Spectrum Brands Holdings Reports Fiscal 2022 Third Quarter Results
- Progress on Strategic Objective of Creating a Pure Play Global Pet Care and Home and Garden Company:
- Confident and Committed to Closing the Sale of HHI to ASSA ABLOY for $4.3 Billion and Continued Work to Complete the Transaction
- Completed the Internal Separation of its Home & Personal Appliances Business for a Potential Spin or Other Transaction
- Financial Results:
- Net Sales Increased 10.0% and Organic Net Sales Increased 4.4% Despite Customer Ordering Unpredictability and Consumer Demand Softening
- Realized Net Income from Continuing Operations of $3.0 Million and Adjusted EBITDA Declined to $80.1 Million, Attributable to Lower Volume, Unfavorable Impact of Foreign Exchange and Higher Transaction and Restructuring Costs as Increased Supply Chain Cost was Partially Offset by Cost Reduction Actions
- In Light of Shifting Consumer Dynamics and Related Retailer Order Patterns:
- Pivoted the Company’s Operating Strategy to Reduce Inventory Levels and Run Operations to Maximize Cash Flow
- Implemented Pricing Actions to Offset the Majority of Currently Projected Inflationary Increases of $290-$310 Million
- Reduced Short-Term Spending, and Eliminated 17% of Global Salaried Positions Saving Over $30 Million Annually
- Changing Its Fiscal 2022 Earnings Framework to Mid-Single Digit Top Line Growth With Mid-Twenties EBITDA Decline Over the Prior Year
- Continues to Believe that the Company has an Earnings Power of Over $400 Million of Adjusted EBITDA for Continuing Operations
MIDDLETON, Wis.–(BUSINESS WIRE)–Spectrum Brands Holdings, Inc. (NYSE: SPB; “Spectrum Brands” or the “Company”), a leading global branded consumer products and home essentials company focused on driving innovation and providing exceptional customer service, today reported results from continuing operations for the third quarter of fiscal 2022 ended July 3, 2022.
“On the strategic side, we continue to execute on our objective to close the $4.3 billion sale of our HHI business to ASSA ABLOY as both parties remain confident and committed to closing this transaction. We have also accelerated integration of Tristar into our Home and Personal Care Appliances business, renamed that business “Empower Brands” and recently completed the carve out work necessary to separate this business. These actions further our strategic objectives of recasting our company into a pure play Global Pet Care and Home and Garden company. On the operations side, we delivered top-line growth this quarter despite some challenging customer dynamics. We entered the third quarter with optimism after implementing the necessary pricing actions to restore our margin structure. However, during the quarter our retail partners experienced rapidly changing consumer behavior as well as reduced foot traffic in home center channels while their inventory levels were 30-40 percent higher than a year ago levels. Additionally, we continued to experience challenging weather conditions in our Home & Garden business, which negatively impacted consumer demand and retailer replenishment. The unprecedented negative demand shocks and the unfavorable weather conditions materially reduced our planned sales for the quarter and led to our own inventory levels being higher than expected. This in turn led to higher demurrage, detention and storage costs in the short-term that further pressured our margins in the quarter,” said David Maura, Chairman and Chief Executive Officer of Spectrum Brands.
“Given these drastic changes in the operating environment, we pivoted our operating strategy to reduce our own inventory levels and run the operations to maximize cash flow over earnings, despite the negative impact it has on margins in the short term. We have also taken swift actions to eliminate 17% of our global salaried positions during the quarter that will drive over $30 million in annualized savings. Given our third quarter results and our short term focus on maximizing cash flow over earnings, we are updating our 2022 earnings framework. We are now expecting mid-single digits sales growth with mid-twenties EBITDA decline for the full year of fiscal 22. Despite these near-term HEADWINDS, our businesses remain competitively positioned and we continue to believe that the Company has an earnings power of over $400 million of Adjusted EBITDA for our continuing operations,” said Mr. Maura.
Fiscal 2022 Third Quarter Highlights
| Three Month Periods Ended |
|
| |||||||||
| (in millions, except per share and %) | July 3, 2022 | July 4, 2021 | Variance | ||||||||
| Net sales | $ | 818.0 | $ | 743.8 |
| $ | 74.2 |
| 10.0 | % | |
| Gross profit |
| 276.0 |
| 262.6 |
|
| 13.4 |
| 5.1 | % | |
| Operating income |
| 38.7 |
| 29.9 |
|
| 8.8 |
| 29.4 | % | |
| Net income (loss) from continuing operations |
| 3.0 |
| (1.9 | ) |
| 4.9 |
| n/m |
| |
| Diluted earnings per share from continuing operations | $ | 0.07 | $ | (0.04 | ) | $ | 0.11 |
| n/m |
| |
| Non-GAAP Operating Metrics |
|
|
|
| |||||||
| Adjusted EBITDA from continuing operations | $ | 80.1 | $ | 99.4 |
| $ | (19.3 | ) | (19.4 | ) % | |
| Adjusted EPS from continuing operations | $ | 0.54 | $ | 0.72 |
| $ | (0.18 | ) | (25.0 | ) % | |
| n/m = not meaningful |
|
|
|
| |||||||
- Net sales increased 10.0%. Excluding the impact of $29.5 million of unfavorable foreign exchange rates and acquisition sales of $71.3 million, organic net sales increased 4.4% from pricing actions related to inflationary costs and improved fulfillment despite reduced consumer POS, high retail inventory levels and replenishment order headwinds.
- Gross profit margin declined 160 basis points from a year ago as pricing now exceeds inflation dollars but not covering margin percent, as well as increased supply chain costs from higher inventory and continued supply chain challenges.
- Operating income increased from a $25.0 million gain on contingent consideration liability associated with the Tristar Business acquisition offset by the gross profit margin decline, higher distribution costs, and increased investment in restructuring, optimization and strategic transaction initiatives.
- Net income and diluted earnings per share increases were primarily driven by the increase in operating income.
- Adjusted EBITDA decreased 19.4% and adjusted EBITDA margin decreased 360 basis points attributable to the decrease in volume and higher supply chain costs.
- Adjusted diluted EPS decreased to $0.54 per share due to lower Adjusted EBITDA.
Fiscal 2022 Third Quarter Segment Level Data
Home & Personal Care (HPC)
|
| Three Month Periods Ended |
|
|
|
| ||||||||||
| (in millions, except %) |
| July 3, 2022 |
| July 4, 2021 |
| Variance | |||||||||
| Net sales |
| $ | 329.3 |
|
| $ | 274.4 |
|
| $ | 54.9 |
|
| 20.0 | % |
| Operating income (loss) |
|
| 14.4 |
|
|
| (2.4 | ) |
|
| 16.8 |
|
| n/m |
|
| Operating income (loss) margin |
|
| 4.4 | % |
|
| (0.9 | ) % |
|
| 530 |
| bps |
| |
| Adjusted EBITDA |
| $ | 3.6 |
|
| $ | 11.8 |
|
| $ | (8.2 | ) |
| (69.5 | ) % |
| Adjusted EBITDA margin |
|
| 1.1 | % |
|
| 4.3 | % |
|
| (320 | ) | bps |
| |
| n/m = not meaningful |
|
|
|
|
|
|
|
| |||||||
The increase in net sales was primarily driven by acquisition sales from the home appliances and cookware business from Tristar Products, Inc. (the “Tristar Business”) of $65.8 million with significant unfavorable foreign currency impact of $17.8 million. Excluding acquisition sales and unfavorable exchange impacts, organic net sales increased 2.5% mainly driven by favorable impact of price increases. Continued momentum resulting in double digit growth in garment care and growth in personal care appliances categories more than offset the decline in small kitchen appliances categories.
The increase in operating income and margin was driven by the recognition of a $25.0 million gain for the contingent consideration liability associated with the Tristar Business acquisition offset by incremental restructuring and integration related costs. The reduction in adjusted EBITDA and margins was driven by unfavorable foreign currency and incremental distribution and inventory management costs due to continued supply chain challenges.
Global Pet Care (GPC)
|
| Three Month Periods Ended |
|
|
|
| ||||||||||
| (in millions, except %) |
| July 3, 2022 |
| July 4, 2021 |
| Variance | |||||||||
| Net sales |
| $ | 290.2 |
|
| $ | 257.3 |
|
| $ | 32.9 |
|
| 12.8 | % |
| Operating income |
|
| 19.9 |
|
|
| 27.8 |
|
|
| (7.9 | ) |
| (28.4 | ) % |
| Operating income margin |
|
| 6.9 | % |
|
| 10.8 | % |
|
| (390 | ) | bps |
| |
| Adjusted EBITDA |
| $ | 40.9 |
|
| $ | 49.2 |
|
| $ | (8.3 | ) |
| (16.9 | ) % |
| Adjusted EBITDA margin |
|
| 14.1 | % |
|
| 19.1 | % |
|
| (500 | ) | bps |
| |
The increase in net sales was driven by positive pricing adjustments on inflationary costs as well as improving product availability and fulfillment compared to prior year supply chain challenges. Strong performance in companion animal consumables was offset by softness in aquatics systems and equipment. European sales were adversely impacted by unfavorable foreign exchange rates. Adjusted for unfavorable foreign currency, European sales were flat to prior year despite pressure on consumers from high inflation and impact of the Russia/Ukraine conflict. Overall, organic net sales increased 17.3%, excluding unfavorable foreign exchange impacts of $11.7 million.
Lower operating income, adjusted EBITDA, and margins were driven by unfavorable foreign currency and product mix. There were also increased distribution center investments as the distribution footprint was expanded to support higher inventory to continue to drive customer fill rates. Pricing is now nearly offsetting increased freight and input cost inflation, which was in line with expectation. All planned price increases were implemented by the middle of the third quarter. At this point, price is covering against all current inflationary cost increases and these costs are expected to stabilize.
Home & Garden (H&G)
|
| Three Month Periods Ended |
|
|
|
| ||||||||||
| (in millions, except %) |
| July 3, 2022 |
| July 4, 2021 |
| Variance | |||||||||
| Net sales |
| $ | 198.5 |
|
| $ | 212.1 |
|
| $ | (13.6 | ) |
| (6.4 | ) % |
| Operating income |
|
| 36.2 |
|
|
| 41.7 |
|
|
| (5.5 | ) |
| (13.2 | ) % |
| Operating income margin |
|
| 18.2 | % |
|
| 19.7 | % |
|
| (150 | ) | bps |
| |
| Adjusted EBITDA |
| $ | 42.8 |
|
| $ | 53.4 |
|
| $ | (10.6 | ) |
| (19.9 | ) % |
| Adjusted EBITDA margin |
|
| 21.6 | % |
|
| 25.2 | % |
|
| (360 | ) | bps |
| |
The net sales decrease was primarily driven by unfavorable weather conditions across the U.S. with a cold, wet start to the quarter and drought conditions during late quarter. Adverse weather conditions drove reduction in category POS and reduced retailer replenishment, most significantly with the repellent product category. The volume decline was partially offset by positive price increases and Rejuvenate acquisition sales of $5.5 million. Organic net sales decreased 9.0% excluding the impact of acquisition sales.
Operating income, adjusted EBITDA and margins decreases were driven by the reduced volumes, related absorption loses and unfavorable product mix. Higher freight and input cost inflation was in line with expectations and were more than offset by the impact of pricing actions in place by the end of the second quarter.
Conference Call/Webcast Scheduled for 9:00 A.M. Eastern Time Today
Spectrum Brands will host an earnings conference call and webcast at 9:00 a.m. Eastern Time today, August 12, 2022. The live webcast and related presentation slides will be available by visiting the Event Calendar page in the Investor Relations section of Spectrum Brands’ website at www.spectrumbrands.com. Participants may register here. Instructions will be provided to ensure the necessary audio applications are downloaded and installed. Users can obtain these at no charge.
A replay of the live broadcast will be accessible through the Event Calendar page in the Investor Relations section of the Company’s website.
Liquidity and Debt
As of the end of the quarter, the Company had a cash balance of $248 million and approximately $3,261 million of debt outstanding, consisting of approximately $1,996 million of senior unsecured notes, $1,170 million of term loans and revolver draws and approximately $95 million of capital leases and other obligations.
Proforma net leverage at the end of the third quarter was 5.4 times, compared to 5.2 times at the end of the previous quarter.
Fiscal 2022 Earnings Framework
Although the business sales mix is expected to shift sequentially, in aggregate the fourth quarter EBITDA is expected to remain relatively flat to third quarter and prior year fourth quarter EBITDA. The fourth quarter top line is now expected to grow mid-single digit over prior year. This implies mid-single digit top line growth with mid-twenties EBITDA decline for the fiscal year 22.
From a capital structure perspective, the Company is reiterating a long-term net leverage target ratio of 2.0 – 2.5 times after full deployment of HHI proceeds.
About Spectrum Brands Holdings, Inc.
Spectrum Brands Holdings is a home-essentials company with a mission to make living better at home. We focus on delivering innovative products and solutions to consumers for use in and around the home through our trusted brands. We are a leading supplier of specialty pet supplies, lawn and garden and home pest control products, personal insect repellents, shaving and grooming products, personal care products, and small household appliances. Helping to meet the needs of consumers worldwide, Spectrum Brands offers a broad portfolio of market-leading, well-known and widely trusted brands including Tetra®, DreamBone®, SmartBones®, Nature’s Miracle®, 8-in-1®, FURminator®, Healthy-Hide®, Good Boy®, Meowee!®, OmegaOne®, Spectracide®, Cutter®, Repel®, Hot Shot®, Rejuvenate®, Black Flag®, Liquid Fence®, Remington®, George Foreman®, Russell Hobbs®, Black+Decker®, PowerXL®, Emeril Lagasse®, and Copper Chef®. For more information, please visit www.spectrumbrands.com. Spectrum Brands – A Home Essentials Company™
Non-GAAP Measurements
Management believes that certain non-GAAP financial measures may be useful in providing additional meaningful comparisons between current results and results in prior periods. Management believes that organic net sales provide for a more complete understanding of underlying business trends of regional and segment performance by excluding the impact of currency exchange rate fluctuations and the impact of acquisitions. In addition, within this release, including the supplemental information attached hereto, reference is made to adjusted diluted EPS, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), and adjusted EBITDA margin. Adjusted EBITDA is a metric used by management to evaluate segment performance and frequently used by the financial community which provides insight into an organization’s operating trends and facilitates comparisons between peer companies, since interest, taxes, depreciation and amortization can differ greatly between organizations as a result of differing capital structures and tax strategies. Adjusted EBITDA also is one of the measures used for determining compliance with the Company’s debt covenants. Adjusted EBITDA excludes certain items that are unusual in nature or not comparable from period to period. Adjusted EBITDA margin reflects adjusted EBITDA as a percentage of net sales of the Company. The Company’s management uses adjusted diluted EPS as one means of analyzing the Company’s current and future financial performance and identifying trends in its financial condition and results of operations. Management believes that adjusted diluted EPS is a useful measure for providing further insight into our operating performance because it eliminates the effects of certain items that are not comparable from one period to the next. An income tax adjustment is included in adjusted diluted EPS to exclude the impact of the valuation allowance against deferred taxes and other tax-related items in order to reflect a normalized ongoing effective tax rate. The Company provides this information to investors to assist in comparisons of past, present and future operating results and to assist in highlighting the results of on-going operations. While the Company’s management believes that non-GAAP measurements are useful supplemental information, such adjusted results are not intended to replace the Company’s GAAP financial results and should be read in conjunction with those GAAP results. Other Supplemental Information has been provided to demonstrate reconciliation of non-GAAP measurements discussed above to most relevant GAAP financial measurements.
Forward-Looking Statements
We have made, implied or incorporated by reference certain forward-looking statements in this document. All statements, other than statements of historical facts included or incorporated by reference in this document, without limitation, statements or expectations regarding our business strategy, future operations, financial condition, estimated revenues, projected costs, earnings power, projected synergies, prospects, plans and objectives of management, information concerning expected actions of third parties are forward-looking statements. When used in this document, the words future, anticipate, pro forma, seeks, intend, plan, envision, estimate, believe, belief, expect, project, forecast, outlook, earnings framework, goal, target, could, would, will, can, should, may and similar expressions are also intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.
Since these forward-looking statements are based upon our current expectations of future events and projections and are subject to a number of risks and uncertainties, many of which are beyond our control and some of which may change rapidly, actual results or outcomes may differ materially from those expressed or implied herein, and you should not place undue reliance on these statements. Important factors that could cause our actual results to differ materially from those expressed or implied herein include, without limitation:
(1) the COVID-19 pandemic, economic, social and political conditions or civil unrest, terrorist attacks, acts of war, natural disasters, other public health concerns or unrest in international markets impacting our business, customers, employees (including our ability to retain and attract key personnel), manufacturing facilities, suppliers, capital markets, and our financial condition, and results of operations, all of which tend to aggravate the other risks and uncertainties we face; (2) the impact of a number of local, regional and global uncertainties that could negatively impact our business, including: reduced market growth rates; increased inflation rates and cost of goods; increased fuel and employee costs; higher interest rates; tighter credit markets; changes in government policies, including the imposition of tariffs or import costs; the deterioration of economic relations between countries or regions; the escalation or continuation of armed conflict, hostilities or economic sanctions between countries or regions, and continued supply chain challenges; (3) the negative effect of the armed conflict between Russia and Ukraine and its impact on those regions and surrounding regions, including on our operations and on those of our customers, suppliers, and other stakeholders; (4) our increased reliance on third-party partners, suppliers, and distributors to achieve our business objectives; (5) the impact of expenses resulting from the implementation of new business strategies, divestitures or current and proposed restructuring and optimization activities, including distribution center changes which are complicated and involve coordination among a number of stakeholders, including our suppliers and transportation and logistics handlers; (6) the impact of our indebtedness on our business, financial condition, and results of operations; (7) the impact of restrictions in our debt instruments on our ability to operate our business, finance our capital needs or pursue or expand business strategies; (8) any failure to comply with financial covenants and other provisions and restrictions of our debt instruments; (9) the effects of general economic conditions, including the impact of, and changes to tariffs and trade policies, inflation, recession or fears of a recession, depression or fears of a depression, labor costs, and stock market volatility or monetary or fiscal policies in the countries where we do business; (10) the impact of fluctuations in transportation and shipment costs, fuel costs, commodity prices, costs or availability of raw materials or terms and conditions available from suppliers, including suppliers’ willingness to advance credit; (11) interest rate and exchange rate fluctuations; (12) the loss of, significant reduction in, or dependence upon, sales to any significant retail customer(s), including their changes in retail inventory levels and management thereof; (13) competitive promotional activity or spending by competitors, or price reductions by competitors; (14) the introduction of new product features or technological developments by competitors and/or the development of new competitors or competitive brands; (15) the impact of actions taken by significant stockholders; (16) changes in consumer spending preferences and demand for our products, particularly in light of economic stress and the COVID-19 pandemic; (17) our ability to develop and successfully introduce new products, protect our intellectual property and avoid infringing the intellectual property of third parties; (18) our ability to successfully identify, implement, achieve and sustain productivity improvements, cost efficiencies (including at our manufacturing and distribution operations), and cost savings; (19) the seasonal nature of sales of certain of our products; (20) the impact weather conditions may have on the sales of certain of our products; (21) the effects of climate change and unusual weather activity as well as our ability to respond to future natural disasters and pandemics and to meet our environmental, social and governance goals; (22) the cost and effect of unanticipated legal, tax or regulatory proceedings or new laws or regulations (including environmental, public health, and consumer protection regulations); (23) public perception regarding the safety of products that we manufacture and sell, including the potential for environmental liabilities, product liability claims, litigation and other claims related to products manufactured by us and third parties; (24) the impact of existing, pending or threatened litigation, government regulation or other requirements or operating standards applicable to our business; (25) the impact of cybersecurity breaches or our actual or perceived failure to protect company and personal data, including our failure to comply with new and increasingly complex global data privacy regulations; (26) changes in accounting policies applicable to our business; (27) our discretion to conduct, suspend or discontinue our share repurchase program (including our discretion to conduct purchases, if any, in a variety of manners including open-market purchases or privately negotiated transactions); (28) our ability to utilize net operating loss carry-forwards to offset tax liabilities from future taxable income; (29) our ability to consummate the announced Hardware and Home Improvement (“HHI”) divestiture on the expected terms and within the anticipated time period, or at all, which is dependent on the parties’ ability to satisfy certain closing conditions and our ability to realize the benefits of the transaction, including reducing the leverage of the Company, invest in the organic growth of the Company, fund any future acquisitions, return capital to shareholders, and/or maintain its quarterly dividends; (30) the risk that regulatory approvals that are required to complete the proposed HHI divestiture may not be realized, may take longer than expected or may impose adverse conditions; (31) our ability to successfully integrate the Tristar Business into the Company’s Home and Personal Care business and realize the benefits of this acquisition; (32) our ability to separate the Company’s Home and Personal Care business and create an independent Global Appliances business on expected terms, and within the anticipated time period, or at all, and to realize the potential benefits of such business; (33) our ability to create a pure play consumer products company composed of our Global Pet Care and Home & Garden business and to realize the expected benefits of such creation, and within anticipated time period, or at all; (34) our ability to successfully implement further acquisitions or dispositions and the impact of any such transactions on our financial performance; (35) the unanticipated loss of key members of senior management and the transition of new members of our management teams to their new roles; and (36) the impact of economic, social and political conditions or civil unrest in the U.
Contacts
Investor/Media Contact:
Faisal Qadir 608-278-6207
