Fortune Brands Pricing Spineometer: 5 of 5 Vertebrae

timjsmith

Tim J. Smith, PhD
Founder and CEO, Wiglaf Pricing

Published October 25, 2024

Fortune Brands, a manufacturer of plumbing, home, and security products, had a positive Q2 2024. Revenue rose 6.5% to $1.24 billion and earnings before interest and taxes rose 18% to $221 million over the same period last year.

A review of Fortune Brands’ 25 July 2024 earnings call and associated financial reports provided insight regarding the importance of pricing on performance.

  • Fortune Brands markets several brands for water, kitchen cabinets, security, and outdoors including SpringWell in water filtration, Moen and House of Rohl in facets, EMTEK in door handles and Schaub in kitchen cabinets, Therma-Tru, Larson, and Fiberon for outdoors, and MasterLock, Yale, and SentrySafe for security.
  • Predominantly Fortune Brands operates in North America but can be found in Europe, East Asia, and South Africa.
  • As with other suppliers to new homes, Fortune Brands reports a slowdown of sales in China.  In the U.S., Fortune Brands notes the headwinds from lower new housing starts and reduced demand in the repair and remodeling segment.
  • Recently, Fortune Brands restructured to align the company more as one company.  While this move generally is expected to improve financial performance from centralization and improved purchasing power, it can also improve pricing practices as approaches are shared across the organization.

Early in 2024, Fortune Brands took action to increase prices.  Dave Barry, CFO, stated, “Most of our businesses took gross price in the first quarter, and we’re successful with that implementation.”

The other source of pricing power at Fortune Brands can be found in new product development.  Nick Fink, CEO, stated, “We expect our pricing actions to hold up as we continue to innovate, as the benefits of our products resonate with our customers and consumers, and the promotional environment remains stable.”

Industry benchmarks suggest Fortune Brands would optimally have 10 to 50 professionals dedicated to pricing.

  • Annual or more frequent price increases would benefit from professionals examining input costs, competitive dynamics, and market demand shifts.
  • New product development would benefit from pricing market research.
  • Economic cycles impact sales volumes and economists would support business decision-making regarding pricing and changes in sales volumes.
  • For the new housing market, price guidance for sales executives would be useful as well as profit-aligned incentives.
  • In the retail market, price promotion management can be expected as well as Minimum Advertised Price policies to reduce excessive price competition.  (Amazon and Home Depot are both known to reduce consumer prices thus taking sales from other important sales channels that participate in design, a result which can harm channel strategy and brand positioning.)
  • Their digital strategy and investment in the fast-evolving category of water filtration and management imply a need for a pricing strategist to define price structures and business models appropriate for the future business.

Research into the investment by Fortune Brands in pricing yielded encouraging results.

  • The number of professionals dedicated to pricing at Fortune Brands is within industry norms. Aligned with their North American focus, they were in the States.
  • Titles of pricing and revenue growth management professionals ranged from data specialist, analyst, lead, manager, to vice president.
  • Pricing professionals can be identified with the parent company Fortune Brands as well as with many major brands.

Given the importance and capability of pricing at Fortune Brands as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of September 2024.

Fortune Brands Pricing Spineometer: 5 out of 5 Vertebrae.

FBIN (Fortune Brands Innovations, Inc.) rose from 68.8 the day prior to their earnings call to 78.9 one week later. FY 2023 revenue of $4.6 billion with a 16% operating margin and P/E ratio near 20.

For FY 2023, a 1% improvement in price would yield a 6.2% improvement in operating profits holding all else constant at Fortune Brands.

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About The Author

timjsmith
Tim J. Smith, PhD, is the founder and CEO of Wiglaf Pricing, an Adjunct Professor of Marketing and Economics at DePaul University, and the author of Pricing Done Right (Wiley 2016) and Pricing Strategy (Cengage 2012). At Wiglaf Pricing, Tim leads client engagements. Smith’s popular business book, Pricing Done Right: The Pricing Framework Proven Successful by the World’s Most Profitable Companies, was noted by Dennis Stone, CEO of Overhead Door Corp, as "Essential reading… While many books cover the concepts of pricing, Pricing Done Right goes the additional step of applying the concepts in the real world." Tim’s textbook, Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures, has been described by independent reviewers as “the most comprehensive pricing strategy book” on the market. As well as serving as the Academic Advisor to the Professional Pricing Society’s Certified Pricing Professional program, Tim is a member of the American Marketing Association and American Physical Society. He holds a BS in Physics and Chemistry from Southern Methodist University, a BA in Mathematics from Southern Methodist University, a PhD in Physical Chemistry from the University of Chicago, and an MBA with high honors in Strategy and Marketing from the University of Chicago GSB.

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