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Spectrum Brands (SPB) Q3 Earnings Miss, Organic Sales Up 7.1%
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Spectrum Brands Holdings Inc. (SPB - Free Report) reported mixed third-quarter fiscal 2024 results, wherein the top line surpassed the Zacks Consensus Estimate but the bottom line missed. Both metrics rose year over year. Results gained from cost improvements, sturdy e-commerce business and reduced inventory.
The company is focused on boosting top-line growth via commercial investments. It has been significantly investing in brand-focused advertising, marketing and innovation. In the reported quarter, it made investments around $23 million higher year over year in brand advertising and innovation, and is on track to invest $50 million more during the fiscal year.
Shares of this current Zacks Rank #3 (Hold) company have gained 11.4% in the past six months compared with the industry's 9.5% growth.
Q3 Highlights
SPB reported adjusted earnings of $1.10 per share, which lagged the Zacks Consensus Estimate of $1.35. The figure reflects an increase from the year-ago quarter’s adjusted earnings of 75 cents a share, mainly attributable to higher adjusted EBITDA and lower outstanding shares.
Spectrum Brands Holdings Inc. Price, Consensus and EPS Surprise
Spectrum Brands' net sales grew 6% year over year to $779.4 million and surpassed the consensus estimate of $753 million. The increase was due to an organic net sales rise of 7.1%. Higher sales and distribution in all segments coupled with strength in the e-commerce business, favorable weather conditions and improved retailer inventory health in the Home & Garden business further aided the performance. However, foreign currency impacts of $8.5 million acted as a headwind.
The momentum in e-commerce continued in the fiscal third quarter, with more than 20% growth year over year. E-commerce sales accounted for more than 21% of the total sales. We note that each of the company’s businesses delivered double-digit e-commerce sales, with the Home & Personal Care segment leading the way with an e-commerce sales increase of more than 33%. The investment in the segment’s digital marketing and activation led to the highest Amazon Prime Day sales ever for the unit.
The gross profit advanced 14.9% year over year to $302.8 million, driven by lower cost inventory and inventory-related costs, and other cost improvements. Meanwhile, the gross margin expanded 310 bps year over year to 38.9%.
Adjusted EBITDA from continuing operations jumped 7.9% year over year to $106.3 million in the fiscal third quarter. The adjusted EBITDA margin expanded 20 bps year over year to 13.6%, driven by better gross margins and higher sales, somewhat offset by investments in advertising and marketing.
Segmental Performance
Sales in the Home & Personal Care segment jumped 3.5% year over year to $286.2 million due to growth in Personal Care and robust e-commerce sales. North American sales increased in Personal Care and Home Appliances. Sales in EMEA rose, with growth in Personal Care offsetting lower sales in small Home Appliances. Sales in LATAM Personal Care grew while small Home Appliances remained flat.
Sales in EMEA rose, backed by growth in Personal Care, offset sales declines in small kitchen appliances. Excluding the $7.4 million of adverse currency translations, organic net sales climbed 6.1%.
The segment's adjusted EBITDA grew 3.5% year over year to $11.8 per share while the adjusted EBITDA margin was flat at 4.1%, buoyed by higher sales and reduced inventory-related costs, partly offset by increased brand-related investments, adverse mix and pricing.
The Global Pet Care segment's sales were up 3.6% year over year to $282.2 million, backed by growth in global Companion Animal sales across North America and internationally. North American Companion Animal sales grew on solid e-commerce sales, negated by softness in the mass and dollar channels.
E-commerce sales aided EMEA Companion Animal sales. Global Aquatics organic sales remained flat year over year, with increases in nutrition and consumables being offset by weakness in environments and other hard goods. North American Aquatics sales fell year over year while the overall EMEA Aquatics sales increased.
The segment's adjusted EBITDA grew 5.8% year over year to $56.7 per share while the adjusted EBITDA margin expanded 40 bps to 20.1%, buoyed by higher volumes, reduced input costs, productivity savings and favorable mix, partly offset by elevated investments and unfavorable foreign exchange.
The Home & Garden segment's sales climbed 13.1% year over year to $211 million, mainly backed by increased sales in the Controls, Household and Repellents categories on favorable weather conditions and decline in retail inventory levels year over year, somewhat offset by decreases in the Cleaning category.
The segment's adjusted EBITDA of $43.3 million jumped 12.2% from the year-ago quarter, led by increased sales, pricing and lower operational costs, offset by elevated investments in marketing, innovation and advertising.
Other Financials
As of Jun 30, 2024, the company had cash balance of $157.7 million, short-term investments including term deposits of $149 million, and outstanding debt of $578 million, including $496 million of senior unsecured notes and $82 million of finance leases. Spectrum Brands had a total liquidity of $797 million consisting of the undrawn capacity on its cash flow revolver. It exited the quarter with a net debt of about $272 million.
The company had roughly $400 million remaining on its refreshed share-repurchase authorization at the end of the reported quarter.
Guidance
Spectrum Brands still projects reported sales to remain relatively flat year over year. It expects sales growth in the second half of the fiscal year. Adjusted EBITDA, excluding the investment income, is likely to grow nearly 20%. It targets a long-term net leverage ratio of 2-2.5 times. However, geopolitical and macroeconomic uncertainty will remain a concern.
Management assumes that e-commerce sales across the businesses will be strong, with sales recovery in small kitchen appliances and global aquatics to continue.
Key Picks
We have highlighted three better-ranked stocks, namely, G-III Apparel Group (GIII - Free Report) , Gildan Activewear (GIL - Free Report) and Royal Caribbean (RCL - Free Report) .
G-III Apparel is a manufacturer, designer and distributor of apparel and accessories under licensed brands, owned brands and private label brands. It sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
GIII Apparel has a trailing four-quarter earnings surprise of 571.8%, on average. The Zacks Consensus Estimate for GIII Apparel’s current financial-year sales indicates growth of 3.3% from the year-ago figure.
Gildan Activewear, a manufacturer of premium quality branded basic activewear, carries a Zacks Rank #2 (Buy) at present. GIL has a trailing four-quarter earnings surprise of 5.2%, on average.
The consensus estimate for Gildan Activewear’s current financial-year earnings per share indicates growth of 14% from the year-ago corresponding figure.
Royal Caribbean carries a Zacks Rank of 2 at present. RCL has a trailing four-quarter earnings surprise of 18.5%, on average.
The Zacks Consensus Estimate for RCL’s 2024 sales and earnings per share indicates an increase of 17.8% and 67.8%, respectively, from the year-ago reported levels.
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Spectrum Brands (SPB) Q3 Earnings Miss, Organic Sales Up 7.1%
Spectrum Brands Holdings Inc. (SPB - Free Report) reported mixed third-quarter fiscal 2024 results, wherein the top line surpassed the Zacks Consensus Estimate but the bottom line missed. Both metrics rose year over year. Results gained from cost improvements, sturdy e-commerce business and reduced inventory.
The company is focused on boosting top-line growth via commercial investments. It has been significantly investing in brand-focused advertising, marketing and innovation. In the reported quarter, it made investments around $23 million higher year over year in brand advertising and innovation, and is on track to invest $50 million more during the fiscal year.
Shares of this current Zacks Rank #3 (Hold) company have gained 11.4% in the past six months compared with the industry's 9.5% growth.
Q3 Highlights
SPB reported adjusted earnings of $1.10 per share, which lagged the Zacks Consensus Estimate of $1.35. The figure reflects an increase from the year-ago quarter’s adjusted earnings of 75 cents a share, mainly attributable to higher adjusted EBITDA and lower outstanding shares.
Spectrum Brands Holdings Inc. Price, Consensus and EPS Surprise
Spectrum Brands Holdings Inc. price-consensus-eps-surprise-chart | Spectrum Brands Holdings Inc. Quote
Spectrum Brands' net sales grew 6% year over year to $779.4 million and surpassed the consensus estimate of $753 million. The increase was due to an organic net sales rise of 7.1%. Higher sales and distribution in all segments coupled with strength in the e-commerce business, favorable weather conditions and improved retailer inventory health in the Home & Garden business further aided the performance. However, foreign currency impacts of $8.5 million acted as a headwind.
The momentum in e-commerce continued in the fiscal third quarter, with more than 20% growth year over year. E-commerce sales accounted for more than 21% of the total sales. We note that each of the company’s businesses delivered double-digit e-commerce sales, with the Home & Personal Care segment leading the way with an e-commerce sales increase of more than 33%. The investment in the segment’s digital marketing and activation led to the highest Amazon Prime Day sales ever for the unit.
The gross profit advanced 14.9% year over year to $302.8 million, driven by lower cost inventory and inventory-related costs, and other cost improvements. Meanwhile, the gross margin expanded 310 bps year over year to 38.9%.
Adjusted EBITDA from continuing operations jumped 7.9% year over year to $106.3 million in the fiscal third quarter. The adjusted EBITDA margin expanded 20 bps year over year to 13.6%, driven by better gross margins and higher sales, somewhat offset by investments in advertising and marketing.
Segmental Performance
Sales in the Home & Personal Care segment jumped 3.5% year over year to $286.2 million due to growth in Personal Care and robust e-commerce sales. North American sales increased in Personal Care and Home Appliances. Sales in EMEA rose, with growth in Personal Care offsetting lower sales in small Home Appliances. Sales in LATAM Personal Care grew while small Home Appliances remained flat.
Sales in EMEA rose, backed by growth in Personal Care, offset sales declines in small kitchen appliances. Excluding the $7.4 million of adverse currency translations, organic net sales climbed 6.1%.
The segment's adjusted EBITDA grew 3.5% year over year to $11.8 per share while the adjusted EBITDA margin was flat at 4.1%, buoyed by higher sales and reduced inventory-related costs, partly offset by increased brand-related investments, adverse mix and pricing.
The Global Pet Care segment's sales were up 3.6% year over year to $282.2 million, backed by growth in global Companion Animal sales across North America and internationally. North American Companion Animal sales grew on solid e-commerce sales, negated by softness in the mass and dollar channels.
E-commerce sales aided EMEA Companion Animal sales. Global Aquatics organic sales remained flat year over year, with increases in nutrition and consumables being offset by weakness in environments and other hard goods. North American Aquatics sales fell year over year while the overall EMEA Aquatics sales increased.
The segment's adjusted EBITDA grew 5.8% year over year to $56.7 per share while the adjusted EBITDA margin expanded 40 bps to 20.1%, buoyed by higher volumes, reduced input costs, productivity savings and favorable mix, partly offset by elevated investments and unfavorable foreign exchange.
The Home & Garden segment's sales climbed 13.1% year over year to $211 million, mainly backed by increased sales in the Controls, Household and Repellents categories on favorable weather conditions and decline in retail inventory levels year over year, somewhat offset by decreases in the Cleaning category.
The segment's adjusted EBITDA of $43.3 million jumped 12.2% from the year-ago quarter, led by increased sales, pricing and lower operational costs, offset by elevated investments in marketing, innovation and advertising.
Other Financials
As of Jun 30, 2024, the company had cash balance of $157.7 million, short-term investments including term deposits of $149 million, and outstanding debt of $578 million, including $496 million of senior unsecured notes and $82 million of finance leases. Spectrum Brands had a total liquidity of $797 million consisting of the undrawn capacity on its cash flow revolver. It exited the quarter with a net debt of about $272 million.
The company had roughly $400 million remaining on its refreshed share-repurchase authorization at the end of the reported quarter.
Guidance
Spectrum Brands still projects reported sales to remain relatively flat year over year. It expects sales growth in the second half of the fiscal year. Adjusted EBITDA, excluding the investment income, is likely to grow nearly 20%. It targets a long-term net leverage ratio of 2-2.5 times. However, geopolitical and macroeconomic uncertainty will remain a concern.
Management assumes that e-commerce sales across the businesses will be strong, with sales recovery in small kitchen appliances and global aquatics to continue.
Key Picks
We have highlighted three better-ranked stocks, namely, G-III Apparel Group (GIII - Free Report) , Gildan Activewear (GIL - Free Report) and Royal Caribbean (RCL - Free Report) .
G-III Apparel is a manufacturer, designer and distributor of apparel and accessories under licensed brands, owned brands and private label brands. It sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
GIII Apparel has a trailing four-quarter earnings surprise of 571.8%, on average. The Zacks Consensus Estimate for GIII Apparel’s current financial-year sales indicates growth of 3.3% from the year-ago figure.
Gildan Activewear, a manufacturer of premium quality branded basic activewear, carries a Zacks Rank #2 (Buy) at present. GIL has a trailing four-quarter earnings surprise of 5.2%, on average.
The consensus estimate for Gildan Activewear’s current financial-year earnings per share indicates growth of 14% from the year-ago corresponding figure.
Royal Caribbean carries a Zacks Rank of 2 at present. RCL has a trailing four-quarter earnings surprise of 18.5%, on average.
The Zacks Consensus Estimate for RCL’s 2024 sales and earnings per share indicates an increase of 17.8% and 67.8%, respectively, from the year-ago reported levels.