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TheStreet Open House

Spectrum Brands Holdings Reports Record Fiscal 2014 First Quarter Results

Stocks in this article: SPB

About Spectrum Brands Holdings, Inc.

Spectrum Brands Holdings, a member of the Russell 2000 Index, is a global and diversified consumer products company and a leading supplier of consumer batteries, residential locksets, residential builders’ hardware, faucets, 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, our Company offers a broad portfolio of market-leading, well-known and widely trusted brands including Rayovac®, Kwikset®, Weiser®, Baldwin®, National Hardware®, Pfister™, Remington®, VARTA®, George Foreman®, Black & Decker®, Toastmaster®, Farberware®, Tetra®, Marineland®, Nature’s Miracle®, Dingo®, 8-in-1®, FURminator®, Littermaid®, Spectracide®, Cutter®, Repel®, Hot Shot® and Black Flag®. Spectrum Brands' products are sold by the world's top 25 retailers and are available in more than one million stores in approximately 140 countries. Spectrum Brands Holdings generated net sales of approximately $4.1 billion in fiscal 2013. For more information, visit www.spectrumbrands.com .

Non-GAAP Measurements

Management believes that certain non-GAAP financial measures may be useful in certain instances to provide additional meaningful comparisons between current results and results in prior operating periods. Excluding the impact of currency exchange rate fluctuations may provide additional meaningful information about underlying business trends. In addition, within this release, including the tables attached hereto, reference is made to adjusted diluted earnings per share and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). See attached Table 3, “Reconciliation of GAAP Diluted Income (Loss) Per Share to Adjusted Diluted Earnings Per Share,” for a complete reconciliation of diluted earnings (loss) per share on a GAAP basis to adjusted diluted earnings (loss) per share, and see attached Table 4, “Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA,” for a reconciliation of GAAP Net Income (Loss) to adjusted EBITDA for the three months ended December 29, 2013 versus the three months ended December 30, 2012. See attached Table 6, “Reconciliation of Forecasted Cash Flow from Operating Activities to Forecasted Free Cash Flow,” for a reconciliation of Net Cash provided from Operating Activities to Free Cash Flow for the twelve months ending September 30, 2014. Adjusted EBITDA is a metric used by management 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 can be a useful measure of a company’s ability to service debt and is one of the measures used for determining the Company’s debt covenant compliance. Adjusted EBITDA excludes certain items that are unusual in nature or not comparable from period to period. In addition, the Company’s management uses adjusted diluted earnings per share 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 earnings per share 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. The Company’s management believes that free cash flow is useful to both management and investors in their analysis of the Company’s ability to service and repay its debt and meet its working capital requirements. Free cash flow should not be considered in isolation or as a substitute for pretax income (loss), net income (loss), cash provided by (used in) operating activities or other statement of operations or cash flow statement data prepared in accordance with GAAP or as a measure of profitability or liquidity. In addition, the calculation of free cash flow does not reflect cash used to service debt and therefore, does not reflect funds available for investment or discretionary uses. 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.

Forward-Looking Statements

Certain matters discussed in this news release and other oral and written statements by representatives of the Company regarding matters such as the Company’s ability to meet its expectations for its fiscal 2014 (including its ability to increase its net sales and adjusted EBITDA) may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We have tried, whenever possible, to identify these statements by using words like “future,” “anticipate”, “intend,” “plan,” “estimate,” “believe,” “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) Spectrum Brands Holdings’ ability to manage and otherwise comply with its covenants with respect to its significant outstanding indebtedness, (2) our ability to finance, complete the acquisition of, integrate, and to realize synergies from, the combined businesses of Spectrum Brands and the Hardware & Home Improvement Group of Stanley Black & Decker, and from our purchase of 56 percent of the equity of Shaser, Inc., and from other bolt-on acquisitions, (3) risks related to changes and developments in external competitive market factors, such as introduction of new product features or technological developments, development of new competitors or competitive brands or competitive promotional activity or spending, (4) changes in consumer demand for the various types of products Spectrum Brands Holdings offers, (5) unfavorable developments in the global credit markets, (6) the impact of overall economic conditions on consumer spending, (7) fluctuations in commodities prices, the costs or availability of raw materials or terms and conditions available from suppliers, (8) changes in the general economic conditions in countries and regions where Spectrum Brands Holdings does business, such as stock market prices, interest rates, currency exchange rates, inflation and consumer spending, (9) Spectrum Brands Holdings’ ability to successfully implement manufacturing, distribution and other cost efficiencies and to continue to benefit from its cost-cutting initiatives, (10) Spectrum Brands Holdings’ ability to identify, develop and retain key employees, (11) unfavorable weather conditions and various other risks and uncertainties, including those discussed herein and those set forth in the securities filings of each of Spectrum Brands Holdings, Inc. and Spectrum Brands, Inc., including each of their most recently filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q.

Spectrum Brands Holdings 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 Holdings 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 Holdings 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 Holdings 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.

 
Table 1
SPECTRUM BRANDS HOLDINGS, INC.
Condensed Consolidated Statements of Operations
For the three months ended December 29, 2013 and December 30, 2012
(Unaudited)
($ in millions, except per share amounts)
     
THREE MONTHS
F2014 F2013 INC
%
Net sales $ 1,100.6 $ 870.3 26.5 %
Cost of goods sold 717.7 581.0
Restructuring and related charges   1.7   1.1  
Gross profit 381.2 288.2 32.3 %
 
Selling 164.2 128.8
General and administrative 73.0 56.7
Research and development 10.8 8.2
Acquisition and integration related charges 5.5 20.8
Restructuring and related charges   2.8   5.5  
 
Total operating expenses   256.3   220.0  
 
Operating income 124.9 68.2
 
Interest expense 57.0 69.9
Other expense, net   0.8   1.6  
 
Income (loss) from continuing operations before income taxes 67.1 (3.3 )
 
Income tax expense   12.7   10.6  
 
Net income (loss) 54.4 (13.9 )
 
Less: Net income (loss) attributable to non-controlling interest   0.1   (0.5 )
 
Net income (loss) attributable to controlling interest $ 54.3 $ (13.4 )
 
Average shares outstanding (a) 52.4 51.8
 
Basic income (loss) per share attributable to controlling interest $ 1.04 $ (0.26 )
 
Average shares and common stock equivalents outstanding (a) (b) 52.7 51.8
 
Diluted income (loss) per share attributable to controlling interest $ 1.03 $ (0.26 )
 
Cash dividends declared per common share $ 0.25 $
 
(a) Per share figures calculated prior to rounding.
 
(b) For the three months ended December 30, 2012, we have not assumed the exercise of common stock equivalents as the impact would be antidilutive.
 
Table 2
SPECTRUM BRANDS HOLDINGS, INC.
Supplemental Financial Data
As of and for the three months ended December 29, 2013 and December 30, 2012
(Unaudited)
($ in millions)
   
Supplemental Financial Data

F2014

F2013

Cash and cash equivalents $ 131.8 $ 70.9
 
Trade receivables, net $ 524.0 $ 481.2
Days Sales Outstanding (a) 43 42
 
Inventory $ 683.3 $ 679.2
Inventory Turnover (b) 4.0 4.0
 
Total debt $ 3,366.3 $ 3,222.3
 
THREE MONTHS
Supplemental Cash Flow Data

F2014

F2013

 
Depreciation and amortization, excluding amortization of debt issuance costs $ 44.7 $ 31.0
 
Capital expenditures $ 15.9 $ 9.3
 
THREE MONTHS
Supplemental Segment Sales & Profitability

F2014

F2013

 
Net Sales
Global Batteries & Appliances $ 659.3 $ 666.0
Global Pet Supplies 129.1 139.8
Home and Garden 33.8 30.5
Hardware & Home Improvement   278.4     34.0  
Total net sales $ 1,100.6 $ 870.3
 
Segment Profit (Loss)
Global Batteries & Appliances $ 97.2 $ 95.4
Global Pet Supplies 13.0 15.9
Home and Garden (1.2 ) (4.3 )
Hardware & Home Improvement   40.0     (3.2 )
Total segment profit 149.0 103.8
 
Corporate 14.1 8.2
Acquisition and integration related charges 5.5 20.8
Restructuring and related charges 4.5 6.6
Interest expense 57.0 69.9
Other expense, net   0.8     1.6  
 
Income (loss) from continuing operations before income taxes $ 67.1   $ (3.3 )
 
(a) Reflects actual days sales outstanding at end of period.
 
(b) Reflects cost of sales (excluding restructuring and related charges) during the last twelve months divided by average inventory during the period.
 
Table 3
SPECTRUM BRANDS HOLDINGS, INC.
Reconciliation of GAAP Diluted Income (Loss) Per Share to Adjusted Diluted Earnings Per Share
For the three months ended December 29, 2013 and December 30, 2012
(Unaudited)
   
THREE MONTHS

F2014

F2013

Diluted income (loss) per share, as reported $ 1.03 $ (0.26 )
 
Adjustments, net of tax:
Pre-acquisition earnings of the HHI Business 0.06 (a)
Acquisition and integration related charges 0.07 (b) 0.26 (c)
Restructuring and related charges 0.05 (d) 0.08 (e)
Debt refinancing costs 0.14 (f) 0.36 (g)
Purchase accounting inventory adjustment 0.06 (h)
Income taxes   (0.20 ) (i)   0.22   (i)
0.06 1.04
   
Diluted income per share, as adjusted $ 1.09   $ 0.78  
 
(a) For the three months ended December 30, 2012, reflects $3.2 million, net of tax, of pre-acquisition earnings related to the acquired HHI Business. The Pre-acquisition earnings of the HHI Business do not include the TLM Business as stand alone financial data is not available for the periods presented. The TLM Business is not deemed material to the Company's operating results.
 
(b) For the three months ended December 29, 2013, reflects $3.6 million, net of tax, of Acquisition and integration related charges, as follows: (i) $2.7 million related to the acquisition of the HHI Business, consisting primarily of integration costs; and (ii) $0.9 million related to the acquisition of Shaser and other acquisition activity, consisting primarily of legal and professional fees.
 
(c) For the three months ended December 30, 2012, reflects $13.5 million, net of tax, of Acquisition and integration related charges as follows: (i) $9.5 million related to the acquisition of the HHI Business, consisting primarily of legal and professional fees; (ii) $2.7 million related to the acquisition of Shaser, consisting integration and legal and professional fees; (iii) $0.9 million related to the merger with Russell Hobbs consisting of integration costs; and (iv) $0.4 million related to the acquisition of FURminator, consisting of integration costs.
 
(d) For the three months ended December 29, 2013, reflects $2.9 million, net of tax, of Restructuring and related charges primarily related to the Global Expense Rationalization Initiatives announced in Fiscal 2013 and HHI Business initiatives implemented prior to the acquisition.
 
(e) For the three months ended December 30, 2012, reflects $4.3 million, net of tax, of Restructuring and related charges primarily related to the Global Cost Reduction Initiatives announced in Fiscal 2009.
 
(f) For the three months ended December 29, 2013, reflects $7.3 million, net of tax, related to financing fees and the write off of unamortized debt issuance costs and original issue discount in connection with the replacement of the Company's Term Loan.
 
(g) For the three months ended December 30, 2012, reflects $18.7 million, net of tax, related to financing fees and the write off of unamortized debt issuance costs in connection with the replacement of the Company's Term Loan and the issuance of the 6.375% Notes and 6.625% Notes in connection with the acquisition of the HHI Business.
 
(h) For the three months ended December 29, 2013, reflects a $3.4 million, net of tax, non-cash increase to cost of goods sold related to the sales of inventory that was subject to fair value adjustments in conjunction with the acquisition of the HHI Business.
 
(i) For the three months ended December 29, 2013 and December 30, 2012, reflects adjustments to income tax expense of $(10.8) million and $11.8 million, respectively, 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.
 
Table 4
SPECTRUM BRANDS HOLDINGS, INC.
Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA
For the three months ended December 29, 2013
(Unaudited)
($ in millions)
           

Consolidated

Global

Hardware &

Corporate /

Spectrum

Batteries &

Global Pet

Home &

Home

Unallocated

Brands

Appliances

Supplies

Garden

Improvement

Items (a)

Holdings, Inc.

 
Net income (loss) attributable to controlling interest, as adjusted (a) $ 93.2 $ 12.5 $ (1.2 ) $ 35.5 $ (85.7 ) $ 54.3
Net (loss) income attributable to non-controlling interest   (0.1 )         0.2       0.1
Net income (loss) as adjusted (a) 93.1 12.5 (1.2 ) 35.7 (85.7 ) 54.4
 
Income tax expense 12.7 12.7
Interest expense 57.0 57.0
Acquisition and integration related charges 1.8 2.2 1.5 5.5
Restructuring and related charges   2.3     0.3       1.2   0.7     4.5
 
Adjusted EBIT 97.2 12.8 (1.2 ) 39.1 (13.8 ) 134.1
Depreciation and amortization (b)   17.0     7.6   2.9     10.5   6.7     44.7
 
Adjusted EBITDA $ 114.2   $ 20.4 $ 1.7   $ 49.6 $ (7.1 ) $ 178.8
 
Note: Amounts calculated prior to rounding.
 
(a) It is the Company's policy to record Income tax expense and Interest expense on a consolidated basis. Accordingly, such amounts are not reflected in the results of the operating segments and are presented within Corporate/Unallocated Items.
 
(b) Included within depreciation and amortization is amortization of unearned restricted stock compensation.
 
Table 4
SPECTRUM BRANDS HOLDINGS, INC.
Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA
For the three months ended December 30, 2012
(Unaudited)
($ in millions)
           

Consolidated

Global

Hardware &

Corporate /

Spectrum

Batteries &

Global Pet

Home &

Home

Unallocated

Brands

Appliances

Supplies

Garden

Improvement

Items (a)

Holdings, Inc.

 
Net income (loss) attributable to controlling interest, as adjusted (a) $ 92.5 $ 10.1 $ (4.5 ) $ (3.5 ) $ (108.0 ) $ (13.4 )
Net loss attributable to non-controlling interest $ (0.5 ) $ $   $   $   $ (0.5 )
Net income (loss), as adjusted (a) $ 92.0 $ 10.1 $ (4.5 ) $ (3.5 ) $ (108.0 ) $ (13.9 )
 
Pre-acquisition earnings of the HHI Business (b) 30.3 30.3
Income tax expense 10.6 10.6
Interest expense 69.9 69.9
Acquisition and integration related charges 1.3 0.7 18.8 20.8
Restructuring and related charges 1.3 5.0 0.2 0.1 6.6
HHI Business inventory fair value adjustment             5.2         5.2  
 
Adjusted EBIT 94.6 15.8 (4.3 ) 32.0 (8.6 ) 129.5
Depreciation and amortization (c)   16.1     7.3   2.9     1.5     3.2     31.0  
 
Adjusted EBITDA $ 110.7   $ 23.1 $ (1.4 ) $ 33.5   $ (5.4 ) $ 160.5  
 
Note: Amounts calculated prior to rounding.
 
(a) It is the Company's policy to record Income tax expense and Interest expense on a consolidated basis. Accordingly, such amounts are not reflected in the results of the operating segments and are presented within Corporate/Unallocated Items.
 
(b) The Pre-acquisition earnings of the HHI Business do not include the TLM Business as stand alone financial data is not available for the period presented. The TLM Business is not deemed material to the Company's operating results.
 
(c) Included within depreciation and amortization is amortization of unearned restricted stock compensation.
 
Table 5
SPECTRUM BRANDS HOLDINGS, INC.
Pro Forma Net Sales Comparison
For the three months ended December 29, 2013 and December 30, 2012
(Unaudited)
(In millions)
           
THREE MONTHS

F2014

F2013

INC %

 
Spectrum Brands Holdings, Inc. Net sales - as reported $ 1,100.6 $ 870.3 26.5 %
HHI Business pre-acquisition Net sales (a) 191.8
   
Pro Forma Net Sales $ 1,100.6 $ 1,062.1 3.6 %
 
(a) Net sales have been adjusted to reflect the acquisition of the HHI Business as if it occurred at the beginning of the period presented. HHI Business pre-acquisition Net sales do not include the TLM Business as stand alone financial data is not available for the period presented. The TLM Business is not deemed material to the Company's operating results.
 
Table 6
SPECTRUM BRANDS HOLDINGS, INC.
Reconciliation of Forecasted Cash Flow from Operating Activities to Forecasted Free Cash Flow
For the twelve months ended September 30, 2014
(Unaudited)
($ in millions)
 
Forecasted:
 
Net Cash provided from Operating Activities $ 420 - 425
 
Purchases of property, plant and equipment   (70) - (75)
 
Free Cash Flow $ 350
 




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