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Spectrum Brands (SPB) Up More Than 16% on Business Momentum

·4 min read

Spectrum Brands Holdings, Inc. SPB has been benefiting from solid demand for its products along with contributions from the Global Productivity Improvement Plan (GPIP). This led to better-than-expected results in second-quarter fiscal 2021, wherein both top and bottom lines improved year over year. Also, new product launches, strong cash flow and improved profitability aided results.

Encouragingly, management lifted the fiscal 2021 view. The company now anticipates sales growth in mid-teens, up from the earlier view of high-single-digit growth. This includes a favorable impact of foreign currency. Further, adjusted EBITDA is likely to rise in mid-teens, up from the prior view of high-single-digit growth.

As a result, shares of this Zacks Rank #3 (Hold) company have rallied 16.1% in the past three months against the industry and the Consumer Discretionary sector’s declines of 7.5% and 4.9%, respectively.

That said, let’s delve into other factors aiding the stock.

Factors Driving the Stock

Spectrum Brands is progressing well with the 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 company’s second-quarter fiscal 2021 results reflected gains from the plan. Despite elevated freight and raw-material costs, favorable volumes and better productivity related to the GPIP aided the bottom line. Encouragingly, it raised its savings target for the GPIP to $200 million, expected to be achieved by the end of fiscal 2022. Notably, majority of these savings are expected to be reinvested in growth initiatives and consumer insights, R&D, and marketing across its businesses.

Moreover, the company’s pet business is on track with exiting non-core assets and activities, in sync with the aforementioned plan. This move will also enable it to focus on core brands. It is also on track with its plans to tap into the aquatics and reptile space. In this context, Spectrum Brands remains focused on the integration process of its newly acquired Omega Sea, which is now part of its Global Pet Care portfolio of aquatic brands. Also, the company is making efforts to strengthen its leadership in the dog chews category via the acquisition of Armitage Pet Care.

During the fiscal second quarter, the Global Pet Care business improved 23.9%, driven by growth in aquatic and companion animal categories along with solid online sales. Also, strong e-commerce sales along with a spike in demand for aquatics and reptile kits and equipment contributed to segment growth. Going ahead, the pet segment remains poised for growth in 2021, backed by its pipeline of robust innovation and growth strategy.

Headwinds to Overcome

Although such upsides raise optimism, things are not all rosy for Spectrum Brands. The company witnessed elevated expenses including advertising and marketing costs as well as higher incentive and distribution expenses in second-quarter fiscal 2021. Also, demand and supply-related disruptions stemming from the COVID-19 pandemic along with gross tariff headwinds remain concerns. Apart from these, it is reeling under elevated freight and raw-material costs.

Wrapping Up

All said, we believe that Spectrum Brands is likely to sustain its momentum, driven by robust demand in the pet segment and contributions from the GPIP, as reflected by the positive fiscal 2021 view. The Zacks Consensus Estimate for fiscal 2021 is pegged at $6.08 per share, which has moved up 12.2% in the past 30 days. Moreover, a VGM Score of A reflects its inherent strength.

Stocks to Consider

Crocs CROX, a Zacks Rank #1 (Strong Buy) stock, has an impressive long-term earnings growth rate of 15%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lifetime Brands LCUT has an expected long-term earnings growth rate of 13%. Also, the company currently flaunts a Zacks Rank #1.

Funko FNKO has a long-term earnings growth rate of 27.2% and a Zacks Rank #2 (Buy), at present.

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