Spectrum Brands (SPB) Q2 Earnings & Sales Top Estimates, View Up

Spectrum Brands Holdings Inc. SPB reported better-than-expected results in second-quarter fiscal 2021, wherein both top and bottom lines improved year over year. Despite inflation pressure and higher investments in marketing and advertising, results gained from product launches, which led to top-line growth and margin expansion, strong cash flow and improved profitability. Encouragingly, management lifted the fiscal 2021 view.

In the past three months, shares of this Zacks Rank #3 (Hold) company have gained 15.8% against the industry’s decline of 19.4%.

Q2 in Detail

Adjusted earnings from continuing operations of $1.76 per share surpassed the Zacks Consensus Estimate of 96 cents. The bottom line surged 93.4% from 91 cents in the prior-year quarter on the back of favorable volumes and productivity.

Spectrum Brands’ net sales grew 22.6% year over year to $1,149.8 million and exceeded the Zacks Consensus Estimate of $1,030 million. Excluding the positive impacts of currency and sales from buyouts, organic net sales advanced 17.8%, courtesy of growth in all four segments. Favorable currency of $18 million and acquisitions-related gains of $26.8 million, also contributed to quarterly sales growth.

Moreover, its e-commerce unit continued to witness significant growth across all categories. E-commerce sales rose 43% year over year, accounting for more than 16% of net sales.

Gross profit increased 22.8% year over year to $404 million. Moreover, gross margin remained flat year over year at 35%, primarily driven by a rise in volumes across all segments, positive mix and better productivity related to the Global Productivity Improvement Program, which offset elevated freight and raw-material costs.

SG&A expense rose 13.1% to $262.2 million. Meanwhile, as a percentage of sales, SG&A expense contracted 190 bps to 22.8%. This can be mainly attributable to higher volumes along with a rise in advertising and marketing costs and elevated incentive and distribution expenses.

Furthermore, the company reported an operating income of $116.8 million, up 72.5% year over year. The upside was led by higher volumes, better productivity and reduced restructuring costs, which more than offset elevated freight and raw-material costs as well as higher marketing and advertising investments.

Adjusted EBITDA from continuing operations advanced 28.8% to $180.9 million in the fiscal second quarter. The metric benefited from sturdy volume growth and improved productivity. Also, solid performance in all segments contributed to quarterly growth. Adjusted EBITDA margin expanded 70 bps to 15.7%.

Segmental Performance

Sales in the Hardware & Home Improvement segment increased 18.4% to $389.5 million, mainly driven by growth in all categories, particularly security, owing to strong demand and new product launches. The segment’s organic sales rallied 17.4% year over year. Also, adjusted EBITDA in the segment grew 5.6% to $73.4 million on the back of higher volumes, and better productivity, which more than offset COVID-related costs, higher freight and raw-material expenses, and the rise in marketing investments.

Sales in the Home & Personal Care segment increased 28% to $297.9 million, backed by growth in small appliances and personal care. Also, strength in sales across all regions as well as continued momentum in the online channel, particularly pure-play and retailer.com, acted as upsides. Excluding the positive impacts of foreign currency, organic net sales for the segment increased 24.3%. Moreover, the segment’s adjusted EBITDA of $25.4 million skyrocketed 217.5%, driven by better volumes and improved productivity.

The Global Pet Care segment’s sales grew 23.9% year over year to $293.6 million, primarily driven by strength in aquatic and companion animal categories. Excluding the favorable impacts of foreign currency and sales from acquisitions, organic sales rose 10%. Further, the segment’s adjusted EBITDA grew 39% to $55.6 million.

The Home & Garden segment’s sales advanced 21.4% to $168.8 million, primarily on growth in three major categories — controls, household insecticides and repellents. Also, early reorders across mass and online channels aided growth. Further, the segment’s adjusted EBITDA was $34.8 million, up 22.5% from $28.4 million in the prior-year quarter.

Other Financials

Spectrum Brands ended the quarter with cash and cash equivalents of $290 million and roughly $577 million available under its $600-million cash flow revolver. Further, it sold the remaining shares of Energizer common stock worth $12.6 million. As of Apr 4, 2021, the company’s outstanding debt was nearly $2,610 million.

During the quarter under review, capital expenditure amounted to $16.2 million. For fiscal 2021, capital expenditure is still estimated to be $85-$95 million. Also, the company announced a new three-year share repurchase program worth $1 billion. The company boasts liquidity of more than $860 million, which is likely to help it stay afloat amid this ongoing pandemic.

Spectrum Brands Holdings Inc. Price, Consensus and EPS Surprise

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

Guidance

Driven by impressive quarterly results, management raised its 2021 view. The company now anticipates sales growth in mid-teens, up from the earlier guided view of high-single-digit growth. This includes a favorable impact of foreign currency. Further, adjusted EBITDA is likely to rise in mid-teens, up from the prior view of high-single-digit growth.

Apart from these, it expects adjusted free cash flow to be $260-$280 million, which reflects an improvement from $250-$270 million guided earlier. Also, savings from the Global Productivity Improvement Program are envisioned to be $200 million by the end of fiscal 2022.

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