Spectrum Brands Posts Robust Q1 Earnings - Analyst Blog

Spectrum Brands Holdings Inc. SPB began fiscal 2014 on a positive note, recording a 39.7% rise in its first-quarter adjusted earnings of $1.09 per share. Quarterly earnings also surpassed the Zacks Consensus Estimate of $1.02. The global consumer discretionary products company's bottom-line results mainly benefited from top-line growth and improved margins.

Including certain one-time items for both the periods, the company reported earnings of $1.03 per share compared with a loss per share of 26 cents in the year-ago comparable quarter.

Consolidated net sales for the quarter came in at $1,100.6 million, up 26.5% from the year-ago comparable period of $870.3 million. The sales growth was primarily driven by the Hardware & Home Improvement (HHI) acquisition in Dec 2012. Moreover, Spectrum Brands' net sales beat the Zacks Consensus Estimate of $1,075.0 million. Further, assuming that the HHI business was with the company in the prior year's first quarter (pro-forma basis), net sales would have increased 3.6% including the negative impact of foreign exchange.

The company's adjusted earnings before interests, taxes, depreciation and amortization (EBITDA) increased 36.8% year over year to $178.8 million. However, on a pro-forma basis (including the impact of the HHI acquisition in the prior-year period) Spectrum Brands' adjusted EBITDA rose 11.4% year over year, while as a percentage of sales it improved 110 basis points to 16.2%.

Segment Detail

Sales at Spectrum Brands' Global Batteries & Appliances segment came in at $659.3 million, down 1% from the year-ago quarter figure of $666.0 million, as lower battery and small appliances sales more than offset the benefit of increased personal care sales. The segment's adjusted EBITDA came in at $114.2 million versus $110.7 million in the year-ago quarter.

The company's Global Pet Supplies segment sales totaled $129.1 million, down from the year-ago comparable quarter figure of $139.8 million primarily due to weak sales at its both categories: North American and European aquatics and companion animal. The categories sales were negatively impacted by the shorter Christmas selling period and reduced inventory. Adjusted EBITDA of the segment came in at $20.4 million compared with $23.1 million in the year-ago period. The fall was due to weak top-line performance and unfavorable product mix, which were partially offset by effective cost management.

Sales at the Home & Garden segment increased 10.8% year over year to $33.8 million primarily due to increased demand for lawn and garden controls product category. The segment reported its first ever positive adjusted EBITDA of $1.7 million as against a loss of $1.4 million in the year-ago comparable period primarily driven by higher volumes, improved product mix and effective cost management.

On a pro-forma basis, Spectrum Brands' HHI segment sales increased 23.3% to $278.4 million primarily driven by robust performance at its U.S. residential security, builder's hardware and plumbing businesses. The segment's adjusted EBITDA of $49.6 million was up 48.1% from the year-ago figure of $33.5 million.

Other Financial Details

Spectrum Brands ended the quarter with a cash and cash equivalents of $131.8 million and a total debt of $3,366.3 million. During fiscal 2014, the company expects to generate a free cash flow of at least $350 million and intends to make capital expenditure in the range of $70–$75 million. Furthermore, in the second half of fiscal 2014, Spectrum Brands projects a reduction of its debt by approximately $250 million.

Dividend

In a separate news bulletin, the company announced a quarterly cash dividend of 30 cents per share payable on Mar 18, 2014 to shareholders of record on Feb 19, 2014. The new dividend marks a hike of 20% from the previous payout of 25 cents.

Fiscal 2014 Outlook

Including the HHI acquisition in the prior-year period on a pro-forma basis, Spectrum Brands expects net sales for fiscal 2014 to grow at the rate of GDP compared with fiscal 2013 net sales.

Other Stocks to Consider

Currently, Spectrum Brands carries a Zacks Rank #3 (Hold). Some better-ranked consumer discretionary products stocks include Royal Caribbean Cruises Ltd. RCL, Sturm, Ruger & Co. Inc. RGR and Outerwall Inc. OUTR. All these stocks sport a Zacks Rank #1 (Strong Buy).