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Why Is HRG (SPB) Up 13% Since Last Earnings Report?
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A month has gone by since the last earnings report for Spectrum Brands (SPB - Free Report) . Shares have added about 13% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is HRG due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Spectrum Brands posted better-than-expected results in third-quarter fiscal 2020. Results gained from solid demand for its products throughout the quarter. Notably, the majority of its segments delivered sturdy sales growth. However, supply-chain disruptions related to the Hardware & Home Improvement segment hurt quarterly growth to some extent.
Moving on, the company’s global productivity improvement plan savings contributed to quarterly growth. Encouragingly, this plan is anticipated to generate at least $100 million of full run-rate cost savings over the next nine to 12 months.
Despite such upsides, management withdrew the fiscal 2020 view. That said, demand remains positive for three of its four categories. Also, Spectrum Brands estimates shipments and factory output to improve in the fiscal fourth quarter.
Q3 in Detail
Adjusted earnings from continuing operations of $1.36 per share surpassed the Zacks Consensus Estimate of 96 cents. The bottom line also inched up 0.7% on the back of a fall in shares outstanding, favorable pricing and productivity, which more than offset supply-chain disruptions in the Hardware & Home Improvement segment.
Spectrum Brands’ net sales decreased 3.7% year over year to $984.3 million but exceeded the Zacks Consensus Estimate of $938 million. Excluding the negative impacts of currency and sales from buyouts, organic net sales fell 2.9% due to supply-chain disruptions in the Hardware & Home Improvement segment, which was somewhat offset by higher sales at Home & Garden, Home & Personal Care and Global Pet Care.
Moreover, its e-commerce unit continued to witness significant growth across all categories. To this end, sales in this platform rose 44% year over year, accounting for roughly 16% of net sales.
Gross profit dipped 3.4% year over year to $348.9 million. Meanwhile, gross margin expanded10 bps to 35.4%, mainly driven by favorable pricing and productivity. However, supply-chain headwinds in the Hardware & Home Improvement segment acted as a deterrent. Apart from these, SG&A expenses fell 3.4% to $225 million, while SG&A as a percentage of sales remained flat at 22.8%. This can be mainly attributable to reduced operating and restructuring costs.
Furthermore, the company reported operating income of $94.6 million, up 1.9% year over year in the reported quarter. The uptick can be attributable to reduced restructuring expenses, which were somewhat offset by supply-chain headwinds in the Hardware & Home Improvement segment.
Adjusted EBITDA from continuing operations declined 4.9% to $164.4 million in the fiscal third quarter. Further, adjusted EBITDA margin contracted 20 bps on sluggishness in the Hardware & Home Improvement segment, which was somewhat offset by solid performance in the Global Pet Care, Home & Personal Care and Home & Garden segments.
The company also noted that supply-chain disruptions affected operating income and adjusted EBITDA to the tune of more than $30 million.
Segmental Performance
Sales at the Hardware & Home Improvement segment declined 20.6% to $281.6 million mainly due to softness in the security category and supply-chain disruptions, particularly in Mexico and the Philippines, stemming from government-imposed restrictions related to COVID-19. Also, a decline in residential security due to supply-chain disruptions in Asia more than offset growth in builders’ hardware on the back of product innovation in the home center and online space. The segment’s organic sales dropped 20.4% year over year. Also, adjusted EBITDA at the segment slumped 35.6% to $43.6 million.
Sales at the Home & Personal Care segment increased 3% to $250.6 million, backed by growth at the U.S. small appliances, solid demand and sturdy online sales. This was somewhat offset by a decline in personal care due to lower inventory as a result of the COVID-19 crisis. Excluding the adverse impacts of foreign currency, organic net sales for the segment increased 6.5%. Moreover, the segment’s adjusted EBITDA of $25 million improved 37.4% on productivity improvements and higher volumes.
The Global Pet Care segment’s sales grew 8.9% year over year to $241.5 million, primarily driven by high-single-digit and double-digit growth in aquatic and companion animal categories, respectively. Also, strong e-commerce sales along with a spike in demand for aquatics and reptile kits and equipment contributed to segment growth. Excluding the adverse impacts of foreign currency and sales from acquisitions, organic sales rose 8.3%. Further, the segment’s adjusted EBITDA grew 29.7% to $50.6 million.
The Home & Garden segment’s sales rose 4% to $210.6 million mainly on higher sales in household insect controls and repellents. Also, growth in mass, home center, and online channels along with favorable weather aided segment sales. This was somewhat compensated by growth in outdoor controls. Further, the segment’s adjusted EBITDA was up 4.4% to $55.5 million in the prior-year quarter.
Other Financials
Spectrum Brands ended the quarter with cash and cash equivalents of $465.9 million and roughly $341 million available under its $800-million Cash Flow Revolver. As of Jun 30, 2020, the company’s outstanding debt was nearly $2,720 million. Capital expenditure came in at $12.8 million, down from $13.2 million last year. The company boasts liquidity of $800 million, which is likely to help it stay afloat amid this ongoing pandemic.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 34.48% due to these changes.
VGM Scores
At this time, HRG has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise HRG has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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Why Is HRG (SPB) Up 13% Since Last Earnings Report?
A month has gone by since the last earnings report for Spectrum Brands (SPB - Free Report) . Shares have added about 13% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is HRG due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Spectrum Brands Q3 Earnings & Sales Beat Estimates
Spectrum Brands posted better-than-expected results in third-quarter fiscal 2020. Results gained from solid demand for its products throughout the quarter. Notably, the majority of its segments delivered sturdy sales growth. However, supply-chain disruptions related to the Hardware & Home Improvement segment hurt quarterly growth to some extent.
Moving on, the company’s global productivity improvement plan savings contributed to quarterly growth. Encouragingly, this plan is anticipated to generate at least $100 million of full run-rate cost savings over the next nine to 12 months.
Despite such upsides, management withdrew the fiscal 2020 view. That said, demand remains positive for three of its four categories. Also, Spectrum Brands estimates shipments and factory output to improve in the fiscal fourth quarter.
Q3 in Detail
Adjusted earnings from continuing operations of $1.36 per share surpassed the Zacks Consensus Estimate of 96 cents. The bottom line also inched up 0.7% on the back of a fall in shares outstanding, favorable pricing and productivity, which more than offset supply-chain disruptions in the Hardware & Home Improvement segment.
Spectrum Brands’ net sales decreased 3.7% year over year to $984.3 million but exceeded the Zacks Consensus Estimate of $938 million. Excluding the negative impacts of currency and sales from buyouts, organic net sales fell 2.9% due to supply-chain disruptions in the Hardware & Home Improvement segment, which was somewhat offset by higher sales at Home & Garden, Home & Personal Care and Global Pet Care.
Moreover, its e-commerce unit continued to witness significant growth across all categories. To this end, sales in this platform rose 44% year over year, accounting for roughly 16% of net sales.
Gross profit dipped 3.4% year over year to $348.9 million. Meanwhile, gross margin expanded10 bps to 35.4%, mainly driven by favorable pricing and productivity. However, supply-chain headwinds in the Hardware & Home Improvement segment acted as a deterrent. Apart from these, SG&A expenses fell 3.4% to $225 million, while SG&A as a percentage of sales remained flat at 22.8%. This can be mainly attributable to reduced operating and restructuring costs.
Furthermore, the company reported operating income of $94.6 million, up 1.9% year over year in the reported quarter. The uptick can be attributable to reduced restructuring expenses, which were somewhat offset by supply-chain headwinds in the Hardware & Home Improvement segment.
Adjusted EBITDA from continuing operations declined 4.9% to $164.4 million in the fiscal third quarter. Further, adjusted EBITDA margin contracted 20 bps on sluggishness in the Hardware & Home Improvement segment, which was somewhat offset by solid performance in the Global Pet Care, Home & Personal Care and Home & Garden segments.
The company also noted that supply-chain disruptions affected operating income and adjusted EBITDA to the tune of more than $30 million.
Segmental Performance
Sales at the Hardware & Home Improvement segment declined 20.6% to $281.6 million mainly due to softness in the security category and supply-chain disruptions, particularly in Mexico and the Philippines, stemming from government-imposed restrictions related to COVID-19. Also, a decline in residential security due to supply-chain disruptions in Asia more than offset growth in builders’ hardware on the back of product innovation in the home center and online space. The segment’s organic sales dropped 20.4% year over year. Also, adjusted EBITDA at the segment slumped 35.6% to $43.6 million.
Sales at the Home & Personal Care segment increased 3% to $250.6 million, backed by growth at the U.S. small appliances, solid demand and sturdy online sales. This was somewhat offset by a decline in personal care due to lower inventory as a result of the COVID-19 crisis. Excluding the adverse impacts of foreign currency, organic net sales for the segment increased 6.5%. Moreover, the segment’s adjusted EBITDA of $25 million improved 37.4% on productivity improvements and higher volumes.
The Global Pet Care segment’s sales grew 8.9% year over year to $241.5 million, primarily driven by high-single-digit and double-digit growth in aquatic and companion animal categories, respectively. Also, strong e-commerce sales along with a spike in demand for aquatics and reptile kits and equipment contributed to segment growth. Excluding the adverse impacts of foreign currency and sales from acquisitions, organic sales rose 8.3%. Further, the segment’s adjusted EBITDA grew 29.7% to $50.6 million.
The Home & Garden segment’s sales rose 4% to $210.6 million mainly on higher sales in household insect controls and repellents. Also, growth in mass, home center, and online channels along with favorable weather aided segment sales. This was somewhat compensated by growth in outdoor controls. Further, the segment’s adjusted EBITDA was up 4.4% to $55.5 million in the prior-year quarter.
Other Financials
Spectrum Brands ended the quarter with cash and cash equivalents of $465.9 million and roughly $341 million available under its $800-million Cash Flow Revolver. As of Jun 30, 2020, the company’s outstanding debt was nearly $2,720 million. Capital expenditure came in at $12.8 million, down from $13.2 million last year. The company boasts liquidity of $800 million, which is likely to help it stay afloat amid this ongoing pandemic.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 34.48% due to these changes.
VGM Scores
At this time, HRG has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise HRG has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.