Here's Why Spectrum Brands (SPB) is Marching Ahead of Industry
Spectrum Brands SPB has been gaining from its Global Productivity Improvement Plan and transformation initiatives. Also, gains from cost-reduction efforts act as an upside, leading to the Zacks Rank #3 (Hold) company gaining 18.6% in the past three months against the industry’s decline of 41.6%.
Let’s delve deeper.
Factors Narrating SPB’s Growth Story
Spectrum Brands is on track with its four core pillars to drive growth. In this regard, the company is streamlining its organizational structure and re-energizing the employee base. It is committed to improving operational efficiencies throughout and limiting risk. Management is protecting and deleveraging its balance sheet, while solidifying liquidity.
SPB is focused on transforming the company into a pure-play global Pet and Home & Garden business. As part of its strategic transformation, the company concluded the HHI transaction, which is likely to strengthen its balance sheet. Spectrum Brands plans to use the proceeds from the sale to lower debt levels, strengthen its operating performance and fund M&A activities.
The company intends to prioritize innovation to accelerate organic growth and pursue synergistic acquisitions to further drive value creation in Global Pet Care, and Home & Garden. SPB will now be able to establish itself as a pure-play consumer staples company.
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Spectrum Brands is progressing well with its Global Productivity Improvement Plan (GPIP), which aims at improving its operating efficiency and effectiveness, while focusing on consumer insights and growth-enabling functions, including technology, marketing, and research and development. The majority of the savings are expected to be reinvested into growth initiatives and consumer insights, R&D, and marketing across each of the businesses. This plan will also enable the company to deliver value creation and sustainable growth in the long term.
Headwinds to Overcome
SPB has been witnessing a difficult macroeconomic environment and dismal demand. Also, change in retailer inventory strategy led to lower replenishment orders during the second-quarter fiscal 2023. The company reported an adjusted loss of 14 cents per share against earnings of 41 cents in the year-ago period. This was mainly due to weak adjusted EBITDA stemming from reduced volume and currency headwinds.
Net sales fell 9.7% year over year to $729.2 million. Excluding the currency headwinds and sales gains from buyouts, organic net sales declined 10.1%. The downside was mainly due to retailer inventory management strategies and slower category POS, offset by positive pricing. Going into 2023, the company expects a mid-single-digit sales decline (including the adverse impacts of foreign currency), down from the prior stated low-single-digit growth.
Also, unfavorable foreign currency has been concerning, as the company was hurt by adverse currency rates in second-quarter fiscal 2023. Unfavorable currency impacted revenues by $19.4 million in the fiscal second quarter. Currency had a negative impact of $11.8 million in Home & Personal Care and $7.6 million in the Global Pet Care segment.
Bottom Line
All said, we believe that Spectrum Brands will stay afloat through the ongoing tough economic landscape on the back of its transformation efforts. Topping it, a VGM Score of B reflects its inherent strength.
Stocks to Consider
Some better-ranked companies are Bluegreen Vacations BVH, Royal Caribbean RCL and lululemon athletica LULU.
Bluegreen Vacations sports a Zacks Rank #1 (Strong Buy) at present. BVH has a trailing four-quarter earnings surprise of 24.7%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for BVH’s 2023 sales and EPS indicates increases of 3.6% and 17.6%, respectively, from the year-ago reported levels.
Royal Caribbean flaunts a Zacks Rank #1 at present. RCL has a trailing four-quarter earnings surprise of 26.4%, on average.
The Zacks Consensus Estimate for RCL’s 2023 sales and EPS indicates increases of 47.9% and 158.3%, respectively, from the year-ago period’s reported levels.
lululemon athletica is a yoga-inspired athletic apparel company. LULU carries a Zacks Rank of 2 (Buy) at present.
The Zacks Consensus Estimate for lululemon athletica’s current financial-year sales and EPS suggests growth of 16.7% and 18%, respectively, from the year-ago reported figures. LULU has a trailing four-quarter earnings surprise of 9.9%, on average.
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Royal Caribbean Cruises Ltd. (RCL) : Free Stock Analysis Report
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Spectrum Brands Holdings Inc. (SPB) : Free Stock Analysis Report
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