Spectrum Brands Holdings Management Discusses Q1 2012 Results - Earnings Call Transcript

Spectrum Brands Holdings (SPB)

Q1 2012 Earnings Call

February 03, 2012 9:00 am ET

Executives

David A. Prichard - Vice President of Investor Relations and Corporate Communications

David R. Lumley - Principal Executive Officer, President of Global Batteries, President of Home & Garden and Director

Anthony L. Genito - Chief Financial Officer, Chief Accounting Officer, Executive Vice President and Member of Risk Management Steering Committee

Terry L. Polistina - President of Global Appliances and Director

John A. Heil - President of United Pet Group

Analysts

William Schmitz - Deutsche Bank AG, Research Division

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

Hamed Khorsand - BWS Financial Inc.

Reza Vahabzadeh - Barclays Capital Inc.

Karru Martinson - Deutsche Bank AG, Research Division

Carla Casella - JP Morgan Chase & Co, Research Division

Presentation

Operator

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Good morning. My name is Matthew, and I will be a conference operator today. At this time, I'd like to welcome everyone to the Spectrum Brands Fiscal 2012 First Quarter Earnings Call. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded today, Friday, February 3, 2012. Thank you. I'd like to introduce Mr. David Prichard, Vice President of Investor Relations. Mr. Prichard, you may begin your conference.

David A. Prichard

Good morning, and welcome to Spectrum Brands Holdings Fiscal 2012 First Quarter Earnings Conference Call and Audio Webcast. I'm Dave Prichard, Vice President of Investor Relations for Spectrum Brands and moderator for our call today. With me this morning to lead the call are Dave Lumley, our Chief Executive Officer; and Tony Genito, our Chief Financial Officer. Also with us today for the Q&A session are Terry Polistina, President, Global Appliances; and John Heil, President of our Global Pet Supplies.

Our comments today include forward-looking statements, including our outlook for fiscal 2012 and beyond. Now these statements are based upon management's current expectations, projections and assumptions and are by nature uncertain. Actual results may differ materially. Due to that risk, Spectrum Brands encourages you to review the risk factors and cautionary statements that are outlined in our press release dated February 3, 2012, and our most recent SEC filings and Spectrum Brands Holdings' most recent 10-K. We assume no obligation to update any forward-looking statement.

Additionally, please note that we will discuss certain non-GAAP financial measures in this call. Reconciliations on a GAAP basis for these measures are included in this morning's press release and 8-K filing, which will both be available on our website in the Investor Relations section.

Now let me briefly review our GAAP results. For the first quarter of fiscal 2012, the company reported net income of $13.1 million or $0.25 per diluted income per share on average shares and common stock equivalents outstanding of $52.6 million. This compared to a net loss of $19.8 million or $0.39 per diluted loss per share in the year-ago quarter, which was based upon average shares and common stock equivalents outstanding of $50.8 million.

By segment for the first quarter of fiscal 2012, the Global Batteries & Appliances segment reported net income of $89.9 million versus $79.4 million a year earlier. The Global Pet Supplies segment reported net income of $13.2 million in fiscal 2012's first quarter versus net income of $13.4 million in fiscal 2011. And finally, the Home and Garden business segment reported a net loss of $6.4 million in the first quarter of fiscal 2012 versus a net loss of $7.5 million in fiscal 2011.

With that, I'm very pleased to turn the call over to our Chief Executive Officer, Dave Lumley.

David R. Lumley

Thanks, Dave. Thanks for joining us today. We reported a solid first quarter this morning, putting us on target to deliver another year of improved results, strong free cash flow, significant debt paydown and additional shareholder value creation. We posted solid EPS in the quarter, swinging from a net loss last year and perhaps more importantly, achieved the third consecutive first quarter record for adjusted EBITDA of $125 million, a 2% improvement versus 2011. Foreign exchange had a $2.8 million negative impact on our first quarter adjusted EBITDA.

Stringent expense controls, cost containment, cost synergies across the company were significant contributors to our record first quarter EBITDA, as we made excellent progress in sizing our structure and product offerings to match the market needs. Our lower net sales were a function of timing of retailer orders between our first -- our fiscal fourth and our fiscal first quarters this year versus the same quarters in 2010, as well as our previously announced decision to eliminate unprofitable North American appliance promotions in the holiday season. When you compare the combined fourth quarter and first quarters of both 2011 and 2010, our net sales grew 2%.

Given important distribution gains in all of our businesses, new product launches and line extensions and further geographic expansion, coupled with our first quarter acquisitions of Black Flag and FURminator, we see our net sales growth accelerating as we move through fiscal 2012, especially in the last half of our fiscal year.

For fiscal 2012, we continue to expect net sales to increase at or above the GDP, consistent with what we have said before about our revenue growth, generally low-single digits. We see adjusted EBITDA increasing at a faster percentage rate, reflecting not only the leverage we get from higher sales but also from our continuing cost reduction programs and many new higher-margin products.

I want to emphasize that deleveraging and strengthening our balance sheet remains a top strategic and value-creation priority for our company. Just like last year, we plan to use our strong free cash flow of an expected $200 million to continue to pay down debt in fiscal 2012, with payments occurring in the last 2 fiscal quarters of the year, consistent with the peak period of our cash flow generation. As a result, we continue to expect to achieve a leverage ratio of 3.4x or less by the end of fiscal 2012.

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