Spectrum Brands (SPB) Exhibits Bright Prospects Amid Headwinds
Spectrum Brands Holdings Inc. SPB currently boasts solid prospects based on its strategic transformation initiatives, the Global Productivity Improvement Plan and its cost-management actions. However, the company has been witnessing a soft demand environment for its products amid a high inflationary environment.
Image Source: Zacks Investment Research
This Zacks Rank #3 (Hold) company has a market capitalization of $3.1 billion. In the past three months, it has gained 28.4% against the industry’s decline of 3.3%.
Let’s delve deeper.
Factors Favoring Spectrum Brands
Spectrum Brands remains committed to its Global Productivity Improvement Plan, which enables it to improve its operational efficiency and focus on consumer insights and growth-enabling functions, including technology, marketing and research and development. This plan is likely to help the company deliver value creation and sustainable growth in the long term.
The company has also been streamlining its organizational structure and re-energizing its employee base. It remains focused on transforming into a pure-play global Pet and Home & Garden business. With regard to the company’s strategic transformation, it is on track to conclude the HHI transaction and collect $4.3 billion in cash by the end of June 2023.
Spectrum Brands remains focused on cost management actions. For instance, in second-quarter fiscal 2023, its operating expenses declined 14.9% year over year, driven by gains from fixed cost-reduction efforts initiated last year and reduced spend on restructuring, optimization and strategic transaction costs. Prior to this, the metric fell 8.6% year over year in the first quarter of fiscal 2023. The persistence of this trend may aid the company’s profitability in the near future.
SKB believes in rewarding shareholders handsomely through dividend payouts. In the first six months of fiscal 2023, it paid out dividends worth $34.4 million.
Factors Affecting the Company
The company is witnessing a weak demand environment and headwinds related to changes in retailer inventory management strategies. In the fiscal second quarter, its net sales declined 9.7% year over year to $729.2 million. Excluding the currency headwinds and sales gains from buyouts, organic net sales declined 10.1%. Going into 2023, the company expects a mid-single-digit sales decline due to the adverse impacts of foreign currency.
In the fiscal second quarter, Spectrum Brands’ gross profit decreased 16.1% year over year to $214.5 million, while the gross margin contracted 220 basis points to 29.4% due to a decline in sales, an unfavorable mix and sales of higher-cost inventory from the prior year. The company’s operating loss was $77 million due to the impact of the sales decline and an intangible asset impairment of $67 million.
Given its presence across diverse regions, the company is exposed to foreign exchange headwinds. Adverse currency impacted revenues by $19.4 million in the fiscal second quarter. The Home & Personal Care and Global Pet Care segments were hurt by adverse currency to the tune of $11.8 million and $7.6 million, respectively.
Stocks to Consider
Some better-ranked stocks are Tecnoglass TGLS, Arcos Dorados Holdings, Inc. ARCO and BARK, Inc. BARK. While TGLS sports a Zacks Rank #1 (Strong Buy), ARCO and BARK carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Tecnoglass manufactures and sells architectural glass and aluminum products for the residential and commercial construction industries. The Zacks Consensus Estimate for Tecnoglass’ current financial-year sales and earnings per share suggests growth of 18.2% and 25%, respectively, from the corresponding year-ago reported figures. TGLS has a trailing four-quarter earnings surprise of 22.7%, on average.
Arcos Dorados operates as a franchisee of McDonald's restaurants. The Zacks Consensus Estimate for ARCO’s current financial-year sales and earnings per share suggests growth of 13.4% and 4.4%, respectively, from the corresponding year-ago reported figures. The company has a trailing four-quarter earnings surprise of 23.5%, on average.
BARK is engaged in providing products, services and content for dogs. The Zacks Consensus Estimate for BARK’s current financial year sales suggests a decline of 2.4%, while earnings are likely to grow 80.7% from the prior-year reported numbers. It has a trailing four-quarter earnings surprise of 10.4%, on average.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Spectrum Brands Holdings Inc. (SPB) : Free Stock Analysis Report
Arcos Dorados Holdings Inc. (ARCO) : Free Stock Analysis Report
Tecnoglass Inc. (TGLS) : Free Stock Analysis Report
BARK Inc. (BARK) : Free Stock Analysis Report
