Fortune Brands Innovations, Inc.

Results of Operations

The discussion of consolidated results of operations should be read in conjunction with the discussion of segment results of operations and our financial statements and notes thereto included in this Annual Report on Form 10-K. All amounts, percentages and disclosures for all periods presented reflect only our continuing operations unless otherwise noted.

Certain items had a significant impact on our results in 2025, 2024 and 2023. These included restructuring and restructuring-related charges, asset impairment charges, transaction expenses and the impact of changes in foreign currency exchange rates.

In 2025, financial results included:

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restructuring and restructuring-related charges of $109.1 million are primarily attributable to costs associated with the decision to consolidate our U.S. regional offices into one campus headquarters and our related organizational and personnel changes, a product-line rationalization within our Outdoors segment, and plant closures in all our segments;

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asset impairment charges of $53.6 million related to the impairment of certain assets held-for-sale within our Outdoors and Water segments;

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charges of $21.1 million related to a fire in a portion of a manufacturing facility within the Outdoors segment; and

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the impact of foreign exchange primarily due to movement in the Canadian dollar, Mexican peso, British pound and Chinese yuan, which had an unfavorable impact compared to 2024 of approximately $2.3 million on net sales and approximately $0.2 million on both operating income and net income.

In 2024, financial results included:

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restructuring and restructuring-related other charges of $41.3 million largely related to costs associated with a product line rationalization within our Outdoors segment, the closure of a manufacturing facility within our Security segment and headcount actions across all segments; and

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the impact of foreign exchange primarily due to movement in the Canadian dollar, Mexican peso, British pound and Chinese yuan, which had an unfavorable impact compared to 2024 of approximately $7 million on net sales and approximately $2 million on both operating income and net income.

In 2023, financial results included:

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restructuring and restructuring-related charges of $54.2 million largely related to costs associated with the closure of a manufacturing facility within our Security segment and headcount actions across all segments;

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asset impairment charges of $33.5 million related to the impairment of two indefinite-lived tradenames within our Outdoors segment, which were primarily the result of a decline in forecasted sales;

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the impact of foreign exchange primarily due to movement in the Canadian dollar, Mexican peso, British pound and Chinese yuan, which had an unfavorable impact compared to 2022 of approximately $24 million on net sales and approximately $7.9 million on both operating income and net income; and

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transaction expenses of $19.7 million related to the acquisition of the Emtek and Schaub premium and luxury door and cabinet hardware business (the "Emtek and Schaub Business") and the U.S. and Canadian Yale and August residential smart locks business (the "Yale and August Business", and, collectively with the Emtek and Schaub Business, the "Acquired Businesses") from ASSA ABLOY, Inc. and its affiliates ("ASSA").

2025 Compared to 2024

Total Fortune Brands

Net sales

Net sales decreased by $145.8 million, or 3.2%, primarily due to sales volume decreases in China of $87.8 million. The remaining decrease was due to lower overall sales volume in non-China markets, partially offset by disciplined pricing actions, including strategic adjustments to mitigate tariff-related costs and lower customer sales incentives. Net sales were unfavorably impacted by foreign exchange of $2.3 million.

Cost of products sold

Cost of products sold decreased by $68.9 million, or 2.7%, primarily due to the lower sales volume, lower restructuring-related charges of $13.5 million and continued productivity gains across the segments, supported by strategic sourcing initiatives and manufacturing efficiencies, partially offset by tariff and cost inflation. Cost of products sold also includes losses, net of insurance recovery, of $21.1 million relating to a fire in a portion of a manufacturing facility within the Outdoors segment.

Selling, general and administrative expenses

Selling, general and administrative expenses increased by $53.0 million, or 4.3%, primarily due to higher restructuring-related charges of $41.6 million, distribution costs, and higher professional fees, partially offset by reductions to incentive compensation.

Asset impairment charges

In 2025, we determined that certain assets within the Outdoors and Water segments met the criteria to be classified as held-for-sale. Impairment charges of $53.6 million were recorded to reduce the carrying value of the assets to equal their fair value, less estimated costs to sell.

Restructuring charges

Restructuring charges of $52.4 million in 2025 are primarily due to $47.6 million of costs incurred in connection with our headquarters consolidation and our related organizational changes as well as plant closures in our Water and Outdoors segments. Restructuring charges of $16.2 million in 2024 are largely related to a product-line rationalization within our Outdoors segment, the closure of a manufacturing facility within our Security segment and headcount-reduction actions across all segments.

Operating income

Operating income decreased by $221.8 million, or 30.1%, primarily due to lower sales volume, material cost inflation, asset impairment charges of $53.6 million, higher distribution costs, and higher restructuring and restructuring-related charges of $67.8 million, partially offset by continued productivity gains across the segments supported by strategic sourcing initiatives and manufacturing efficiencies as well as reductions to incentive compensation.

Interest expense

Interest expense decreased by $5.3 million, or 4.4%, primarily due to lower interest rates on current-period commercial paper borrowings and lower senior unsecured notes outstanding, partially offset by higher commercial paper borrowings net of repayments of $368.8 million during the fifty-two weeks ended December 27, 2025, as compared to zero during the the fifty-two weeks ended December 28, 2024.

Other (income) expense, net

Other (income) expense, net, was income of $4.1 million in 2025, compared to expense of $11.9 million in 2024. The increase in other (income) expense, net is primarily due to a decrease in net periodic benefit expense of $11.0 million primarily due to the absence of a settlement loss in 2025, an increase in interest and investment income of $3.7 million, and a decrease in foreign currency transaction expense of $1.4 million.

Income taxes

The 2025 effective income tax rate was unfavorably impacted by state and local income taxes and dividend withholding tax, partially offset by decreases in uncertain tax positions.

The 2024 effective income tax rate was unfavorably impacted by state and local income taxes, foreign income taxed at higher rates, as well as non-deductible executive compensation, partially offset by favorable benefits related to a valuation allowance release and decreases in uncertain tax positions and tax credits.

Net income

Net income was $298.8 million in the fifty-two weeks ended December 27, 2025, compared to $471.9 million in the fifty-two weeks ended December 28, 2024.

Results By Segment

Water

Net sales decreased by $117.0 million, or 4.6%, primarily due to sales volume decreases in China of $87.8 million. The remaining decrease was due to lower sales unit volume in non-China markets, partially offset by disciplined pricing actions across our portfolio, including strategic adjustments to mitigate tariff-related costs and lower customer sales incentives. Net sales was unfavorably impacted by foreign exchange of $3.9 million.

Operating income decreased by $52.9 million, or 8.9%, primarily due to lower sales volume, material cost inflation, including tariff costs, higher restructuring and restructuring-related charges of $19.8 million, partially offset by manufacturing efficiencies and lower selling, general and administrative expenses, including reductions to incentive compensation.

Outdoors

Net sales decreased by $27.1 million, or 2.0%, primarily due to lower sales unit volume, partially offset by disciplined pricing actions, including strategic adjustments to mitigate tariff-related costs, and lower customer sales incentives.

Operating income decreased by $114.5 million, or 57.8%,due to lower sales unit volume, material cost inflation, including tariff costs, partially offset by manufacturing efficiencies. Operating income was also unfavorably impacted by asset impairment charges of $50.1 million and by charges, net of insurance recovery, of $21.1 million relating to a fire in a portion of a manufacturing facility.

Security

Net sales decreased by $1.7 million, or 0.2%, primarily due to lower sales unit volume, partially offset by disciplined pricing actions, including strategic adjustments to mitigate tariff-related costs, and lower customer sales incentives.

Operating income decreased by $20.5 million, or 20.4%, primarily due to lower sales unit volume, material cost inflation, including tariff costs, higher transportation costs as well as higher restructuring and restructuring-related charges of $13.5 million, partially offset by manufacturing efficiencies.

Corporate

Corporate expenses increased by $33.9 million, or 21.8%, primarily due to higher restructuring and restructuring-related charges of $33.4 million, higher professional fees and higher lease expense, partially offset by reductions to incentive compensation

2024 Compared to 2023

Total Fortune Brands

Net sales

Net sales decreased by $17.2 million, or 0.4%, primarily due to lower sales in our international markets ($136.7 million), higher customer sales incentives and unfavorable foreign exchange ($6.9 million), partially offset by the benefit from the acquisitions of Wise Water Solutions, LLC, doing business as Springwell Water Filtration Systems (“SpringWell”) and the Acquired Businesses ($176.5 million).

Cost of products sold

Cost of products sold decreased by $172.1 million, or 6.3%, primarily due to raw material deflation, lower transportation costs and productivity improvements in all of our segments as a result of strategic sourcing initiatives and manufacturing efficiencies. These factors were partially offset by the impact of the acquisitions of SpringWell and the Acquired Businesses.

Selling, general and administrative expenses

Selling, general and administrative expenses increased by $70.7 million, or 6.1%, primarily due to the acquisitions of SpringWell and the Acquired Businesses, higher advertising and marketing costs, higher headcount-related costs and higher distribution expenses.

Amortization of intangible assets

Amortization of intangible assets increased by $11.0 million, primarily due to the acquisitions of SpringWell and the Acquired Businesses.

Restructuring charges

Restructuring charges of $16.2 million in 2024 are largely related to a product-line rationalization within our Outdoors segment, the closure of a manufacturing facility within our Security segment, and headcount actions across all segments. Restructuring charges of $32.5 million in 2023 are largely related to costs associated with the closure of the same manufacturing facility within our Security segment and headcount actions across all segments.

Operating income

Operating income increased by $123.0 million, or 20.0%, primarily due to the impacts of the acquisitions of SpringWell and the Acquired Businesses, raw material cost deflation, lower transportation costs, lower restructuring charges and productivity improvements in all of our segments as a result of strategic sourcing initiatives and manufacturing efficiencies as well as the absence of the 2023 asset impairment charges of $33.5 million. These factors were partially offset by increased intangible amortization expense as a result of the acquisitions of SpringWell and the Acquired Businesses ($11.4 million), higher customer sales incentives, higher advertising and marketing costs, higher headcount related costs and higher distribution expenses.

Interest expense

Interest expense increased by $4.0 million, or 3.4%, primarily due to higher floating rate debt borrowings in 2024 and higher fixed rate debt interest rates with the issuance of the $600 million outstanding principal amount of 5.875% Senior Notes due in June 2033 relative to the maturity and settlement of the $600 million outstanding principal amount of 4.000% Senior Notes due in September 2023.

Other (income) expense, net

Other (income) expense, net, was expense of $11.9 million in 2024, compared to income of $19.5 million in 2023. The decrease in other (income) expense, net is primarily due to higher net periodic benefit expense, a decrease in foreign currency transaction income and lower interest income.

Income taxes

The 2024 effective income tax rate was unfavorably impacted by state and local income taxes, foreign income taxed at higher rates, as well as non-deductible executive compensation, partially offset by favorable benefits related to a valuation allowance release and decreases in uncertain tax positions and tax credits.

The 2023 effective income tax rate was unfavorably impacted by state and local income taxes and foreign income taxed at higher rates. This expense was offset by favorable benefits for the release of uncertain tax positions due to statute of limitations lapses and federal tax credits.

Income from continuing operations, net of tax

Income from continuing operations, net of income taxes, increased by $66.4 million, or 16.4%, due to higher operating income, partly offset by higher interest expense, higher income tax expense and lower other income, net.

Results By Segment

Water

Net sales increased by $2.4 million, or 0.1%, primarily due to the benefit from the acquisitions of SpringWell and the Emtek and Schaub Business ($152.5 million), partially offset by lower organic sales volume (including sales volume declines within our China business of approximately $100.5 million), higher customer sales incentives and unfavorable foreign exchange ($6.0 million).

Operating income increased by $20.8 million, or 3.6%, primarily due to the benefit from the acquisitions of SpringWell and the Emtek and Schaub Business, productivity improvements as a result of strategic sourcing initiatives and manufacturing efficiencies, lower transportation costs and raw material cost deflation. These factors were partially offset by increased asset intangible amortization expense due to the impact of the acquisitions of SpringWell and the Emtek and Schaub Business ($11.1 million) and higher headcount related costs.

Outdoors

Net sales increased by $9.0 million, or 0.7%, primarily due to higher sales unit volume, partially offset by higher customer sales incentives and unfavorable channel mix.

Operating income increased by $64.5 million, or 48.3%, primarily due to the higher sales unit volume, raw material cost deflation and productivity improvements as a result of strategic sourcing initiatives and manufacturing efficiencies, partially offset by higher headcount related costs.

Security

Net sales decreased by $28.6 million, or 4.0%, primarily due to lower sales unit volume and higher customer sales incentives, partially offset by the benefit from the acquisition of the Yale and August Business (approximately $24.0 million).

Operating income increased by $38.0 million, or 60.9%, primarily due to lower restructuring charges, the benefit from the acquisition of the Yale and August Business, and productivity improvements as a result of strategic sourcing initiatives and manufacturing efficiencies, partially offset by the lower sales unit volume.

Corporate

Corporate expenses increased by $0.3 million, or 0.2%, primarily due higher headcount related costs and costs related to our digital transformation efforts being mostly offset by a gain on the sale of Corporate fixed assets and the absence in the current period of nonrecurring costs related to the acquisition of the Acquired Businesses.