Spectrum Brands Misses on Q2 Earnings, Up Y/Y

Zacks

Backed by solid performances in most of the segments, Spectrum Brands Holdings Inc. (SPB) reported stellar fiscal 2014 second-quarter results, recording a 63.6% surge in its adjusted earnings of 72 cents per share. However, quarterly earnings missed the Zacks Consensus Estimate by 2 cents.

On a GAAP basis, the company reported earnings of 64 cents per share compared with a loss of 79 cents per share in the year-ago comparable quarter.

Consolidated net sales for the quarter climbed 3.4% to $1,021.7 million and beat the Zacks Consensus estimate of $1,015 million. The healthy top-line growth was driven by a rise in personal care, home and garden, battery and Hardware & Home Improvement (:HHI) sales. Excluding the unfavorable impact of currency translation, net sales jumped 4% year over year.  

Aided by improved sales and better cost management, the company’s adjusted earnings before interests, taxes, depreciation and amortization (:EBITDA) escalated 9.2% year over year to $156.5 million, with the adjusted EBITDA margin improving 80 basis points (bps) to 15.3%.

Segment Details

Sales at Spectrum Brands’ Global Batteries & Appliances segment came in at $480.9 million, up 2.6% from the year-ago quarter, as marginally lower small appliance sales were compensated well by strong personal care and battery sales. The segment’s adjusted EBITDA came in at $61.2 million versus $56.9 million in the year-ago quarter.

The company’s Global Pet Supplies segment sales totaled $159.4 million, compared with $160.5 million recorded last year. Weakness in sales was attributable to harsh winter conditions that weighed on consumer traffic and led to softness in the aquatics category. Consequently, lower revenues in the North American categories overpowered the marginal rise in European aquatics and companion animal revenues.

Adjusted EBITDA at the segment advanced 3.6% to $28.5 million, on the back of aggressive cost curtailment, which overshadowed the negative impact of poor geographic mix and soft volumes.

Sales at the Home & Garden segment augmented 12.3% year over year to $114.5 million primarily due to increased demand for the lawn and garden controls product category, coupled with the initial benefits derived from the acquisition of Liquid Fence animal repellents. The segment’s adjusted EBITDA improved 11.4% to $26.4 million.

Spectrum Brands’ HHI segment sales picked up 4% to $266.9 million, aided by enhancements in the residential security category along with sustained global expansion, partly offset by the extreme weather in Canada and the U.S. The segment’s adjusted EBITDA of $45.3 million was up 11.3% year over year.

A Quick Look at the First Half of Fiscal 2014

During the first half of fiscal 2014, the company’s adjusted earnings soared 48.4% to $1.81 per share. Further, net sales rose 14.2% to $2.12 billion whereas adjusted EBITDA grew 10.3% to $335.2 million. The first-half results were mainly boosted by the acquisition of the HHI segment in Dec 2013 and robust sales at the Home and Garden segment.

Other Financial Details

Spectrum Brands ended the quarter with a cash and cash equivalents of $93.4 million and a total debt of $3,429.5 million. Also, under its ABL (?) facility, the company had nearly $124 million remaining.

Fiscal 2014 Outlook

Following an impressive second quarter, Spectrum Brands reaffirmed its guidance for fiscal 2014. Including the HHI acquisition in the prior-year period on a pro-forma basis, the company expects net sales for fiscal 2014 to grow at the rate of the Gross Domestic Product (GDP) compared with fiscal 2013 net sales.

During fiscal 2014, the company continues to anticipate generating a free cash flow of at least $350 million and intends to make capital expenditure in the range of $70–$75 million. Furthermore, in the second half of fiscal 2014, Spectrum Brands projects a reduction of its debt by approximately $250 million, as predicted earlier.

After delivering a strong quarter despite battling weather-related headwinds, the company remains positive about the second half of the year. It looks forward to launching additional products in all its segments and continues to strengthen its global footprint. Alongside, it plans to undertake efficient cost-cutting measures and implement a better pricing strategy. With these continuous efforts, the company is likely to achieve its growth objectives and deliver another strong year.

Other Stocks to Consider

This global consumer discretionary products company carries a Zacks Rank #3 (Hold). However, other better-ranked stocks in the same industry include Prestige Brands Holdings, Inc. (PBH), with a Zacks Rank #1 (Strong Buy) and Vapor Corp. (VPCO) and Summer Infant, Inc. (SUMR), each holding a Zacks Rank #2 (Buy).

Read the Full Research Report on PBH
Read the Full Research Report on SPB
Read the Full Research Report on SUMR
Read the Full Research Report on VPCO


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