Following the strong momentum built in the previous quarter, Spectrum Brands Holdings, Inc. (SPB) posted yet another quarter of record results, driven by solid performances at most segments. This was coupled with a constant focus on minimizing costs, which also facilitated the company to end fiscal 2014 on a strong note.
The company’s fourth-quarter fiscal 2014 adjusted earnings surged 11.4% year over year to 98 cents per share. However, slightly sluggish growth in the quarter, compared to the previous ones, led earnings to come in below the Zacks Consensus Estimate of $1.12 per share.
On a GAAP basis, the company reported earnings of 90 cents per share, up significantly from a loss of 70 cents per share in the year-ago comparable quarter.
Spectrum Brands’ full-year adjusted earnings soared 36.2% from last year to $4.06 per share, but came in below the Zacks Consensus Estimate of $4.23 per share. Including one-time items, earnings rose significantly to $4.02 per share from a loss of $1.06 a share, recorded last year.
Backed by a rise in home and garden, battery and Hardware & Home Improvement (“HHI”) sales, net sales for the quarter climbed 3.6% to $1,178.3 million, surpassing the Zacks Consensus Estimate of $1,158 million. Also, due to the same reasons, net sales for fiscal 2014 escalated 8.4% to $4,429.1 million and cruised ahead of the Zacks Consensus Estimate of $4406 million.
Deeper Insight
Aided by improved sales, Spectrum Brands’ gross profit advanced 3.7% year over year to $411 million. Gross margin remained flat at 34.9%, as a result of unfavorable mix.
Further, benefiting from the ongoing cost savings, the company’s adjusted earnings before interests, taxes, depreciation and amortization (“EBITDA”) inched up 0.7% to $186.8 million, marking the company’s 16th year-over-year increase in a row. However, adjusted EBITDA margin contracted 30 basis points (bps) to 15.9% during the quarter.
Segment Detail
Sales at Spectrum Brands’ Global Batteries & Appliances segment came in at $595.7 million, up 3.2% from the year-ago quarter, as flat small appliance sales were compensated well by strong personal care and battery sales. The segment’s adjusted EBITDA came in at $84.2 million, increasing 8.9% from the year-ago quarter.
The company’s Global Pet Supplies segment’s sales totaled $159.8 million, compared with $165.2 million recorded last year. The decline in sales was accountable to a weakness in aquatics sales at Europe and Japan. This was also adversely impacted by Japanese currency devaluation with respect to Euro and problems pertaining to distribution in Russia. However, this was partly offset by a marginal rise in companion animal net sales.
Adjusted EBITDA at the segment dropped 6.1% to $33.6 million, due to the same reasons mentioned above.
Sales at the Home & Garden segment ascended 7.5% year over year to $109 million, primarily driven by greater outdoor repellent category sales. Additionally, the segment benefited from improved lawn and garden category sales, which in turn gained from the prolonged selling season. The segment also benefited slightly from its recent acquisition of Liquid Fence animal repellents. Adjusted EBITDA at the segment grew 2.3% to $22.3 million.
Spectrum Brands’ HHI segment’s sales jumped 6.8% to $313.8 million, aided by enhancements in the residential security and plumbing categories. The segment’s adjusted EBITDA of $55.3 million was up 1.7% year over year.
Other Financial Details
Spectrum Brands generated record free cash flow of $359 million during the year, beating its own target of at least $350 million and also coming way ahead of its year-ago free cash flow of $254 million. Also, as forecasted, the company reduced its term loan by over $250 million by the end of the fiscal.
Total debt outstanding at the year-end was nearly $2,991 million. Also, the Zacks Rank #2 (Buy) company did not withdraw any cash from its Asset Based Lending facility of $400 million. Cash and cash equivalents stood at $194.6 million compared to $207.3 million at the end of fiscal 2013.
On Nov 18, 2014, Spectrum Brands declared a quarterly cash dividend of 30 cents a share to be paid on Dec 18 to stockholders of record as on Dec 2, 2014.
Finally, the company incurred $73 million as capital expenditures during 2014.
Fiscal 2015 Outlook
After delivering a strong quarter, despite a tough retail environment, the company remains positive about its future performance. It looks forward to launching additional products in all its segments in fiscal 2015, developing its online network, achieving cost savings and strengthening its global footprint.
However, the company expects foreign exchange headwinds to linger into 2015 and impact results. Management also remains cautious owing to the pricing strategies of its competitors that impose cost pressure on various commodities.
Following an impressive year and considering all the aforementioned factors, Spectrum Brands initiated its guidance for fiscal 2015. The company expects net sales to grow by a low to mid single-digit rate, compared to $4.43 billion reported last year. This guidance also includes the expected positive impact from the recent acquisition of Tell Manufacturing.
For fiscal 2015, the company envisions a free cash flow generation of roughly $400 million, reflecting the adverse foreign exchange effect. Moreover, capital expenditures during the year are expected to range from $75– $85 million.
Alongside, Spectrum Brands plans to undertake efficient cost-cutting measures and implement a better pricing strategy. Moreover, the branded consumer products retailer remains committed to generate solid free cash flows in addition to reducing debt levels and enhancing adjusted EBITDA to boost shareholder value. With these continuous efforts, the company is likely to achieve its growth objectives and deliver another strong year.
Other Stocks to Consider
Other stocks in the same sector looking attractive at current levels include Skechers USA Inc. (SKX) and Select Comfort Corporation (SCSS), each with a Zacks Rank #1 (Strong Buy) and Nutrisystem, Inc. (NTRI), with a Zacks Rank #2.
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