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

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Spectrum Brands Holdings, Inc.SPB posted first-quarter fiscal 2016 results, wherein the bottom line disappointed, while the top line remained strong, leading shares of the company to jump 3.3%.

Quarterly adjusted earnings of $1.01 per share dropped 5.6% year over year and missed the Zacks Consensus Estimate of $1.06. The bottom line was mainly impacted by higher interest costs and number of outstanding shares, coupled with seasonality of the company's Global Auto Care business, which was purchased in May 2015.

On a GAAP basis, the company reported earnings of $1.24 per share, up 31.9% from the prior-year quarter figure.

Record results at the company's Home & Garden and HHI segments, coupled with solid global batteries and legacy Pet operations, drove net sales which advanced 14.1% year over year to $1,218.8 million. Net sales also surpassed the Zacks Consensus Estimate of $1193.9 million.

Excluding the impact of foreign currency translation and acquisition-related sales, organic sales grew 6.3% year over year, driven by contributions from nearly all global businesses.

Overall, the quarter was characterized by robust cost-saving activities, solid contributions from new product launches and successful integration of acquired businesses, all of which enabled the company to battle currency headwinds. Region-wise, on a currency-neutral basis, Spectrum Brands' performance remained strong in the U.S., Latin America and Europe.

Deeper Insight

This Zacks Rank #3 (Hold) company's gross profit surged 19% year over year to $440.7 million, with the gross margin expanding 150 basis points (bps) to 36.2%. Gross margin expansion was fuelled by enhanced mix and acquisitions, somewhat offset by foreign currency headwinds.

The company's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") soared 17.8% to $207.1 million, with the adjusted EBITDA margin expanding 50 bps to 17% during the quarter.

Segment Details

Sales at Spectrum Brands' Global Batteries & Appliances segment came in at $611.3 million, down about 4% from the year-ago quarter. On a currency neutral basis, net sales rose 4.3% as strong sales of personal care and battery compensated for lower small appliances revenues. Adjusted EBITDA margin at the segment contracted 30 bps to 17.3%.

Backed by acquisition-related sales, the company's Global Pet Supplies segment's sales soared 68.7% year over year to $203.4 million. However, on excluding acquisition-related sales and including the impact of currency fluctuations, sales at the segment jumped 12.9% to $136.1 million. Sales were backed by growth witnessed in aquatics sales in North America, along with solid odor product and rawhide and stain operations. Adjusted EBITDA margin expanded 360 bps to 14.4%.

The Home & Garden segment witnessed record results yet again, with sales rising 20.8% year over year to $47.7 million, primarily driven by greater sales in the lawn and garden controls, repellents and household controls categories. This, in turn, was backed by favorable warm weather which prolonged the outdoor season. However, the adjusted EBITDA margin decreased 30 bps to 14.9% owing to revenue driving investments.

Spectrum Brands' HHI segment's sales rose 4.2% to $282.7 million, mainly on the back of improved sales in the U.S. residential security and plumbing categories. On a currency neutral basis, sales grew 6%. Sales in the quarter were also hurt to an extent by the exit from non-profitable businesses and termination of a customer tolling deal. The segment's adjusted EBITDA margin contracted 10 bps to 19.0%.

The latest Global Auto Care segment's sales came in at $73.7 million, while the adjusted EBITDA margin was 26.1% in the quarter. Results were driven by U.S. appearance, refrigerant and performance categories.

Financials

Spectrum Brands ended the quarter with solid cash balance of $162 million and approximately $245 million under its Cash Flow Revolver. Total debt outstanding at the end of the first quarter of fiscal 2016 was nearly $4,127.7 million.

Fiscal 2016 Outlook

Going forward, Spectrum Brands expects fiscal 2016 to witness sturdy sales and earnings growth on the back of global expansion, innovations, greater cross-selling, introduction of new product categories, market share and distribution gains, cost controls, and an increasing customer base. Also, the second half is anticipated to deliver stronger results than the first, given some of its businesses' seasonal nature.

For fiscal 2016, Spectrum Brands expects net sales to grow in high-single digits, compared with fiscal 2015. Sales in the fiscal are expected to benefit from recent acquisitions, including that of the European pet food business in Dec 2014, Salix Animal Health in Jan 2015, and Armored AutoGroup in May 2015. Additionally, results will bear a negative impact of 200-220 bps from the lingering foreign exchange headwinds.

For fiscal 2016, the company envisions free cash flow generation in a range of $505-$515 million. Capital expenditures during the fiscal are expected to range from $110-$120 million.

Stocks to Consider

A better-ranked stock in the same industry is Central Garden & Pet Company CENT , with a Zacks Rank #1 (Strong Buy). Other well-ranked stocks in the broader consumer discretionary sector worth considering include Carnival Corporation CCL and Hanesbrands Inc. HBI , each with a Zacks Rank #2 (Buy).

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CARNIVAL CORP (CCL): Free Stock Analysis Report

CENTRAL GARDEN (CENT): Free Stock Analysis Report

SPECTRUM BRANDS (SPB): Free Stock Analysis Report

HANESBRANDS INC (HBI): Free Stock Analysis Report

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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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