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Fortune Brands Home & Security Inc (NYSE:FBHS)
Operating Income
$398 Mil (TTM As of Jun. 2015)

Fortune Brands Home & Security Inc's operating income for the three months ended in Jun. 2015 was $128 Mil. Its operating income for the trailing twelve months (TTM) ended in Jun. 2015 was $398 Mil.

Operating margin is calculated as operating income divided by its revenue. Fortune Brands Home & Security Inc's operating income for the three months ended in Jun. 2015 was $128 Mil. Fortune Brands Home & Security Inc's revenue for the three months ended in Jun. 2015 was $1,165 Mil. Therefore, Fortune Brands Home & Security Inc's operating margin for the quarter that ended in Jun. 2015 was 11.00%.

Fortune Brands Home & Security Inc's 3-Year average Growth Rate for operating margin was 0.00% per year.

Operating Income or EBIT is linked to Return on Capital for both regular definition and Joel Greenblatt’s definition. Fortune Brands Home & Security Inc's annualized return on capital for the quarter that ended in Jun. 2015 was 10.34%. Fortune Brands Home & Security Inc's annualized return on capital (Joel Greenblatt’s) for the quarter that ended in Jun. 2015 was 43.61%.


Definition

Operating income, is the profit a company earned through operations. All expenses, including cash expenses such as cost of goods sold (COGS), research & development, wages, and non-cash expenses, such as depreciation, depletion and amortization, have been deducted from the sales.

Fortune Brands Home & Security Inc's Operating Income for the fiscal year that ended in Dec. 2014 is calculated as

Operating Income(A: Dec. 2014 )
=Revenue-Cost of Goods Sold-Selling, General, & Admin. Expense
=4013.6-2646.7-943.3
-Research & Development-Depreciation, Depletion & Amortization-Others
-0-98.8--78.7
=404

Fortune Brands Home & Security Inc's Operating Income for the quarter that ended in Jun. 2015 is calculated as

Operating Income(Q: Jun. 2015 )
=Revenue-Cost of Goods Sold-Selling, General, & Admin. Expense
=1165.1-754.7-271
-Research & Development-Depreciation, Depletion & Amortization-Others (1)
-0-26.2--15
=128

Operating Income(Q: Jun. 2015 )
=EBITDA-Depreciation, Depletion & Amortization-Others (2)
=152.9-26.2--1.5
=128

Fortune Brands Home & Security Inc Operating Income for the trailing twelve months (TTM) ended in Jun. 2015 was 136.4 (Sep. 2014 ) + 65.9 (Dec. 2014 ) + 67.3 (Mar. 2015 ) + 128.2 (Jun. 2015 ) = $398 Mil.

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.


Explanation

1. Operating Income or EBIT is linked to Return on Capital for both regular definition and Joel Greenblatt’s definition.

Fortune Brands Home & Security Inc's annualized Return on Capital (ROC) for the quarter that ended in Jun. 2015 is calculated as:

Return on Capital (ROC)(Q: Jun. 2015 )
=NOPAT/Average Invested Capital
=Oper. Inc.*(1-Tax Rate)/( (Invested Capital (Q: Mar. 2015 ) + Invested Capital (Q: Jun. 2015 ))/2)
=512.8 * ( 1 - 35.38% )/( (2875.3 + 3533.7)/2)
=331.37136/3204.5
=10.34 %

where

Invested Capital(Q: Mar. 2015 )
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt + Short-Term Debt + Total Equity - Cash
=733.7 + 26.3 + 2294.7 - 179.4
=2875.3

Invested Capital(Q: Jun. 2015 )
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt + Short-Term Debt + Total Equity - Cash
=1389.8 + 0 + 2367.4 - 223.5
=3533.7

Note: The Operating Income data used here is four times the quarterly (Jun. 2015) operating income data.

2. Joel Greenblatt’s definition of Return on Capital:

Fortune Brands Home & Security Inc's annualized Return on Capital (Joel Greenblatt’s) for the quarter that ended in Jun. 2015 is calculated as:

ROC (Joel Greenblatt’s)(Q: Jun. 2015 )
=EBIT/Average of (Net fixed Assets + Net Working Capital)
=EBIT/Average of (Net PPE+Net Working Capital)
     Q: Mar. 2015  Q: Jun. 2015
=EBIT/( ( (Net PPE + Net Working Capital) + (Net PPE + Net Working Capital) )/2 )
=506.8/( ( (543.7 + max(574.3, 0)) + (582 + max(624.1, 0)) )/2 )
=506.8/( ( 1118 + 1206.1 )/2 )
=506.8/1162.05
=43.61 %

where Working Capital is:

Working Capital(Q: Mar. 2015 )
=(Accts Rec. + Inventory + Other Curr. Ass.) - (Accts Pay. + Defer. Rev. + Other Curr. Liab.)
=(477.2 + 501.8 + 178.1) - (327.4 + 0 + 255.4)
=574.3

Working Capital(Q: Jun. 2015 )
=(Accts Rec. + Inventory + Other Curr. Ass.) - (Accts Pay. + Defer. Rev. + Other Curr. Liab.)
=(573.5 + 546.4 + 186.5) - (352.6 + 0 + 329.7)
=624.1

When net working capital is negative, 0 is used.

Note: The Earnings Before Interest and Taxes (EBIT) data used here is four times the quarterly (Jun. 2015) EBIT data.

3. Operating Income is also linked to Operating Margin:

Fortune Brands Home & Security Inc's Operating Margin for the quarter that ended in Jun. 2015 is calculated as:

Operating Margin=Operating Income (Q: Jun. 2015 )/Total Revenue (Q: Jun. 2015 )
=128.2/1165.1
=11.00 %

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.


Be Aware

Compared with a company’s EBITDA margin, Operating Margin can be manipulated by adjusting the rate of depreciation, depletion and amortization (DDA).

If a company is facing competition, its Operating Margin may decline. Often the Operating Margin declines well before the company’s revenue or even profit decline. Therefore, Operating Margin is a very important indicator of whether the company is facing problems.

For instance, by 2012, Nokia (NOK)’s problems were well known and its stock had lost more than 90% of its market value since 2007. But Nokia’s Operating Margin had already been in decline since 2002, although its earnings per share were still rising. Investors who paid attention to Operating Margin would have avoided this huge loss. The same can be said for Research-in-Motion (RIMM).

Therefore, Operating Margin is a very important screening filter for GuruFocus. GuruFocus’s Buffett-Munger screener requires that the profit margin is either consistent or expanding. The Model Portfolio of the Buffett-Munger screener has outperformed the market every year since inception in 2009.


Related Terms

Revenue, Cost of Goods Sold, Selling, General, & Admin. Expense, Research & Development, Gross Profit, EBITDA, Depreciation, Depletion and Amortization, Return on Capital, Return on Capital (Joel Greenblatt’s), Earnings Yield, Operating Margin, EBIT


Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.

Fortune Brands Home & Security Inc Annual Data

Dec09Dec10Dec11Dec12Dec13Dec14
Operating Income 000049198-16162323404

Fortune Brands Home & Security Inc Quarterly Data

Mar13Jun13Sep13Dec13Mar14Jun14Sep14Dec14Mar15Jun15
Operating Income 571079859691261366667128
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