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HRG (SPB) Up 9.9% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Spectrum Brands (SPB - Free Report) . Shares have added about 9.9% 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 its most recent earnings report in order to get a better handle on the important drivers.
Spectrum Brandsreported better-than-expected results in fourth-quarter fiscal 2020. Despite demand and supply related disruptions stemming from the COVID-19 situation, results gained from solid demand for its products, which drove growth in all business categories.
Further, management noted that fiscal 2021 started on a solid note on the back of continued demand. It also anticipates the COVID-19 related supply chain disruptions to no longer remain a hindrance for fiscal 2021. The company raised its savings target for global productivity improvement plan to $100-$150 million. Apart from these, it issued an encouraging fiscal 2021.
Q4 in Detail
Adjusted earnings from continuing operations of $1.72 per share surpassed the Zacks Consensus Estimate of $1.19. The bottom line surged 52.2% year over year on the back of positive product mix, favorable volumes and productivity.
Spectrum Brands’ net sales grew 17.9% year over year to $1,170.6 million and exceeded the Zacks Consensus Estimate of $1,017 million. Excluding the negative impacts of currency and sales from buyouts, organic net sales advanced 17.1% courtesy of growth in all four segments. Favorable currency and gains from acquisition to the tune of $4.2 million and $3.8 million, respectively, also contributed to quarterly sales growth.
Moreover, its e-commerce unit continued to witness significant growth across all categories. E-commerce sales rose more than 36% year over year, accounting for more than 12% of net sales.
Gross profit increased 26.4% year over year to $423 million. Moreover, gross margin expanded 240 basis points (bps) to 36.1%, primarily driven by favorable pricing and better productivity related to Global Productivity Improvement Program. While SG&A expenses rose 15.9% to $269.3 million, SG&A as a percentage of sales expanded 40 bps at 23%. This can be mainly attributable to higher volumes and increased marketing investments.
Furthermore, the company reported operating income of $126.7 million against an operating loss of $87.5 million in the prior-year quarter. The upside was owing to higher volumes, improved margins and reduced restructuring costs.
Adjusted EBITDA from continuing operations grew 6.3% to $173.3 million in the fiscal fourth quarter. The metric benefited from sturdy volume growth, favorable pricing and improved productivity. Also, solid performances in Hardware & Home Improvement, Global Pet Careand Home & Garden contributed to quarterly growth. Meanwhile, adjusted EBITDA margin contracted 160 bps to 14.8%.
Segmental Performance
Sales at the Hardware & Home Improvement segment increased 18.9% to $433.7 million mainly driven by growth in the security category owing to strong demand and higher shipments. Further, robust demand in repair and remodel channel led to solid performance in Builders hardware and plumbing category. The segment’s organic sales rallied 18.7% year over year. Also, adjusted EBITDA at the segment grew 29% to $100.4 million.
Sales at the Home & Personal Care segment increased 5.8% to $302.3 million, backed by growth in small appliances and personal care. Also, strength in sales particularly in the online and mass channels, and high demand for convenience cooking favored segment sales. Excluding the positive impacts of foreign currency, organic net sales for the segment increased 5.6%. However, the segment’s adjusted EBITDA of $22.7 million declined 22.8%.
The Global Pet Care segment’s sales grew 21.6% year over year to $278.3 million, primarily driven by growth in aquatic and companion animal categories. Excluding the favorable impacts of foreign currency and sales from acquisitions, organic sales rose 18.5%. Further, the segment’s adjusted EBITDA grew 19.7% to $49.9 million.
The Home & Garden segment’s sales advanced 37.8% to $156.3 million primarily on growth in three major categories including controls, household insecticides and repellents. Also, sturdy point of sale and replenishment owing to extended selling season aided growth. Further, the segment’s adjusted EBITDA was up 60.7% year over year to $31.5 million from the prior-year quarter.
Other Financials
Spectrum Brands ended the quarter with cash and cash equivalents of $531.6 million and roughly $579 million available under its $600-million cash flow revolver. Further, it sold 1.5 million shares of Energizer common stock worth $67.4 million. As of Sep 30, 2020, the company’s outstanding debt was nearly $2,512.8 million.
During the quarter under review, capital expenditure amounted to $16.5 million, down from $18.1 million last year. For fiscal 2021, capital expenditure is estimated to be $85-$95 million. The company boasts liquidity of $1.1 billion, which is likely to help it stay afloat amid this ongoing pandemic.
Guidance
Driven by impressive fourth quarter fiscal 2020 view, management issued an upbeat view for fiscal 2021. Spectrum Brands anticipates net sales to grow 3-5% with favorable currency impact. Adjusted EBITDA is expected to rise mid-single digits. Adjusted free cash flow is likely to be $250-$270 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 132.29% due to these changes.
VGM Scores
Currently, HRG has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. 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 #2 (Buy). We expect an above average return from the stock in the next few months.
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HRG (SPB) Up 9.9% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Spectrum Brands (SPB - Free Report) . Shares have added about 9.9% 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 its most recent earnings report in order to get a better handle on the important drivers.
Spectrum Brands Q4 Earnings & Sales Beat Estimates
Spectrum Brandsreported better-than-expected results in fourth-quarter fiscal 2020. Despite demand and supply related disruptions stemming from the COVID-19 situation, results gained from solid demand for its products, which drove growth in all business categories.
Further, management noted that fiscal 2021 started on a solid note on the back of continued demand. It also anticipates the COVID-19 related supply chain disruptions to no longer remain a hindrance for fiscal 2021. The company raised its savings target for global productivity improvement plan to $100-$150 million. Apart from these, it issued an encouraging fiscal 2021.
Q4 in Detail
Adjusted earnings from continuing operations of $1.72 per share surpassed the Zacks Consensus Estimate of $1.19. The bottom line surged 52.2% year over year on the back of positive product mix, favorable volumes and productivity.
Spectrum Brands’ net sales grew 17.9% year over year to $1,170.6 million and exceeded the Zacks Consensus Estimate of $1,017 million. Excluding the negative impacts of currency and sales from buyouts, organic net sales advanced 17.1% courtesy of growth in all four segments. Favorable currency and gains from acquisition to the tune of $4.2 million and $3.8 million, respectively, also contributed to quarterly sales growth.
Moreover, its e-commerce unit continued to witness significant growth across all categories. E-commerce sales rose more than 36% year over year, accounting for more than 12% of net sales.
Gross profit increased 26.4% year over year to $423 million. Moreover, gross margin expanded 240 basis points (bps) to 36.1%, primarily driven by favorable pricing and better productivity related to Global Productivity Improvement Program. While SG&A expenses rose 15.9% to $269.3 million, SG&A as a percentage of sales expanded 40 bps at 23%. This can be mainly attributable to higher volumes and increased marketing investments.
Furthermore, the company reported operating income of $126.7 million against an operating loss of $87.5 million in the prior-year quarter. The upside was owing to higher volumes, improved margins and reduced restructuring costs.
Adjusted EBITDA from continuing operations grew 6.3% to $173.3 million in the fiscal fourth quarter. The metric benefited from sturdy volume growth, favorable pricing and improved productivity. Also, solid performances in Hardware & Home Improvement, Global Pet Careand Home & Garden contributed to quarterly growth. Meanwhile, adjusted EBITDA margin contracted 160 bps to 14.8%.
Segmental Performance
Sales at the Hardware & Home Improvement segment increased 18.9% to $433.7 million mainly driven by growth in the security category owing to strong demand and higher shipments. Further, robust demand in repair and remodel channel led to solid performance in Builders hardware and plumbing category. The segment’s organic sales rallied 18.7% year over year. Also, adjusted EBITDA at the segment grew 29% to $100.4 million.
Sales at the Home & Personal Care segment increased 5.8% to $302.3 million, backed by growth in small appliances and personal care. Also, strength in sales particularly in the online and mass channels, and high demand for convenience cooking favored segment sales. Excluding the positive impacts of foreign currency, organic net sales for the segment increased 5.6%. However, the segment’s adjusted EBITDA of $22.7 million declined 22.8%.
The Global Pet Care segment’s sales grew 21.6% year over year to $278.3 million, primarily driven by growth in aquatic and companion animal categories. Excluding the favorable impacts of foreign currency and sales from acquisitions, organic sales rose 18.5%. Further, the segment’s adjusted EBITDA grew 19.7% to $49.9 million.
The Home & Garden segment’s sales advanced 37.8% to $156.3 million primarily on growth in three major categories including controls, household insecticides and repellents. Also, sturdy point of sale and replenishment owing to extended selling season aided growth. Further, the segment’s adjusted EBITDA was up 60.7% year over year to $31.5 million from the prior-year quarter.
Other Financials
Spectrum Brands ended the quarter with cash and cash equivalents of $531.6 million and roughly $579 million available under its $600-million cash flow revolver. Further, it sold 1.5 million shares of Energizer common stock worth $67.4 million. As of Sep 30, 2020, the company’s outstanding debt was nearly $2,512.8 million.
During the quarter under review, capital expenditure amounted to $16.5 million, down from $18.1 million last year. For fiscal 2021, capital expenditure is estimated to be $85-$95 million. The company boasts liquidity of $1.1 billion, which is likely to help it stay afloat amid this ongoing pandemic.
Guidance
Driven by impressive fourth quarter fiscal 2020 view, management issued an upbeat view for fiscal 2021. Spectrum Brands anticipates net sales to grow 3-5% with favorable currency impact. Adjusted EBITDA is expected to rise mid-single digits. Adjusted free cash flow is likely to be $250-$270 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 132.29% due to these changes.
VGM Scores
Currently, HRG has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. 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 #2 (Buy). We expect an above average return from the stock in the next few months.