Spectrum Brands Holdings Inc. (SPB) had a good first half to fiscal 2012 with earnings per share beating the Zacks Consensus Estimate in the first two quarters. Shares of this Zacks #1 Rank (Strong Buy) are currently near the 52-week high and have grown about 17% year-to-date.
This consumer goods company continues to gain momentum by capitalizing on new product developments, acquiring and integrating new brands, retail distribution and share gains, select pricing actions and cost containment efforts.
Fiscal 2012 Second Quarter
On May 9, Spectrum Brands reported fiscal second-quarter earnings per share of 34 cents, marking a positive surprise of 13.3% over the Zacks Consensus Estimate. This compared favorably with 23 cents in the prior-year quarter. Spectrum Brands' quarterly performance mainly rode on solid contributions from three of its operating segments, along with stringent cost containment initiatives.
Net sales of $746.3 million comfortably surpassed the Zacks Consensus Estimate of $735.0 million and grew 7.6% year over year, reflecting robust sales growth across Global Batteries & Appliances (up 4.5%), Global Pet Supplies (up 8.5%) and Home and Garden (up 21.5%). Furthermore, the company's acquisition of Black Flag/TAT brands and the FURminator pet grooming business in late 2011 contributed positively to the quarter's revenues.
On the back of robust sales and strong expense controls, operating income surged 17.2% to $55.2 million, whereas operating margin expanded 60 basis points to 7.4%.
Following the impressive second quarter results, the company reaffirmed its fiscal 2012 forecast for sales growth, projecting a rise at or above the GDP rate. Additionally, the company expects positive net earnings in fiscal 2012 against a net loss in fiscal 2011.
Spectrum Brands is in the midst of a major cost cutting process while it looks for opportunities to expand its brand portfolio. The company is also working well with its game changing Spectrum Value Model to deliver genuine value to customers at lower prices compared to its peers. Spectrum Brands is focused on strengthening its balance sheet through refinement of its capital structure while also enhancing its financial flexibility to boost shareholder value. The company targets free cash flow of at least $200 million by fiscal year-end 2012.
Estimates to the Upside
In the past 30 days, the Zacks Consensus Estimate for 2012 rose 3.6% to $2.56 per share on the back of upward revisions in both estimates, which reflects year-over-year growth of 39.9% on reported fiscal 2011 earnings of $1.83.
Valuation Looks Promising
Spectrum Brands currently trades at a forward P/E of 12.9x, reflecting a 3% discount to the peer group average of 13.3x. However, on a price-to-book basis, the shares trade with a 30.8% premium at 1.7x. The company's compelling fundamentals are well supported by its long-term estimated EPS growth rate of 10%.
With respect to return on equity (:ROE), the stock looks attractive. It has a trailing 12-month ROE of 11.1%, which is above its peer group average of 10.2%. This implies that the company reinvests its earnings more efficiently than its peer group.
Charts Hint at Strength
Shares of Spectrum Brands traded in the range of $28.16 to $31.71 between January 3 and March 20, 2012. Breaking out of this near three-month range, the company began moving closer its 52-week high on March 21, 2012. Moreover, the stock has been consistently trading above its 200-day moving average of $30.32 since January 9, 2012.
Volume is fairly strong, averaging roughly 202K daily. Spectrum Brands, which competes with Procter & Gamble Co. (PG) and Energizer Holdings Inc. (ENR), has outperformed the S&P 500 over the last three months. The year-to-date return for the stock is 17.0% compared with the S&P 500 return of 1.6%.
Headquartered in Madison, Wisconsin, Spectrum Brands sells batteries, shaving and grooming products, personal care products, specialty pet supplies, lawn and garden and home pest control products, personal insect repellents and portable lighting, through various trade channels under its renowned brands. The company's brand portfolio mainly includes Rayovac, Remington, Varta, George Foreman, Black & Decker, Toastmaster, Farberware, Tetra, Marineland, Nature's Miracle, Dingo, 8-in-1, Littermaid, FURminator, Spectracide, Russell Hobbs, Cutter, Repel, Hot Shot, Black Flag, and TAT brands. The company has a current market cap of $1.69 billion.
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