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Spectrum Brands (SPB) Up on Q1 Earnings & Sales Beat, Raised View

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Shares of Spectrum Brands Holdings Inc. (SPB - Free Report) rose more than 2% on Feb 5, following better-than-expected results in first-quarter fiscal 2021. Moreover, both top and bottom lines improved year over year. 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. Also, enhanced brand awareness, investments in advertising and marketing and supply-chain recovery contributed to quarterly growth. Encouragingly, management lifted the fiscal 2021 view.

In the past six months, shares of this Zacks Rank #3 (Hold) company have gained 39%, outperforming the industry’s growth of 36.3%.

Q1 in Detail

Adjusted earnings from continuing operations of $2.13 per share surpassed the Zacks Consensus Estimate of 81 cents. The bottom line surged from 20 cents in the prior-year quarter on the back of positive product mix, favorable volumes and productivity.

Spectrum Brands’ net sales grew 31.4% year over year to $1,145 million and exceeded the Zacks Consensus Estimate of $998 million. Excluding the positive impacts of currency and sales from buyouts, organic net sales advanced 27.8%, courtesy of growth in all four segments. Favorable currency and gains from acquisitions to the tune of $11.3 million and $20.3 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 54% year over year, accounting for more than 16% of net sales.

Gross profit increased 56.9% year over year to $422.3 million. Moreover, gross margin expanded 600 basis points (bps) to 36.9%, primarily driven by a rise in volumes across all segments, positive mix, better productivity related to the Global Productivity Improvement Program and reduced restricting expenses. Further, SG&A expenses rose 14.2% to $258.7 million while the metric, as a percentage of sales, contracted 340 bps at 22.6%. This can be mainly attributable to higher volumes along with a rise in advertising and marketing costs.

Furthermore, the company reported an operating income of $123.5 million against an operating loss of $45.9 million in the prior-year quarter. The upside was owing to higher volumes, improved margins and reduced restructuring costs.

Adjusted EBITDA from continuing operations surged 99.7% to $204.1 million in the fiscal first quarter. The metric benefited from sturdy volume growth, favorable pricing and improved productivity. Also, solid performance in all segments contributed to quarterly growth. Adjusted EBITDA margin expanded 610 bps to 17.8%.

 

Segmental Performance

Sales at the Hardware & Home Improvement segment increased 37.3% to $408.7 million, mainly driven by growth in all categories, particularly security, owing to strong demand and higher shipments. The segment’s organic sales rallied 36.8% year over year. Also, adjusted EBITDA in the segment skyrocketed 129.4% to $98.2 million on the back of higher volumes, better productivity and a positive mix, which more than offset COVID-related costs and the rise in marketing investments.

Sales in the Home & Personal Care segment increased 17.5% to $378.5 million, backed by growth in small appliances and personal care. Also, strength in sales across all regions, particularly the Americas, as well as continued momentum in the online channel acted as upsides. Excluding the positive impacts of foreign currency, organic net sales for the segment increased 15.8%. However, the segment’s adjusted EBITDA of $50.9 million declined 39.8%.

The Global Pet Care segment’s sales grew 33.9% year over year to $275.5 million, primarily driven by growth in aquatic and companion animal categories along with solid online sales. Excluding the favorable impacts of foreign currency and sales from acquisitions, organic sales rose 21.9%. Further, the segment’s adjusted EBITDA grew 70.2% to $53.6 million.

The Home & Garden segment’s sales advanced 79.3% to $82.3 million primarily on growth in three major categories, including controls, household insecticides and repellents. Also, a sturdy point of sale and early reorders across mass and online channels aided growth. Further, the segment’s adjusted EBITDA was $10.4 million against a loss of $7.2 million in the prior-year quarter.

Other Financials

Spectrum Brands ended the quarter with cash and cash equivalents of $224.5 million and roughly $585 million available under its $600-million cash flow revolver. Further, it sold 0.6 million shares of Energizer common stock worth $42.3 million. As of Jan 3, 2021, the company’s outstanding debt was nearly $2,532 million.

During the quarter under review, capital expenditure amounted to $11.8 million, down from $18.7 million in the year-ago quarter. For fiscal 2021, capital expenditure is estimated to be $85-$95 million. The company boasts liquidity of more than $800 million, which is likely to help it stay afloat amid this ongoing pandemic.

Spectrum Brands Holdings Inc. Price, Consensus and EPS Surprise

Guidance

Driven by impressive quarterly results, management raised its 2021 sales view from 3-5% to high-single digit, with a slightly favorable impact from foreign exchange. Moreover, adjusted EBITDA is envisioned to rise in high-single digits owing to higher expected sales, which are likely to offset transportation and commodity-related inflation. This compares favorably with the earlier guided view of mid-single-digit growth. Also, adjusted free cash flow is expected to be $250-$270 million. 

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