvement in mix. So both consumers and builders are trading up a little bit within the line, so they're going from first upgrade, second upgrade, they are adding a little bit more and that's a good sign as well.

On the retail side, it typically is a cadence of new products, so if we keep the line fresh, we're going to keep getting more SKUs in, and then those SKUs are going to move because you've got the right product for the consumers' taste, and we're getting better at that, getting on-trend products in there. So it -- and there too getting a little bit of mix improvement. So trading up a bit.

The other -- we talked a little bit about China earlier as well, so you roll all those things together and you say, it really is some of the market volume coming through and then our share positions which have really been gained over the last couple of years, realizing the results.

Right, no, I appreciate that. I guess the second question on WoodCrafters, you said that potential synergies could yield the multiple going down to 6 times, which implies about another $10 million of incremental EBIT I guess, which -- is that something that you would expect to occur within the first year or is that something more gradual if you are utilizing, let's say some of their distribution or manufacturing which you mentioned or other elements, because you did at the same time say that you are going to be retaining their management team and a lot of their infrastructure.

Yes, it's a great business. So we start with a great business. We are in the midst of looking at them and their execution of programs. They've got some programs they are rolling out. So as we would step in once the transaction closes, it would really be focused on continuing the business momentum that they have got. So it's not broke, it doesn't need to be fixed.

Over time, we see opportunities there. So I would say it's really beyond year one that we would start to see a lot of the synergies flow through. And it will be a combination of things. It will be us utilizing that lower cost structure, that capacity for some of our existing business. It will be some logistics improvements. And then there will be some revenue opportunities as well.

So it's a collection of things that we think are going to -- we're going to be able to take advantage of over time, and then it's a good time for that because there is capacity there, good low-cost capacity that we can continue to expand as the market -- as the home product market expands. So that is the nature of the synergies. And so we like our starting spot with it and then we think there is more to add over time.

Great. Thank you.

David MacGregor, Longbow Research.

Congratulations on a really strong quarter. I wonder if within plumbing can you just maybe talk to us about how many points of growth actually came from the Chinese business?

Yes it's very similar to what we had in the past year in 2012. We were on average growing, getting 2 to 3 points of growth out of that China market, and it's been very consistent in the first quarter, so it's in that 2 to 3 point range.

Okay, good. And then you talked earlier about the stock versus semi-custom versus custom segments within the Cabinet business, can you perhaps give us a sense of how your market share differs amongst these market segments?

We haven't broken it out. I can -- I guess I can give you a broad sense, I think overall our shares probably in the 18%, 19% range. And I think we probably track evenly across that in stock side and the bottom end of the semi-custom side of the marketplace. And I would put in that stock category, that builder product as well. And then we probably trend a little bit weaker at the very high-end of the marketplace. So that's about as much as we broke it out.

What is achievable in terms of growth at the high-end ones the cycle moves further through this recovery?

Yes, it's -- the nice thing is you get some pretty good margins at the higher end of the market, so I think it's really, I think you could see some growth there that could outpace let's say a normal 5% to 6% growth rate once that high-end kicks in, because those are bigger projects, higher margins, so you're making more money per box as we talk about it and so you've got the opportunity to grow stronger with stronger margins. But that's a later in the cycle phenomenon. When I look back over 2001 through 2007, it was really 2005, 2006 that we saw that growing, that segment of the market growing disproportionate to the overall market.

Great. Thanks very much.

Peter Lisnic, Robert W Baird.

Nice job again. I guess on just on WoodCrafters to close the loop there, can you give us a little bit more color there on the vanity market, just where they fit market share, whether there is any sort of customer concentration, those points would be helpful.

Yes, I don't -- even bringing up the market share overall, they are one of the leaders in that category, it's the vanity and the vanity top, and they've got a terrific capability in those tops, both from a cost position as well as from a design product portfolio. So I think they are one of the stronger players in that marketplace. We certainly said before if we are going to acquire business we want to acquire somebody who is a leader in the segment and these guys fit that definition. And so I'd rather not speak to customer concentration, or customer base, but safe to say they are a leader, and we think we can continue to grow them into even a bigger position.

Okay. All right. Understand. And then if I could just switch gears back to plumbing and China, is there a way that maybe -- you gave us a little bit of color on how much it's adding to the top line growth, I'm just wondering if you can give us a little feel for what the same-store sales number is, if there is any sort of indicator that would match that -- that description that would be helpful. But more importantly, just what you're seeing in terms of return on capital for the investments that you're making in that business in China would be helpful.

Yes, it's a positive return on capital. The segment -- that business is profitable, not quite as profitable as Moen because as Chris said, Moen US, because as Chris said, we are investing in stores, we're growing 200 plus stores a year ago. But it's a very good investment; as we look at the stores that are open more than a year, we see very strong returns, and so as we are moving through that cycle, they get very profitable, and they are very focused. So it is a very good investment with very good topline, but bottom line leverage potential.

Same-store sales would be better than I guess what the published macro GDP numbers are, so if you look at there's a lot of interesting figures published, but the 7% to 8% I think is where they are typically are going right now, and I would say same-store sales are doing at least that good or better. So that's a good indicator that we are getting -- to my comment earlier the consumer in China is spending on our category, which is encouraging and they are increasingly spending on a better mix as well. So that's another good sign.

Got it. Okay. Thank you very much for the detail, that is very helpful.

Nick Coppola, Thompson Research Group.

So if I heard correctly, I think you talked about Cabinet sales being strong across dealer -- dealers versus retailers versus homebuilders, but can you point us to any kind of relative performance there?

Yes, I'll give you some color, probably can't give exact numbers, I'll give you some color. The builders market, strong as you'd expect, so there I think that wouldn't surprise you if you look at we called out the overall new construction market mid-20%s, I would say in builder market doing at least as good as that if not a little bit better. Dealer market is a combination of R&R and we do get some new construction business there. So that would be kind of blended down. And then home centers probably somewhere in the middle of there, and that's both in stock vanities and special order business. So that's about as far as I can go.

Okay, that is helpful. And then any way to quantify the negative impact from weather on Windows?

No, the only thing we've looked at is regionally what has been the pace of growth, and so we did much better out west. And so kind of look at that and say, all right, there is intrinsic demand for doing some R&R window projects. These are bigger ticket projects, but at least in places where it was a little bit better weather, the performance was better. We didn't do very well up north and in the midwest where it was kind of a lousy winter/spring. So that's really the only anecdotal stuff that says it was probably playing some factor into the business performance. So we will see how it unfolds in the second quarter, I think that will tell us a lot more about the health of the category.

Okay, that is helpful. Thank you.

David MacGregor, Longbow Research.

Just a couple of quick ones. The door business, can you break that down for us between new and multifamily?

It is mostly or majority new. There is some multifamily, but that's going to be more lower rise multifamily where they're going to use the type of entry doors that we make. So maybe townhouse type units, that sort of thing versus high-rise. So there is a strong single-family component to that, but that business did well in the quarter. It is performing strongly.

Second question just on the plumbing suppliers, plumbing supply houses, how do their inventories look at this point? My guess is that there is a seasonal pattern there, but is it a more aggressive seasonal pattern than it was last year given what we've seen in new construction, and if so how do you think that influenced your sales in the quarter?

They really haven't been building inventory up. I think it's a byproduct of our service levels are pretty high. So from order to delivery, we are pretty reliable and we get the stuff in there. So we have not seen inventories building there.

I would say you are right, seasonally, it is always a little bit ahead of the demand, but it's nothing in anticipation of a lot stronger need. I think they are actually ordering to where the demand is, and their demand is pretty good, so we're getting it in there and it's going out. And so that cadence has been pretty strong and is continuing.

Okay. Thank you very much.

Keith Hughes, SunTrust Robinson Humphrey.

This is actually Judy in for Keith. In your outlook for 2013 for repair/remodel spending to be up 4% to 5%, is this based on what you have seen in the Cabinets or are you seeing any other areas where you have seen the pattern where you're more encouraged about the repair/remodel spending? If that's what you could tell or is it just people trading for better pricing and mix?

Yes, I would say it's improving more broadly than it had been. So I think with plumbing it had been running at a pretty good clip, and so it's going to continue in there. There is some trade-up in plumbing. But within Cabinets it's improving, and so that's encouraging. It's not back up to where will be in terms of laying right on top of the overall R&R market, but it is improving. So that's encouraging. We still see some weakness on the Windows side, so those are probably the best indicators we've got.

Okay. Great. Thank you.

I now turn the call back over to Mr. Brian Lantz for closing remarks.

Thanks Mike. We would like to thank everyone for attending our quarterly call today, and look forward to seeing or speaking with many of you again very soon. Thank you.

Thank you for participating in today's Fortune Brands Home and Security first-quarter 2013 earnings call. This call will be available for replay beginning at 7.30 PM Eastern time today, May 2 through midnight on May 16. The conference ID number for the replay is 36604389. The number to dial for the replay is 855-859-2056. This concludes today's conference call. You may now disconnect.