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3001 Deming Way Middleton, WI 53562-1431 P.O. Box 620992 Middleton, WI 53562-0992 (608) 275-3340 | 
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For Immediate Release | Investor/Media Contact: Kevin Kim 608-278-6148 |
Spectrum Brands Holdings Reports Fiscal 2020 First Quarter Results
| · | | Net Sales Declined 1.0% and Organic Sales Declined 0.3% |
| · | | GAAP Operating Loss Driven by the Divestiture of European Dog and Cat Food Manufacturing Operations and Related Impairments |
| · | | Adjusted EBITDA Declined, In-Line with Our Expectations |
| · | | Reaffirms Fiscal 2020 Net Sales, Adjusted EBITDA and Adjusted Free Cash Flow Targets |
| · | | Executed a $125 Million Accelerated Share Repurchase Program (ASR) and Repurchased $81 Million of Common Stock Through Open Market Repurchases |
Middleton, WI, January 30, 2020 – Spectrum Brands Holdings, Inc. (NYSE: SPB; “Spectrum Brands” or the “Company”), a leading global branded consumer products company focused on driving innovation and providing exceptional customer service, today reported results from continuing operations for the first quarter of fiscal 2020 ended December 29, 2019.
“We experienced organic growth in Home & Personal Care and Global Pet Care, while timing issues in Home & Garden and Hardware & Home Improvement drove us flat overall during the quarter. The decline in adjusted EBITDA was in line with our expectations as tariffs exceeded the ramp-up of our productivity improvements. We expect to resume sales growth this quarter and, additionally, savings from our Global Productivity Improvement Plan are expected to offset our tariff headwinds. We continue to expect net sales, adjusted EBITDA and free cash flow growth in 2020,” said David Maura, Chairman and Chief Executive Officer of Spectrum Brands Holdings.
“We continued to make progress on a number of fronts in the first quarter. First, we entered into an agreement for the sale of our dog and cat food manufacturing operations in Coevorden, The Netherlands. This action represents progress against our plan in Global Pet Care to exit non-core assets and focus our efforts on our core growth brands. Second, we rewarded shareholders by executing a $125 million ASR and repurchasing 1.3 million shares of common stock for $81.4 million through open market repurchases during the quarter. And third, we made significant progress on our plans to generate over $100 million of run-rate savings from Global Productivity Improvement Plan over the next 15 to 18 months,” said Mr. Maura.
Fiscal 2020 First Quarter Highlights
| | | | | | | | | | | |
| | Three Month Periods Ended | | | | | |
(in millions, except per share and %) | | December 29, 2019 | | December 30, 2018 | | Variance |
Net sales | | $ | 871.5 | | $ | 880.3 | | $ | (8.8) | | (1.0%) |
Gross profit | | | 269.1 | | | 305.7 | | | (36.6) | | (12.0%) |
Operating (loss) income | | | (45.9) | | | 25.2 | | | (71.1) | | n/m |
Net loss from continuing operations | | | (37.7) | | | (29.1) | | | (8.6) | | (29.6%) |
Diluted loss per share from continuing operations | | $ | (0.81) | | $ | (0.56) | | $ | (0.25) | | (44.5%) |
Non-GAAP Operating Metrics | | | | | | | | | | | |
Adjusted EBITDA from continuing operations | | $ | 102.2 | | $ | 115.3 | | $ | (13.1) | | (11.4%) |
Adjusted EPS from continuing operations | | $ | 0.20 | | $ | 0.21 | | $ | (0.01) | | (4.4%) |
n/m = not meaningful | | | | | | | | | | | |
| · | | Net sales decreased 1.0%. Excluding the impact of $6.3 million of unfavorable foreign exchange, organic net sales decreased 0.3%, with growth in Home & Personal Care and Global Pet Care, offset by declines in Home & Garden and Hardware & Home Improvement. |
| · | | Gross profit margin decreased 380 basis points as higher tariffs, timing of capitalized manufacturing variances, GPIP restructuring costs, and accelerated depreciation were partially offset by productivity and positive pricing. |
| · | | Operating loss was driven by the recognition of a loss on the asset sale and impairment charges in Global Pet Care associated with the Coevorden dog and cat food manufacturing operations divestiture and higher GPIP restructuring costs, partially offset by lower depreciation and amortization. Operating income was also negatively impacted this quarter by $8.5 million of higher stock compensation from more normalized long-term incentive compensation compared to a timing delay last year. This is expected to normalize during the course of the fiscal year. |
| · | | Net loss and diluted loss per share were driven by the operating loss, partially offset by the unrealized gain on Energizer common stock, lower interest expense and shares outstanding. |
| · | | Adjusted EBITDA decreased 11.4%. Growth in Global Pet Care and Home & Personal Care was offset by declines in Hardware & Home Improvement and Home & Garden. |
| · | | Adjusted EBITDA margin declined 140 basis points driven primarily by higher tariff, manufacturing and stranded costs related to the divestitures to Energizer, partially offset by productivity and positive pricing. |
| · | | Adjusted diluted EPS decrease of 4.4% was attributable to higher tariff, manufacturing and stranded costs offset by lower interest expense and shares outstanding. |
| · | | During the quarter, the Company repurchased 1.3 million shares of common stock for $81.4 million through open market repurchases and executed a $125 million ASR. We received 1.7 million shares upon execution of the agreement. The exact number of shares we will repurchase under the plan will not be known until the plan is fully executed, which will be either in Q2 2020 or Q3 2020. |
Fiscal 2020 First Quarter Segment Level Data
Hardware & Home Improvement (HHI)
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| | Three Month Periods Ended | | | | | |
(in millions, except %) | | December 29, 2019 | | December 30, 2018 | | Variance |
Net Sales | | $ | 297.7 | | $ | 305.1 | | $ | (7.4) | | (2.4%) |
Operating Income | | | 34.5 | | | 43.3 | | | (8.8) | | (20.3%) |
Operating Income Margin | | | 11.6% | | | 14.2% | | | (260) | bps | |
Adjusted EBITDA | | $ | 42.8 | | $ | 55.6 | | $ | (12.8) | | (23.0%) |
Adjusted EBITDA Margin | | | 14.4% | | | 18.2% | | | (380) | bps | |
n/m = not meaningful | | | | | | | | | | | |
Lower net sales were driven by residential security and builders’ hardware, partially offset by growth in plumbing. The decline in residential security was driven lower builder volume and builder’s hardware was driven by timing of orders from a large customer. Organic net sales decreased 2.5%.
Lower operating income, adjusted EBITDA and margins were driven by tariff costs and lower volumes, partially offset by higher pricing and lower distribution costs.
Home & Personal Care (HPC)
| | | | | | | | | | | |
| | Three Month Periods Ended | | | | | |
(in millions, except %) | | December 29, 2019 | | December 30, 2018 | | Variance |
Net Sales | | $ | 322.1 | | $ | 317.2 | | $ | 4.9 | | 1.5% |
Operating Income (Loss) | | | 23.7 | | | (7.9) | | | 31.6 | | n/m |
Operating Income (Loss) Margin | | | 7.4% | | | (2.5%) | | | 990 | bps | |
Adjusted EBITDA | | $ | 36.4 | | $ | 35.0 | | $ | 1.4 | | 4.0% |
Adjusted EBITDA Margin | | | 11.3% | | | 11.0% | | | 30 | bps | |
n/m = not meaningful | | | | | | | | | | | |
Net sales were driven by growth in Europe in both personal care and small appliances. Net sales in the U.S. declined at a more moderate rate compared to fiscal 2019, with declines in personal care and small appliances pressured by department store and specialty channels. Excluding unfavorable foreign exchange impacts of $5.2 million, organic net sales grew 3.2%.
Higher operating income, adjusted EBITDA and EBITDA margins were driven by productivity and higher volumes. Higher operating income this quarter was impacted by $29.3 million in higher non-cash depreciation and amortization charges recorded in the year ago quarter due primarily to the segment being removed as held for sale.
Global Pet Care (GPC)
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| | Three Month Periods Ended | | | | | |
(in millions, except %) | | December 29, 2019 | | December 30, 2018 | | Variance |
Net Sales | | $ | 205.8 | | $ | 204.7 | | $ | 1.1 | | 0.5% |
Operating (Loss) Income | | | (52.9) | | | 12.5 | | | (65.4) | | n/m |
Operating (Loss) Income Margin | | | (25.7%) | | | 6.1% | | | (3,180) | bps | |
Adjusted EBITDA | | $ | 31.5 | | $ | 29.1 | | $ | 2.4 | | 8.2% |
Adjusted EBITDA Margin | | | 15.3% | | | 14.2% | | | 110 | bps | |
n/m = not meaningful | | | | | | | | | | | |
Higher net sales were attributable to continued growth in U.S. companion animal, predominantly dog chews and treats in mass and online channels, despite difficult comparisons in the prior year. Net sales were also impacted by a decline in U.S. aquatics. European sales grew in both aquatic and companion animal. Excluding unfavorable foreign exchange impacts of $1.2 million, organic net sales grew 1.1%.
The operating loss was driven by charges related to the European dog and cat food manufacturing operations being recognized as held for sale and the related impairment of intangible assets, as well as higher restructuring charges from the previously disclosed exit of our Latin America rawhide facilities. Adjusted EBITDA and EBITDA margin growth was driven by productivity, positive pricing and volume growth, partially offset by higher tariff costs.
Home & Garden (H&G)
| | | | | | | | | | | |
| | Three Month Periods Ended | | | | | |
(in millions, except %) | | December 29, 2019 | | December 30, 2018 | | Variance |
Net Sales | | $ | 45.9 | | $ | 53.3 | | $ | (7.4) | | (13.9%) |
Operating Loss | | | (8.6) | | | (2.4) | | | (6.2) | | (258.3%) |
Operating Loss Margin | | | (18.7%) | | | (4.5%) | | | (1,420) | bps | |
Adjusted EBITDA | | $ | (3.3) | | $ | 3.1 | | $ | (6.4) | | n/m |
Adjusted EBITDA Margin | | | (7.2%) | | | 5.8% | | | (1,300) | bps | |
n/m = not meaningful | | | | | | | | | | | |
Lower net sales in repellents and household insect controls were impacted by higher than normal inventory levels at retail, softness in the overall category POS and timing of shipments, partially offset by growth in outdoor controls with stronger early season orders.
Decreases in operating income, adjusted EBITDA and margins were driven by increases in manufacturing costs due to a later seasonal inventory build this year, lower volumes, and advertising spending, which were partially offset by productivity.
Liquidity and Debt
Spectrum Brands completed the quarter with a strong liquidity position, including a cash balance of approximately $142 million and approximately $678 million available on its $800 million Cash Flow Revolver.
As of the end of the first quarter of fiscal 2020, the Company had approximately $2,369 million of debt outstanding, consisting of approximately $2,021 million of senior unsecured notes, $103 million of Revolver borrowings and approximately $245 million of capital leases and other obligations.
In January 2020, the Company paid the previously disclosed payment to Energizer in connection with the divestiture of the VARTA business.
Fiscal 2020 Outlook for Continuing Operations
Spectrum Brands continues to expect low single-digit reported net sales growth, with foreign exchange expected to have a slightly negative impact based upon current rates.
We continue to expect fiscal 2020 adjusted EBITDA to be between $570 and $590 million, and adjusted free cash flow to be between $240 million and $260 million.
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, January 30, 2020. To access the live conference call, U.S. participants may call 877-604-7329 and international participants may call 602-563-8688. The conference ID number is 4238158. A 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.
A replay of the live webcast also will be accessible through the Event Calendar page in the Investor Relations section of the Company’s website. A telephone replay of the conference call will be available through February 13. To access this replay, participants may call 855-859-2056 and use the same conference ID number.
About Spectrum Brands Holdings, Inc.
Spectrum Brands Holdings, a member of the Russell 1000 Index, is a leading supplier of residential locksets, residential builders’ hardware, plumbing, shaving and grooming products, personal care products, small household appliances, specialty pet supplies, lawn and garden and home pest control products, and personal insect repellents. Helping to meet the needs of consumers worldwide, Spectrum Brands offers a broad portfolio of market-leading, well-known and widely trusted brands including Kwikset®, Weiser®, Baldwin®, National Hardware®, Pfister®, Remington®, George Foreman®, Russell Hobbs®, Black+Decker®, Tetra®, Marineland®, Nature’s Miracle®, Dingo®, 8-in-1®, FURminator®, IAMS® and Eukanuba® (Europe only), Digest-eeze™, Healthy-Hide®, Littermaid®, Spectracide®, Cutter®, Repel®, Hot Shot®, Black Flag® and Liquid Fence®. For more information, please visit www.spectrumbrands.com.
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. Adjusted free cash flow provides useful information to investors regarding our ability to generate cash from business operations that is available for acquisitions and other investments, service of debt principal, dividends and share repurchases and to meet working capital requirements. Our definition of adjusted free cash flow takes into consideration capital investments required to maintain operations of our businesses and execute our strategy. 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
This document contains, and certain oral and written statements made by our representatives from time to time may contain, forward-looking statements, including, without limitation, statements made under “Fiscal 2020 Outlook for Continuing Operations”, statements regarding our Global Productivity Improvement Plan and other statements regarding the Company’s ability to meet its expectations for its fiscal 2020. We have tried, whenever possible, to identify these statements by using words like “future,” “anticipate”, “intend,” “plan,” “estimate,” “believe,” “belief,” “expect,” “project,” “forecast,” “could,” “would,” “should,” “will,” “may,” and similar expressions of future intent or the negative of such terms. These statements are subject to a number of risks and uncertainties that could cause results to differ materially from those anticipated as of the date of this release. Actual results may differ materially as a result of (1) the impact of our indebtedness on our business, financial condition and results of operations; (2) 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; (3) any failure to comply with financial covenants and other provisions and restrictions of our debt instruments; (4) 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; (5) the impact of fluctuations in commodity prices, costs or availability of raw materials or terms and conditions available from suppliers, including suppliers’ willingness to advance credit; (6) interest rate and exchange rate fluctuations; (7) the loss of significant reduction in, or dependence upon, sales to any significant retail customer(s); (8) competitive promotional activity or spending by competitors, or price reductions by competitors; (9) the introduction of new product features or technological developments by competitors and/or the development of new competitors or competitive brands; (10) the impact of actions taken by significant stockholders; (11) changes in consumer spending preferences and demand for our products; (12) our ability to develop and successfully introduce new products, protect our intellectual property and avoid infringing the intellectual property of third parties; (13) our ability to successfully identify, implement, achieve and sustain productivity improvements (including our Global Productivity Improvement Plan), cost efficiencies (including at our manufacturing and distribution operations), and cost savings; (14) the seasonal nature of sales of certain of our products; (15) the effects of climate change and unusual weather activity; (16) the cost and effect of unanticipated legal, tax or regulatory proceedings or new laws or regulations (including environmental, public health and consumer protection regulations); (17) 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; (18) the impact of existing, pending or threatened litigation, regulation or other requirements or operating standards applicable to our business; (19) the impact of cybersecurity breaches or our actual or perceived failure to protect company and personal data; (20) changes in accounting policies applicable to our business; (21) our ability to utilize net operating loss carry-forwards to offset tax liabilities from future taxable income; (22) the impact of expenses resulting from the implementation of new business strategies, divestitures or current and proposed restructuring activities; (23) our ability to successfully implement further acquisitions or dispositions and the
impact of any such transactions on our financial performance; (24) the unanticipated loss of key members of senior management and the transition of new members of our management teams to their new roles; (25) the effects of political or economic conditions, terrorist attacks, acts of war or other unrest in international markets; and (26) the other risk factors set forth in the securities filings of Spectrum Brands Holdings, Inc., including the most recently filed Annual Report on Form 10-K and subsequent Quarterly Report(s) on Form 10-Q.
Spectrum Brands also cautions the reader that its estimates of trends, market share, retail consumption of its products and reasons for changes in such consumption are based solely on limited data available to Spectrum Brands and management’s reasonable assumptions about market conditions, and consequently may be inaccurate, or may not reflect significant segments of the retail market. Spectrum Brands also cautions the reader that undue reliance should not be placed on any forward-looking statements, which speak only as of the date of this release. Spectrum Brands undertakes no duty or responsibility to update any of these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes.
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