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Spectrum Brands (SPB) Q2 Earnings and Sales Top Estimates

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Spectrum Brands Holdings Inc. (SPB - Free Report) reported mixed second-quarter fiscal 2022, wherein the top and bottom lines beat the Zacks Consensus Estimate. However, earnings per share declined year over year, while sales improved. Strength across segments and improved price realization contributed to sales growth. Meanwhile, dismal margins, stemming from cost inflation and supply-chain headwinds, hurt the bottom line.

Shares of the Zacks Rank #4 (Sell) company have lost 10.6% in a year compared with the industry's decline of 52.4%.

 

Zacks Investment Research
Image Source: Zacks Investment Research

 

Q2 Highlights

The company reported adjusted earnings of 41 cents per share, down 52.9% from 87 cents in the year-ago period. However, the figure surpassed the Zacks Consensus Estimate of 40 cents. The year-over-year decline can be attributed to the ongoing supply-chain disruptions, input cost inflation and higher restructuring costs, which were not fully offset by pricing actions. These led to lower gross and operating margins on a year-over-year basis. However, margins improved on a sequential basis due to incremental price realization.

Spectrum Brands' net sales grew 6.2% year over year to $807.8 million and beat the Zacks Consensus Estimate of $784 million. Acquisition-related gains of $49.1 million aided the top line, while adverse foreign currency impacts of $17 million remained a drag. Excluding the currency headwinds and sales gains from buyouts, organic net sales rose 2%. The increase can mainly be attributed to the pricing actions undertaken to offset the impacts of higher freight and input costs.

Spectrum Brands Holdings Inc. Price, Consensus and EPS Surprise

 

Spectrum Brands Holdings Inc. Price, Consensus and EPS Surprise

Spectrum Brands Holdings Inc. price-consensus-eps-surprise-chart | Spectrum Brands Holdings Inc. Quote

The gross profit decreased 2.1% year over year to $255.6 million, while the gross margin contracted 270 basis points (bps) year over year to 31.6% due to elevated freight and raw-material costs, which paced ahead of price adjustments. These were somewhat offset by better productivity related to the Global Productivity Improvement Program.

SG&A expenses rose 11.9% to $220.1 million. As a percentage of sales, SG&A expenses expanded 130 bps to 27.2%.

The company reported an operating loss of $8.1 million against an operating income of $45.3 million in the year-ago quarter. The downside was mainly because of the decline in gross margin due to a further rise in distribution costs. Higher marketing investment and product innovation, restructuring initiatives and strategic transactions also impacted the operating income.

Adjusted EBITDA plunged 26.5% to $79 million in the fiscal second quarter, driven by lower operating income. The adjusted EBITDA margin contracted 430 bps to 9.8%.

Segmental Performance

Sales in the Home & Personal Care segment increased 6.1% to $316.1 million. This was mainly due to a $35.8-million contribution from the recently acquired Tristar business. Excluding the gains from the acquisition and the $11.4-million impact from adverse currency rates, organic net sales for the segment declined 2.1%. Declines in small kitchen appliances and personal care appliances categories mainly hurt organic sales.

This was partly offset by double-digit growth in garment care, owing to the continued momentum. The segment's adjusted EBITDA of $10.6 million plunged 58.3% due to higher freight and input costs, which were higher than the implemented pricing increases. This was somewhat offset by improved productivity.

The Global Pet Care segment's sales grew 0.5% year over year to $295.1 million, primarily driven by continued growth in the companion animal category, offset by softness in aquatics. Excluding the $5.6-million impacts from unfavorable foreign currency, organic sales rose 2.4%. The segment’s overall sales were aided by pricing actions, while product availability delays hurt to some extent.

The segment's adjusted EBITDA slumped 27% to $40.6 million due to higher freight and input costs; the rise in marketing and advertising investments; and product innovation. These were somewhat offset by improved productivity.

The Home & Garden segment's sales improved 16.5% to $196.6 million, primarily driven by price increases and a $13.3-million sales contribution from the Rejuvenate acquisition. Excluding the acquisition-related gains, organic sales advanced 8.6% year over year. Organic sales were partly hurt by unusual spring weather across key markets, which led to lower category POS.

During the quarter, relaters paused retail inventory build due to the wet and cold spring season, which delayed shipments to counters. The segment's adjusted EBITDA of $37.7 million increased 8.3% from $34.8 million in the prior-year quarter, mainly driven by price increases. The company expects segment margins in the second half of fiscal 2022 to be significantly better, as pricing has picked up with inflation at the end of the second quarter.

Other Financials

As of Apr 3, 2022, Spectrum Brands’ cash balance was $194 million, with an outstanding debt of $3,289 million.

Guidance

Spectrum Brands revised its guidance for fiscal 2022 to include the impacts of the Tristar acquisition, as well as the additional headwinds related to the war in Ukraine and the late start to the Home & Garden selling season due to the cold and wet spring. The company expects net sales growth in the mid-to-high teens range compared with the prior mentioned mid to high-single-digit growth. Foreign currency is expected to negatively impact net sales based on current rates.

The company expects margins to improve sequentially through the rest of fiscal 2022, driven by the successful implementation of its pricing actions.

Spectrum Brands anticipates adjusted EBITDA in the mid-single digits versus the low-single digits mentioned earlier. It retained its inflation forecast of $310-$330 million. Spectrum Brands continues to expect to overcome the impacts of inflation through its pricing actions.

Stocks to Consider

Some better-ranked stocks from the Consumer Discretionary sector are Delta Apparel (DLA - Free Report) , Central Garden & Pet (CENT - Free Report) and Oxford Industries (OXM - Free Report) .

Delta Apparel currently sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 41.1% on average. The DLA stock has declined 12.6% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Delta Apparel's current financial year’s sales and earnings per share suggests growth of 14.6% and 45.8%, respectively, from the year-ago period's reported numbers.

Central Garden presently carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 406%, on average. Shares of CENT have declined 27.6% in a year.

The Zacks Consensus Estimate for Central Garden’s current financial-year sales and earnings suggests growth of 4.7% and 7.5% from the year-ago period’s reported numbers, respectively.

Oxford Industries currently has a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 112.8%, on average. Shares of OXM have declined 7.8% in the past year.

The Zacks Consensus Estimate for Oxford Industries’ current financial year’s sales and earnings suggests growth of 10.2% and 13%, respectively, from the year-ago period's reported numbers.

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