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Spectrum Brands (SPB) Up on Q1 Earnings Beat; Sales Miss

Spectrum Brands Holdings, Inc.SPB posted first-quarter fiscal 2017 results, wherein the top line was disappointing, but the bottom line remained strong, leading shares of the company to jump 7.9%.

Further, we note that this Zacks Rank #3 (Hold) stock has yielded 38.9% in the past one year, outperforming the Zacks categorized Consumer Products-Miscellaneous Staples industry's gain of 2.9% in the same time frame.

Quarterly adjusted earnings of $1.21 per share increased 19.8% year over year and outpaced the Zacks Consensus Estimate of $1.16. The bottom line was mainly backed by the result of positive mix, decrease in interest charges and operating efficiencies, partly compensated by the unfavorable effect of foreign exchange.

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On a GAAP basis, the company reported earnings of $1.10 per share, down 11.3% from the prior-year quarter.

Further, the quarter witnessed a solid start which will aid the company to achieve the eighth straight year of robust financial performance in fiscal 2017. The company also witnessed record results at its Hardware and Home Improvement segment, coupled with solid global batteries and small appliances operations.

Deeper Insight

Spectrum Brands reported net sales of 1,211.8 million, which slipped 0.6% year over year and also missed the Zacks Consensus Estimate of 1,217.6 million. Sales were largely hurt by the exit of non-profitable operations of nearly $8 million as well as lower shipping days. Moreover, sales were also challenged as organic revenues grew 6.3% in the first-quarter of fiscal 2016, which boosted the sales performance in the last year. Nevertheless, excluding the impact of $18.8 million as foreign currency translation, organic net sales rose 1% year over year in first-quarter fiscal 2017.

The company's gross profit rose 2.1% year over year to $450.0 million, with the gross margin expanding 90 basis points (bps) to 37.1%. Gross margin expansion was fuelled by enhanced mix and solid productivity, somewhat offset by foreign currency headwinds.

The company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") climbed 3.4% to $214.2 million, with the adjusted EBITDA margin expanding 70 bps to 17.7% during the quarter.

Overall, the quarter was characterized by robust earnings growth and adjusted EBITDA which enabled the company to battle currency headwinds. Region wise, Spectrum Brands delivered robust adjusted EBITDA growth in Latin America, Asia-Pacific, Europe as well as Canada.

Segment Details

Sales at Spectrum Brands' Global Batteries & Appliances segment came in at $609.5 million, down 0.3% from the year-ago quarter. On a currency neutral basis, organic net sales rose 2.3% as strong sales of consumer batteries and small appliances compensated for lower personal care revenues. Adjusted EBITDA margin at the segment expanded 60 bps to 17.9%.

The company's Global Pet Supplies segment's sales fell 4.5% year over year to $194.2 million. Excluding the impact of currency fluctuations of $2.8 million, sales at the segment dropped 3.1%. Sales were impacted by lower revenues in North American companion animal and European pet food categories, which were partly offset by increase in aquatics sales, mainly in Europe. Revenues at North American companion animal category were largely affected by the exits of low-margin private label rawhide and chicken jerky operations in the prior year. However, the adjusted EBITDA margin expanded 140 bps to 15.8%.

The Home & Garden segment witnessed record results yet again, with sales rising 4.4% year over year to $49.8 million, primarily driven by greater sales in the household insect controls category. However, the adjusted EBITDA margin decreased 350 bps to 11.4%.

Spectrum Brands' Hardware & Home Improvement segment's sales rose 2.2% to $288.8 million, mainly on the back of improved sales in the core North American residential security category. Nevertheless, sales in the quarter were also hurt by nearly 1.5% due to the exit of non-profitable operations in Mexico. The segment's adjusted EBITDA margin increased 150 bps to 20.5%.

The latest Global Auto Care segment's sales came in at $69.5 million, while the adjusted EBITDA margin increased 240 bps to 26.1% in the quarter. Results were driven by U.S. refrigerants category, somewhat mitigated by lower sales in appearance and performance chemicals categories.

Financials

Spectrum Brands ended the quarter with solid cash balance of $143.3 million and approximately $301 million under its Cash Flow Revolver. Total debt outstanding at the end of the first quarter of fiscal 2017 was nearly $3,714 million.

In fiscal first-quarter, Spectrum Brands repurchased 802.3 million shares worth $97.0 million.

Further, in Jan 2017, management approved a 10.5% hike in the quarterly dividend rate to 42 cents, which will be effective from March. Moreover, the company has approved a new $500 million share repurchase plan for the next three years.

Fiscal 2017 Outlook

Going forward, Spectrum Brands expects fiscal 2017 to witness sturdy sales and earnings growth on the back of global expansion, innovations, cost control and supply chain efficiencies. Also, the company expects its free cash flow to rise nearly 10% in the fiscal year. In addition, management expects the fiscal fourth quarter to largely gain from the favorable shipping days.

For fiscal 2017, Spectrum Brands expects net sales to grow more than category rates, somewhat offset by the unfavorable impact in the range of 100-150 bps from the lingering foreign exchange headwinds.

For fiscal 2017, the company envisions free cash flow generation in a band of $575-$590 million, compared with $535 million in fiscal 2016, based on estimated net cash from operating activities in the range of $695-$710 million after anticipated purchases of property, plant and equipment of $110-$120 million. Capital expenditures during the fiscal are expected to range from $110-$120 million.

Spectrum Brands Holdings, Inc. Price, Consensus and EPS Surprise

Spectrum Brands Holdings, Inc. Price, Consensus and EPS Surprise | Spectrum Brands Holdings, Inc. Quote

Key Picks

Better-ranked stocks are Blue Buffalo Pet Products, Inc. BUFF , Ollie's Bargain Outlet Holdings, Inc. OLLI and Calavo Growers, Inc. CVGW , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Blue Buffalo Pet Products, with a long-term earnings growth rate of 14%, has surged 43.8% in the past one year.

Ollie's Bargain Outlet Holdings, with a long-term earnings growth rate of 18.9%, has gained 31.3% in the past one year.

Calavo Growers has delivered a positive earnings surprise in all of the trailing four quarters, with an average of 11.8%. Also, it has a long-term earnings growth rate of 7%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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