In an effort to achieve its targeted total leverage ratio, Spectrum Brands Holdings Inc. (SPB) recently announced a reduction in its Senior Secured Term Loan by $100 million. The strategy signifies the company’s ability to generate cash flow, which were utilized to lower debts leading to reduction of interest expenses.
With the prepayment, the company’s term loan will be reduced to $370 million from the original $750 million. Further, Spectrum Brands anticipates achieving its targeted total leverage ratio of about 3.4 times by the end of fiscal 2012.
To finance its merger with Russell Hobbs Inc., the company had opted for a $750 million Senior Secured Term Loan facility in fiscal 2010. From fiscal 2011, Spectrum Brands made subsequent voluntary prepayments to reduce its term loan. In fiscal 2011, the company made its first payment of $220 million while on August 9, 2012 it repaid $50 million. Moreover, a reduction of $10 million in term loan will be achieved by the end of fiscal 2012 through scheduled amortization.
Our Recommendation
Spectrum Brands is focused on strengthening its balance sheet through refinement of its capital structure while also enhancing its financial flexibility in order to boost shareholder value. The company’s total debt outstanding as of July 1, 2012 was $1,827.1 million. Spectrum Brands targets free cash flow of at least $200 million by fiscal year-end 2012.
Further, the company is in the midst of a major cost cutting process while it looks for opportunities to expand its brand portfolio. The company is also working well with its game changing Spectrum Value Model to deliver genuine value to customers at lower prices compared to its peers.
However, intense competition with major players such as Procter & Gamble Company (PG) and Energizer Holdings Inc. (ENR) and massive exposure to foreign exchange rates may have an adverse impact on the company’s future operating performance.
Currently, Spectrum Brands holds a Zacks #3 Rank, implying a short-term Hold rating. Moreover, we maintain a long-term ‘Neutral’ recommendation on the stock.
Headquartered in Madison, Wisconsin, Spectrum Brands sells batteries, shaving and grooming products, personal care products, specialty pet supplies, lawn and garden and home pest control products, personal insect repellents and portable lighting, through various trade channels under its renowned brands. The company’s brand portfolio mainly includes Rayovac, Remington, Varta, George Foreman, Black & Decker, Toastmaster, Farberware, Tetra, Marineland, Nature’s Miracle, Dingo, 8-in-1, Littermaid, FURminator, Spectracide, Russell Hobbs, Cutter, Repel, Hot Shot, Black Flag, and TAT brands. With a market capitalization of $2.06 billion, the company has 5,900 full time employees.
ENERGIZER HLDGS (ENR): Free Stock Analysis Report
PROCTER & GAMBL (PG): Free Stock Analysis Report
SPECTRUM BRANDS (SPB): Free Stock Analysis Report
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