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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 Second Quarter Results
| · | | Net Sales Increased 3.4% and Organic Sales Increased 4.1% |
| · | | GAAP Operating Income Increased 62.7%, Driven by Improved Gross Profit |
| · | | Adjusted EBITDA Increased 21.5% |
| · | | Proactive Steps to Improve Liquidity and Financial Flexibility |
| o | | Total Current Liquidity of Over $600 Million as of Today, which Includes Over $500 Million of Cash and an Incremental $90 Million Available Under the Company’s Revolver |
| · | | In Light of Uncertainty Surrounding COVID-19 Impacts, the Company is Withdrawing Fiscal 2020 Guidance |
Middleton, WI, April 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 second quarter of fiscal 2020 ended March 29, 2020.
“First and foremost, I want to say thank you to our Spectrum Brands family. With over 11,000 employees worldwide, I am proud of the amazing way in which we responded, collaborated and took proactive steps to protect our people and our Company and to serve our retail customers and consumers all around the world. What we have learned during these unprecedented times, is that Spectrum Brands is a company whose products are essential and whose retail customers are essential and have so far predominantly remained open around the world. I have never seen our people come together the way they have over the last six weeks and demonstrate so clearly our vision of having a team that is empowered and inspired. I believe that what has motivated our people during these challenging times is the realization that we are not just making goods and providing services, we are coming alongside our fellow citizens through this crisis by helping them cook meals in their kitchen, take care of and enjoy their pets, secure their homes and businesses, rid their yards of weeds, and protect their families and homes from insects. This is no more evident than our team in Blacksburg, VA pivoting to produce Cutter-branded hand sanitizer in a few short weeks. This accomplishment affirms that our people are our greatest asset. Again, a big thank you from the bottom of my heart,” said David Maura, Chairman and Chief Executive Officer of Spectrum Brands Holdings.
“Our second quarter results reflected strong top and bottom-line results, with net sales growth of 3%, organic growth of 4%, operating income growth of 62.7% and adjusted EBITDA growth of 21.5%. It is important to recognize that this growth was driven by strong results throughout the quarter. From a balance sheet perspective, we moved quickly to increase the amount of cash on hand to strengthen liquidity by drawing down on our $800 million revolver and ended the quarter with $458 million of cash on hand. Since the end of the quarter, we added a new $90 million tranche to our revolving credit facility. During the quarter, we also finalized the sale of the European dog and cat food manufacturing operations for cash proceeds of over $30 million, closed our Cambodia rawhide manufacturing facility and acquired Omega Sea to add to the Global Pet Care portfolio of aquatics brands. All of these accomplishments further demonstrate the importance of strong, consistent execution,” said Mr. Maura.
Fiscal 2020 Second Quarter Highlights
| | | | | | | | | | | |
| | Three Month Periods Ended | | | | | |
(in millions, except per share and %) | | March 29, 2020 | | March 31, 2019 | | Variance |
Net sales | | $ | 937.8 | | $ | 906.7 | | $ | 31.1 | | 3.4% |
Gross profit | | | 328.9 | | | 305.5 | | | 23.4 | | 7.7% |
Operating income | | | 67.7 | | | 41.6 | | | 26.1 | | 62.7% |
Net loss from continuing operations | | | (59.2) | | | (54.0) | | | (5.2) | | (9.6%) |
Diluted loss per share from continuing operations | | $ | (1.29) | | $ | (1.06) | | $ | (0.23) | | (22.2%) |
Non-GAAP Operating Metrics | | | | | | | | | | | |
Adjusted EBITDA from continuing operations | | $ | 140.4 | | $ | 115.6 | | $ | 24.8 | | 21.5% |
Adjusted EPS from continuing operations | | $ | 0.91 | | $ | 0.26 | | $ | 0.65 | | 248.1% |
n/m = not meaningful | | | | | | | | | | | |
| · | | Net sales increased 3.4%. Excluding the impact of $7.3 million of unfavorable foreign exchange and acquisition sales of $0.8 million, organic net sales increased 4.1%, with growth in Global Pet Care, Home & Personal Care and Home & Garden, offset by a slight decline in Hardware & Home Improvement. In total, the Company estimates that the net COVID 19 impact to revenue in the quarter was a negative ($7.5) million. |
| · | | Gross profit margin increased 140 basis points as a cash benefit of $8.4 million from retrospective tariff exclusions, improved productivity and volume growth were partially offset by higher tariffs and unfavorable foreign exchange rates. |
| · | | Operating income was driven by the increase in sales and gross profit. In addition, there was recognition of a $7 million gain on the final disposition of the European dog and cat food manufacturing operations offsetting higher Global Productivity Improvement Plan (“GPIP”) restructuring costs. |
| · | | Net loss and diluted loss per share were driven by a loss on the Company’s Energizer common stock holding despite an increase in operating income, lower interest expense and lower shares outstanding. |
| · | | Adjusted EBITDA increased 21.5%. Growth in Hardware & Home Improvement, Global Pet Care and Home & Personal Care was offset by a slight decline in Home & Garden. In total, the Company estimates that the net COVID-19 impact to operating income and adjusted EBITDA in the quarter was a negative ($3.6) million. |
| · | | Adjusted EBITDA margin improved 230 basis points driven primarily by improved gross profit and lower operating expenses. |
| · | | Adjusted diluted EPS increased 248.1% and was attributable to improved operating income, lower interest expense and lower shares outstanding. |
| · | | During the quarter, the Company repurchased 2.7 million shares of common stock for $149.2 million through open market repurchases and settled its Accelerated Share Repurchase Program (ASR) for an additional 0.3 million shares. In connection with the other steps we took to bolster our liquidity, we also temporary suspended our stock repurchase program. |
| · | | The Company currently does not expect to change its dividend policy, which issues a quarterly payout of 42 cents per share to shareholders. |
Fiscal 2020 Second Quarter Segment Level Data
Hardware & Home Improvement (HHI)
| | | | | | | | | | | |
| | Three Month Periods Ended | | | | | |
(in millions, except %) | | March 29, 2020 | | March 31, 2019 | | Variance |
Net Sales | | $ | 329.1 | | $ | 331.1 | | $ | (2.0) | | (0.6%) |
Operating Income | | | 61.0 | | | 44.4 | | | 16.6 | | 37.4% |
Operating Income Margin | | | 18.5% | | | 13.4% | | | 510 | bps | |
Adjusted EBITDA | | $ | 69.5 | | $ | 52.7 | | $ | 16.8 | | 31.9% |
Adjusted EBITDA Margin | | | 21.1% | | | 15.9% | | | 520 | bps | |
n/m = not meaningful | | | | | | | | | | | |
Net sales were down slightly, with a slight decline in residential security, partially offset by growth from builders’ hardware. The sales growth in builder’s hardware was driven by new product introductions in the home center channel. Organic net sales decreased 0.6%. The net impact of COVID-19 in the quarter was nearly $3 million in revenue loss due to supply challenges, which more than offset orders customers pulled forward in to the second quarter.
Significantly higher operating income, adjusted EBITDA and margins were driven by a cash benefit of $8.4 million from retrospective tariff exclusions and productivity improvements, partially offset by tariff costs.
Home & Personal Care (HPC)
| | | | | | | | | | | |
| | Three Month Periods Ended | | | | | |
(in millions, except %) | | March 29, 2020 | | March 31, 2019 | | Variance |
Net Sales | | $ | 232.7 | | $ | 221.7 | | $ | 11.0 | | 5.0% |
Operating Loss | | | (3.5) | | | (6.8) | | | 3.3 | | (48.5%) |
Operating Loss Margin | | | (1.5%) | | | (3.1%) | | | 160 | bps | |
Adjusted EBITDA | | $ | 8.0 | | $ | 4.5 | | $ | 3.5 | | 77.8% |
Adjusted EBITDA Margin | | | 3.4% | | | 2.0% | | | 140 | bps | |
n/m = not meaningful | | | | | | | | | | | |
Net sales were driven by growth throughout the quarter, across all regions and by increases in both personal care and small appliances. Strong net sales growth in the U.S. was driven by mass and online channels despite declines from the impact of temporary store closures of many department store and specialty channels during the last few days of the quarter. Excluding unfavorable foreign exchange impacts of $5.6 million, organic net sales grew 7.5%.
Reduced operating loss, and higher adjusted EBITDA and EBITDA margins were driven by higher volumes, lower operating expenses and productivity improvements, partially offset by foreign exchange headwinds and tariff costs.
Global Pet Care (GPC)
| | | | | | | | | | | |
| | Three Month Periods Ended | | | | | |
(in millions, except %) | | March 29, 2020 | | March 31, 2019 | | Variance |
Net Sales | | $ | 236.9 | | $ | 214.9 | | $ | 22.0 | | 10.2% |
Operating Income | | | 28.2 | | | 19.7 | | | 8.5 | | 43.1% |
Operating Income Margin | | | 11.9% | | | 9.2% | | | 270 | bps | |
Adjusted EBITDA | | $ | 40.0 | | $ | 32.8 | | $ | 7.2 | | 22.0% |
Adjusted EBITDA Margin | | | 16.9% | | | 15.3% | | | 160 | bps | |
n/m = not meaningful | | | | | | | | | | | |
Higher net sales were attributable to strong growth in both the companion animal and aquatics categories. Growth occurred throughout the quarter and accelerated at the end of the quarter. Excluding unfavorable foreign exchange impacts of $1.6 million and acquisition sales of $0.8 million, organic net sales grew 10.6%.
Higher operating income, adjusted EBITDA and EBITDA margin growth were driven by volume growth, productivity improvements and positive pricing, partially offset by higher tariff costs. Operating income growth was also driven by a $7 million gain from disposition of the European dog and cat food manufacturing operations.
Home & Garden (H&G)
| | | | | | | | | | | |
| | Three Month Periods Ended | | | | | |
(in millions, except %) | | March 29, 2020 | | March 31, 2019 | | Variance |
Net Sales | | $ | 139.1 | | $ | 139.0 | | $ | 0.1 | | 0.1% |
Operating Income | | | 23.0 | | | 24.6 | | | (1.6) | | (6.5%) |
Operating Income Margin | | | 16.5% | | | 17.7% | | | (120) | bps | |
Adjusted EBITDA | | $ | 28.4 | | $ | 29.6 | | $ | (1.2) | | (4.1%) |
Adjusted EBITDA Margin | | | 20.4% | | | 21.3% | | | (90) | bps | |
n/m = not meaningful | | | | | | | | | | | |
Net sales were essentially flat with the prior year despite difficult year ago comparisons and COVID-19 related transportation shortages, as strong POS in the quarter generated early season orders. Net sales growth of our brands was offset by a decline in private label and captive brands sales.
Lower operating income, adjusted EBITDA and margins were driven by the COVID-19 related revenue impact, timing of supplier rebates and tariff costs, which were partially offset by productivity improvements and mix favorability.
Liquidity and Debt
Spectrum Brands completed the quarter with a strong liquidity position, including a cash balance of $458 million.
As of the end of the second quarter of fiscal 2020, the Company had approximately $3,042 million of debt outstanding, consisting of approximately $2,019 million of senior unsecured notes, $780 million of Revolver borrowings and approximately $243 million of capital leases and other obligations.
On April 3, 2020, as part of a series of precautionary measures in response to the COVID-19 outbreak, the Company strengthened its liquidity by adding a $90 million dollar denominated tranche to its existing $800 million multi-currency Cash Flow Revolver. The Company believes that its strong balance sheet and ample flexibility on debt covenants provide it with meaningful financial flexibility.
Fiscal 2020 Outlook for Continuing Operations
Given the rapidly changing social and economic conditions around the globe as a result of the COVID-19 pandemic, the Company has withdrawn its fiscal 2020 guidance.
While withdrawing our guidance, the Company believes that is well positioned to weather the COVID-19 pandemic because of the appeal that of brands and products in a stay at home environment and the positive results of its efforts in pursuing and executing its productivity improvement programs and the investments it has made in its products and brands. Equally, the Company believes that it is assisted by its strong liquidity position and its expected ability to access the debt and capital markets should the needs arise in the future.
Nonetheless, there can be no assurance regarding the future performance of the Company and there are a number of factors related to the COVID-19 pandemic that are negatively and materially impacting the Company’s results of operations and financial condition. Such factors include, continued or future disruptions at its manufacturing facilities around the world, including further or continued disruptions in the places it is currently experiencing disruptions such as the Philippines, Mexico, the United States and China; the pandemic’s impact on the global economy and consumer behavior; and the future impact of the pandemic on the economy and financial markets generally. The full impact of these factors and other factor cannot be fully assessed at this time.
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, April 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 6314509. 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 May 14. 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 the COVID-19 pandemic on our customers, employees, manufacturing facilities and suppliers and our overall business and results of operations, all of which tend to aggravate the other risks and uncertainties we face (2) the impact of our indebtedness on our business, financial condition and results of operations; (3) 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; (4) any failure to comply with financial covenants and other provisions and restrictions of our debt instruments; (5) 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; (6) 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; (7) interest rate and exchange rate fluctuations; (8) the loss of significant reduction in, or dependence upon, sales to any significant retail customer(s); (9) competitive promotional activity or spending by competitors, or price reductions by competitors; (10) the introduction of new product features or technological developments by competitors and/or the development of new competitors or competitive brands; (11) the impact of actions taken by significant stockholders; (12) changes in consumer spending preferences and demand for our products, particularly in light of the current pandemic and economic stress; (13) our ability to develop and successfully introduce new products, protect our intellectual property and avoid infringing the intellectual property of third parties; (14) 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; (15) the seasonal nature of sales of certain of our products; (16) the effects of climate change and unusual weather activity as well as further natural disasters and pandemics; (17) the cost and effect of unanticipated legal, tax or regulatory proceedings or new laws or regulations (including environmental, public health and consumer protection regulations); (18) our discretion to conduct, suspend or discontinue our share repurchase program (including our discretion to conduct purchases, if any, in a variety of manners such as open-market purchases or privately negotiated transactions) (19) 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; (20) the impact of existing, pending or threatened litigation, government regulations or other requirements or operating standards applicable to our business; (21) the impact of cybersecurity breaches or our actual or perceived failure to protect company and personal data; (22) changes in accounting policies applicable to our business; (23) our ability to utilize net operating loss carry-forwards to offset tax liabilities from future taxable income; (24) the impact of expenses resulting from the implementation of new business strategies, divestitures or current and proposed restructuring activities; (25) our ability to successfully implement further acquisitions or dispositions and the impact of any such transactions on our financial performance; (26) the unanticipated loss of key members of senior management and the transition of new members of our management teams to their new roles; (27) the effects of political or economic conditions, terrorist attacks, acts of war, natural disasters, public health concerns or other unrest in international markets; and (28) the other risk factors set forth in the securities filings of Spectrum Brands Holdings, Inc. and SB/RH Holdings, LLC, including their most recently filed Annual Report on Form 10-K and subsequent Quarterly Report(s) on Form 10-Q.
We caution the reader that our estimates of trends, market share, retail consumption of our products and reasons for changes in such consumption are based solely on limited data available us and our management’s reasonable assumptions about market conditions, and consequently may be inaccurate or may not reflect significant segments of the retail market. We also caution the reader that undue reliance should not be placed on any forward-looking statements, which speak only as of the date of this release. We undertake no duty or responsibility to update any of these forward-looking statements to reflect events or circumstances after the date of this document or to reflect actual outcomes.
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