Fortune Brands Innovations, Inc.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Introduction

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is a supplement to the accompanying consolidated financial statements and provides additional information on our business, recent developments, financial condition, liquidity and capital resources, cash flows and results of operations. MD&A is organized as follows:

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Recent Developments: This section provides a summary of noteworthy recent developments in the most recently completed fiscal year in the operation of the business.

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Overview: This section provides a general description of our business and a discussion of management’s general outlook regarding market demand, our competitive position and product innovation, as well as additional recent developments we believe are important to understanding our results of operations and financial condition or in understanding anticipated future trends.

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Basis of Presentation: This section provides a discussion of the basis on which our consolidated financial statements were prepared.

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Results of Operations: This section provides an analysis of our results of operations for the fiscal years ended December 27, 2025, December 28, 2024 and December 30, 2023.

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Liquidity and Capital Resources: This section provides a discussion of our financial condition as of December 27, 2025 and an analysis of our cash flows for each of the three years ended December 27, 2025, December 28, 2024 and December 30, 2023. This section also provides a discussion of our contractual obligations, other purchase commitments and customer credit risk that existed at December 27, 2025, as well as a discussion of our ability to fund our future commitments and ongoing operating activities through internal and external sources of capital.

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Critical Accounting Estimates: This section identifies and summarizes those accounting policies that significantly impact our reported results of operations and financial condition and require significant judgment or estimates on the part of management in their application.

Recent Developments

In January 2025, we announced plans to consolidate our U.S. regional offices into one campus headquarters in Deerfield, Illinois to best position the Company and its brands for long-term growth. The decision is expected to deliver a world-class, collaborative office environment to fuel innovation, accelerate its digital solutions, and grow its core products. This significant investment was supported by annual tax credits offered through Illinois' Economic Development for a Growing Economy ("EDGE") program. We expect to qualify for these credits in 2025. In connection with these consolidation activities and related organizational and personnel changes, we will incur cash and non-cash charges related to employee relocation, severance, retention, non-cash asset related costs, lease exit costs, and other transition costs. The majority of charges have been incurred in 2025 with the remaining charges expected to be incurred in 2026.

Overview

We are an industry leading home, security and digital products company whose purpose is to elevate every life by transforming spaces into havens that is focused on the design, manufacture and sale of market-leading branded products in the following categories: plumbing and accessories, including digital water products, entry door and storm door systems, security and safety products, and outdoor performance materials used in decking and railing products.

For the year ended December 27, 2025, net sales based on country of destination were:

We believe that we have certain competitive advantages including market-leading brands, a diversified mix of channels, lean and flexible supply chains and a strong capital structure, as well as a tradition of strong innovation and customer service. We are focused on outperforming our markets in growth, profitability and returns in order to drive increased stockholder value. We believe our track record reflects the long-term attractiveness and potential of the categories we serve and our leading brands. We believe the long-term outlook for our products remains favorable, and we have a number of strategic advantages, including the set of capabilities we refer to as the Fortune Brands Advantage, that has helped us to continue to achieve profitable organic growth over time.

We continue to believe our most attractive opportunities are to invest in profitable organic growth initiatives, pursue accretive strategic acquisitions, non-controlling equity investments, and joint ventures, and return cash to stockholders through a combination of dividends and repurchases of shares of our common stock under our share repurchase program as explained in further detail under “Liquidity and Capital Resources” below.

The U.S. market for our products primarily consists of spending on both new home construction and repair and remodel activities within existing homes, with a substantial majority of the markets we serve consisting of repair and remodel spending. Growth in the U.S. market for our home products will largely depend on consumer confidence, employment, wage growth, home prices, equity levels and rates of extraction, stable mortgage rates and credit availability. Increases in inflation and mortgage rates during the preceding years have slowed the pace of single-family and existing home sales activity and new home construction and repair and remodel activities. However, we believe we are well positioned to manage the continued slow-down in the housing market as we believe the fundamental drivers of the housing market remain intact.

We have been and may continue to be impacted by near-term supply, labor and freight constraints, a volatile geopolitical environment, as well as sustained elevated rates of inflation, fluctuating interest rates, unfavorable fluctuations in foreign exchange rates and the ongoing and potentially worsening costs of tariffs (including existing and potential U.S. tariffs imposed or threatened to be imposed on China, Canada and Mexico and other countries and any retaliatory actions taken by such countries). We continue to manage these challenges and are diligently working to offset potential unfavorable impacts of these items through continuous productivity improvement initiatives and price increases.

We anticipate that, absent any mitigation efforts, our costs of goods sold will increase based on the tariffs that have been announced or imposed as of the date of this report. We are actively working to mitigate the anticipated impacts of tariffs through a combination of supply chain actions, cost-out activities and strategic pricing actions across all of our channels and brands. However, this is a rapidly evolving landscape, and our ability to mitigate the anticipated impacts of tariffs could be affected by a number of factors, including additional tariffs or trade-related sanctions imposed by the U.S. or other countries, and if we are ultimately not able to substantially mitigate the impacts of tariffs, there would be negative impacts to our results of operations. We are also unable at this time to determine any future negative impacts from reduced consumer spending as a result of inflationary or other macroeconomic pressures or uncertainty that may result from the imposition of current or future tariffs. We are currently monitoring, and will continue to monitor, potential changes to these tariffs or the imposition of reciprocal or other tariffs or trade restrictions by other countries.

During the three fiscal years ended December 27, 2025, our net sales declined at a compounded annual rate of 1.9% reflecting the contraction of the U.S. home products market and a decline in demand in our international markets, partially offset by an increase in sales resulting from acquisitions. Operating income declined at a compounded annual rate of 12.6% with consolidated operating margins ranging between 12% and 16% from 2023 to 2025. The decline in operating income over this period was primarily due to the decline in net sales as well as asset impairment charges and higher restructuring and restructuring-related charges, partially offset by control over our operating expenses and the benefits of manufacturing productivity programs.

During 2025, the U.S. home products market contracted due to a decline in both new housing construction and repair and remodel activity. We believe new housing construction activity decreased approximately 6% and spending for home repair and remodeling decreased approximately 1% in 2025 compared to 2024. In 2025, our net sales declined 3.2% due to lower sales in our international markets ($80.8 million) and unfavorable foreign exchange ($2.3 million), partially offset by disciplined pricing actions, including strategic adjustments to mitigate tariff-related costs and lower customer sales incentives. In 2025, operating income decreased 30.1% over 2024 primarily due to higher restructuring and restructuring-related charges, asset impairment charges, raw material cost inflation and higher distribution costs. These factors were partially offset by continued productivity gains across the segments supported by strategic sourcing initiatives and manufacturing efficiencies as well as reductions to incentive compensation.

Basis of Presentation

The consolidated financial statements in this Annual Report on Form 10-K have been derived from our accounts and those of our wholly-owned subsidiaries. The following discussion contains references to years 2025, 2024 and 2023, which represent fiscal years ended December 27, 2025, December 28, 2024 and December 30, 2023.