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Spectrum Brands to Expand European Pet Supplies Segment

Zacks Equity Research

Spectrum Brands Holdings Inc. (SPB) is set to expand its portfolio in the pet supplies segment. The company has decided to acquire The Procter & Gamble Company’s (PG) European Pet Foods business that includes premium brands like IAMS and Eukanuba for dogs and cats.

The acquisition will form a part of the company’s United Pet Group division, which manufactures products for the global pet supplies market and has well known brands like Tetra, Marineland, FURminator, Nature’s Miracle and Dingo to its credit. Generating annual sales of about $200 million, this business provides significant product brand equity and has the potential to enhance margins.

The acquisition of these complementary brands will help Spectrum Brands’ United Pet Group division to expand into the $21 billion European dog and cat food market, which is progressing with a growth rate of 3% to 5% annually. Further, addition of these brands will strengthen the division’s companion animal product portfolio while bringing stability in it as well as in the aquatics segment’s portfolio.

The deal has been approved by Spectrum Brands’ board and is expected to be completed in 2015. However, financial terms of the deal were not disclosed.

Following the completion of this acquisition, the company expects to easily absorb these popular U.K and Europe brands in its already established infrastructure of European pet supplies. The company expects meaningful synergies in overhead, SG&A and distribution costs over the next few years from this acquisition.  Moreover, the company anticipates the acquisition to enhance its adjusted EBITDA and free cash flow.

Eukanuba is a premium brand in the pet specialty channel and enjoys leadership in many large markets like Sweden, Norway and Belgium. The brand targets consumers looking for the best nutrition for their pets by providing “extraordinary nutrition for extraordinary beings.”

On the other hand, IAMS is a first-class brand popular with consumers who treat their pets as family and wants to make them happy with the best food. The brand enjoys significant consumer appeal with market-leading shares in the premium dry dog food market of U.K. Further, its food and mass merchandiser channel provide ample opportunity for its growth across Europe.

Spectrum Brands is a branded consumer products retailer that has been undertaking efficient cost-cutting measures with plans to implement a better pricing strategy. Also, it remains committed to generating solid free cash flows, reducing debt levels and enhancing adjusted EBITDA to boost shareholder value. With these continuous efforts, the company is likely to achieve its growth objectives and see strong performance.

The company currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the same industry include Prestige Brands Holdings Inc. (PBH) with a Zacks Rank #2 (Buy). Another stock worth considering in the broader retail sector is Citi Trends Inc. (CTRN) carrying a Zacks Rank #1 (Strong Buy).

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