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Spectrum Brands Q3 Earnings Beat Estimates,Revenues up Y/Y

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Solid performances at most segments coupled with constant focus on minimizing costs facilitated Spectrum Brands Holdings Inc. (SPB - Free Report) to post record fiscal 2014 third-quarter results. The company’s adjusted earnings surged a massive 44.4% to $1.30 per share, beating the Zacks Consensus Estimate by a cent.


On a GAAP basis, the company reported earnings of $1.47 per share, up significantly from 69 cents per share in the year-ago comparable quarter.

Net sales for the quarter climbed 3.6% to $1,128.5 million, driven by a rise in home and garden, battery and Hardware & Home Improvement (HHI) sales. However, sales fell short of the Zacks Consensus Estimate of $1,140 million.

Deeper Insight

Aided by improved sales, Spectrum Brands’ gross profit surged nearly 9% year over year to $417.0 million with the gross margin expanding 190 basis points (bps) to nearly 37%.

Further, benefiting from record cost savings, the company’s adjusted earnings before interests, taxes, depreciation and amortization (EBITDA) escalated 7.3% to $202.3 million, marking the company’s 15th year-over-year increase in a row. Also, with the adjusted EBITDA margin improving 60 bps to 17.9% during the quarter, the company remains well-placed to witness its seventh consecutive year of adjusted EBITDA margin improvement.

Segment Detail

Sales at Spectrum Brands’ Global Batteries & Appliances segment came in at $494.8 million, up 0.7% from the year-ago quarter, as lower small appliance sales were compensated well by strong personal care and battery sales. The segment’s adjusted EBITDA came in at $67.0 million versus $58.7 million in the year-ago quarter.

The company’s Global Pet Supplies segment sales totaled $152.2 million, compared with $156.4 million recorded last year. The decline in sales was attributable to weakness in the aquatics category, at Europe and North America, partly offset by a marginal rise in companion animal net sales.

Adjusted EBITDA at the segment slumped 8.9% to $30.7 million, owing to inefficient price mix and lower aquatic category revenues.

Sales at the Home & Garden segment ascended 11.5% year over year to $174.6 million, primarily driven by favorable weather and market share gains leading to greater personal and area repellent category sales. Additionally, distribution gains from main retailers pushed up household control sales. The segment also benefited slightly from its recent acquisition of Liquid Fence animal repellents. The segment’s adjusted EBITDA improved 12.2% to $51.6 million.

Spectrum Brands’ HHI segment sales jumped 7.6% to $306.9 million, aided by enhancements in the residential security category along with sustained global expansion. The segment’s adjusted EBITDA of $59.8 million was up 12.8% year over year, owing to robust segment sales.

Other Financial Details

Spectrum Brands ended the quarter with a cash and cash equivalents of $85.1 million and a total debt of $3,336.6 million. Also, under its ABL facility, the company had nearly $194 million remaining.

The Zacks Rank #3 (Hold) company has also reduced its term loan by $125 million to date and reaffirmed its plan of making a total cumulative debt payment of roughly $250 million by the end of the current fiscal.

Fiscal 2014 Outlook

Following an impressive third quarter, Spectrum Brands reaffirmed its guidance for fiscal 2014. Including the HHI acquisition in the prior-year period on a pro-forma basis, the company expects net sales for fiscal 2014 to grow at the rate of the Gross Domestic Product compared with fiscal 2013 net sales.

During fiscal 2014, the company continues to anticipate generating a free cash flow of at least $350 million and intends to make capital expenditure in the range of $70–$75 million.

After delivering a strong quarter, despite facing a tough retail environment, the company remains positive about its future performance. It looks forward to launching additional products in all its segments in fiscal 2014 and 2015, developing its online network and strengthening its global footprint.

Alongside, it plans to undertake efficient cost-cutting measures and implement a better pricing strategy. Moreover, the branded consumer products retailer remains committed to generating solid free cash flows, reducing debt levels, enhancing adjusted EBITDA in order to boost shareholder value. With these continuous efforts, the company is likely to achieve its growth objectives and deliver another strong year.

Other Stocks to Consider

Other better-ranked retail stocks include Citi Trends, Inc. , Abercrombie & Fitch Co. (ANF - Free Report) and The Men's Wearhouse, Inc. , each holding a Zacks Rank #1 (Strong Buy).

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