Spectrum CEO: Bankruptcy to Buying
ATLANTA ( TheStreet) -- In just one year, Spectrum Brands ( SPB) has moved from bankruptcy to buyer. Spectrum filed for Chapter 11 in 2009 and since then has cut its losses roughly in half. The company trimmed its work force and cut underperforming brands. The debt has been reduced by $800 million and Spectrum projects fiscal year 2010 net sales growth of 3% to 5% from 2009. The consumer goods company is known for household brands like Rayovac batteries and Hot Shot bug spray. It has embarked on a strategy of acquiring well-known brands that may be ignored and unloved in large conglomerates.
Spectrum is expected to close a merger with small kitchen-appliance company Russell Hobbs in June. Last month, Moody's placed the ratings of the company on review for a possible upgrade. Senior Credit Officer Kevin Cassidy wrote, "The review for possible upgrade reflects our view that this transaction will likely enhance the credit profile of Spectrum Brands due to its increased size, broader product diversification and additional profitability without incurring more debt." Analysts haven't discovered Spectrum, even though it will be a $3 billion global consumer products company putting it in close competition to Church & Dwight ( CHD). Only two analysts follow the company, with Mary Ross-Gilbert of Imperial Capital recently giving Spectrum a "Buy" rating. Spectrum began trading on the New York Stock Exchange in March when I was able to ask CEO Kent Hussey about the company's recovery. TheStreet: It's been a long road in the past year right? Hussey: It really has, right? The good thing is we were in and out in six months, we exited in August. The company is doing extremely well. We actually just finished our first quarter, which ended in December with our profitability up 52%. So the financial restructuring was a big part of getting the company the liquidity and the ability to invest in our future. TheStreet: Now you're building a great stable of names that most people are very familiar with, so let's talk about that. When do you expect to close the deal with Russell Hobbs? Hussey: Hopefully by June at the very latest. If you look at our company we have three major business units today, global batteries and personal care, that's about a billion and a half dollar business. It's a name you'll remember, Rayovac. It's a 104-year-old business, we're very proud of that. So we're one of the big players in consumer batteries. We own Varta batteries in Europe. And we own the Remington brand name in personal care. We have the only global pet supply business, which is about a $600 million business, with brand names like Tetra, 8in1, Natures Miracle, Dingo, so that's a great high growth industry for us. And then finally we're in a home-and-garden business here domestically with a lot of value brands like Spectracide, Cutter, Repel, Hot Shot. We compete with guys like Scotts ( SMG) and SC Johnson. So we have a great portfolio of consumer product companies and brands and the addition of Russell Hobbs will bring about $800 million worth of new revenues to the company and a portfolio of great brands in the small kitchen-appliance space. They sell products under the brand George Foreman, which most people recognize. Black and Decker, Farberware, Juiceman, Breadman and a variety of others.
TheStreet: You said that it could close in June, so those numbers should probably start to hit the books in the back end of the year, right? Hussey: Our fiscal year actually ends at the end of September, so we'll probably only have about a quarter worth of their results in ours, but we disclosed it on a pro forma basis for our current fiscal year, the combined enterprise will have an EBITDA between $430 and $440 million on about $3 billion in revenue. TheStreet: A lot of big conglomerates have been shedding assets and trimming their houses, do you expect that your company will try to find more acquisitions of "loved" names that have not gotten the attention of their big companies? Hussey: We actually believe there is a lot of growth space for us both in our pet supply business, which is highly fragmented, and in our home-and-garden business where we really don't have a lot of competition. One of our strategies going forward here is to look for these so-called orphan brands that fit within our product portfolio -- bring them into our company and leverage our infrastructure and our customer relationships to build those businesses quickly. TheStreet:Some could argue that the company's got too much diversification, too many different consumer-type items. Do you see ways that you can mesh them together? Hussey: We actually operate the company as three totally autonomous business units now. We have dedicated sales and marketing teams that focus on each one of the key product lines. So forward-facing to the customer, we have the ability to focus on these individual brands or product lines. Where we get tremendous efficiencies by being a larger company is really in the back office and supply chain. We have actually over the last three years significantly downsized the company. We went from a peak of about 10,000 employees in 2005 down to about 5,800 today. We have shed underperforming brands, underperforming SKUs and closed a significant money-losing business. So we shed about $300 million at least in underperforming brands and products. So we've slimmed down now, but our focus is not on growth at any cost, our focus is on profitable growth and our results really demonstrate that that's working.
TheStreet: Are you through cutting jobs? Do you think at some point you'll start to hire again? Hussey: We're at the point now where we're selectively beginning to hire back in critical skill areas for the company. We look for the best and brightest. What we found quite surprisingly is people are able to perform better in a smaller leaner organization. So it's become the culture of the company. I think we'll continue to operate that way.