Spectrum Brands (SPB) Bests Q4 Earnings, Sales Lag

Spectrum Brands Holdings Inc. SPB reported results for the fourth quarter of fiscal 2023, where the bottom line beat the Zacks Consensus Estimate, while sales missed the same. Results derived from cost improvements, exiting non-core non-productive categories, reduced inventory and improved fill levels across all businesses. The company also increased investment in marketing and advertising in the fiscal fourth quarter.

Shares of the Zacks Rank #2 (Buy) company have gained 13.2% year-to-date amid an industry decline of 14.1%.

Q4 Accents

SPB reported adjusted earnings of $1.36 per share, up 183.3% year-over-year and beating the Zacks’ consensus estimate of $1.14. This increase was primarily due to higher adjusted EBITDA, lower interest expense and lower outstanding.

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Spectrum Brands’ net sales fell 1.2% year over year to $740.7 million and missed the Zacks Consensus Estimate of $760 million. This was due to continued weak demand for kitchen appliances and adverse impacts from exiting non-strategic categories in the GPC business. However, a favorable foreign currency impact of $11.3 million acted as a headwind.

Gross profit rose 2% year-over-year to US$244.4 million, driven by improved pricing and cost improvements that partially offset currency headwinds. The figure beat our estimate of $235.2 million. Meanwhile, gross margin increased 2,100 basis points to 33%.

SG&A expenses rose 0.3% to $222.3 million and missed our estimate of $223.2 million. As a percentage of sales, SG&A expenses increased 40 bps to 30%.

The company’s operating income decreased 1.2% year-over-year to $16.2 million due to lower volumes, partially offset by improvements in gross profit, reduced operating expenses and lower costs for restructuring and integration projects.

Adjusted EBITDA rose 52% year-over-year to $113.7 million in the fiscal fourth quarter, beating our estimate of $90.9 million. Adjusted EBITDA margin increased 540 basis points to 15.4%, driven by better gross margins and interest income.

Segment presentation

Sales in Home and personal care segment declined 6.3% year-over-year to $323.1 million due to a category decline from lower demand, particularly in kitchen appliances, and continued inventory management by North American retailers. On the other hand, higher sales in personal care and clothing care categories acted as a tailwind. The figure was below our estimate of $324 million. Excluding the $4.8 million impact of unfavorable foreign exchange rates, organic net sales for the segment fell 7.7%.

Segment adjusted EBITDA decreased 27.5% year-over-year to $20.3 million. Meanwhile, adjusted EBITDA margin contracted 180 basis points year over year to 6.3% due to lower volume and unfavorable foreign currency.

The Global Pet Care segment sales rose 1.6% year-over-year to $292.4 million, driven by positive pricing and favorable foreign currency impacts, somewhat offset by lower volumes, particularly in the slower water unit.
Also, its companion animal category performed well in EMEA. Sales missed our estimate of $320.2 million. Excluding the $6.5 million impact of unfavorable foreign currency, organic sales were down 0.7%.

Segment adjusted EBITDA increased 10.5% year-over-year to $53.5 per share, while adjusted EBITDA margin increased 150 basis points year-over-year to 18.3%, driven by lower distribution costs, positive pricing, a favorable combination of the decision to exit non-strategic SKUs, savings from the prior year’s cost reduction initiatives and lower freight costs, partially offset by lower aquatics volumes.

The Home and garden segment sales rose 7.2% year-over-year to $125.2 million, driven by trade investment and favorable weather that led to POS growth in the controls and household repellents categories. The Spectracide and Hot Shot brands saw double-digit POS growth on the back of increased advertising spend, which led to larger orders to fill. The figure exceeded our estimate of $109.6 million.

Segment adjusted EBITDA of $21 million increased 60.3% from $13.1 million in the prior-year quarter, driven by higher volumes, fixed cost absorption and cost-saving actions. On the other hand, higher product costs of raw materials and labor acted as a headwind. Adjusted EBITDA margin increased 560 basis points to 16.8%.

Other finances

As of September 30, 2023, the company’s cash balance was $754 million, with $1,574 million in outstanding debt. After the fiscal fourth quarter, SPB repaid an additional $1,488 million in senior unsecured notes and $86 million in finance lease obligations.

Spectrum Brands Holdings Inc. Price, Consensus and EPS Surprise

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

Directions

Spectrum Brands released its guidance for fiscal 2024. The company expects a low single-digit sales decline. This includes the adverse impact of foreign exchange. Adjusted EBITDA is likely to grow in the high single digits. He also expects the macroeconomic environment to remain bleak and put pressure on the top line, particularly in our home and personal care business.

Stocks to consider

Some better ranked companies are MGM Resorts MGM, Guess GES and lululemon athletics LULU.

Guess currently has a Zacks Rank of 1 (Strong Buy). GES has an earnings surprise over the last four quarters of an average of 43.4%. You can see the full list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for GES’s fiscal 2023 sales and EPS suggests improvements of 3.4% and 9.9%, respectively, over the prior-year reported levels.

MGM Resorts currently carries a Zacks Rank #2 (Buy). The company has surprising earnings for the last four quarters of an average of 81%.

The Zacks Consensus Estimate for MGM’s 2024 sales and earnings per share shows year-over-year increases of 2.2% and 31%, respectively.

lululemon athletica, a yoga-inspired athletic apparel company, currently carries a Zacks No. 2 rank. LULU has a profit surprise for the last four quarters of an average of 9.9%.

The Zacks Consensus Estimate for lululemon athletica’s current fiscal year sales and EPS suggests growth of 17% and 18.4%, respectively, over the prior year’s reported figures.

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