Middleton, WI - Spectrum Brands Holdings, Inc. reported record fiscal 2014 second quarter results for the period ended March 30, 2014, and reconfirmed its outlook for a fifth consecutive year of record performance.
The company’s record second quarter was highlighted by solid results from its HHI, battery, personal care, and home and garden businesses; a continuation of strong European results; adjusted diluted earnings per share and adjusted EBITDA growth; and a record fiscal second quarter level of cost savings from continuous improvement programs across all divisions.
Spectrum Brands reiterated plans to reduce term debt by approximately $250 million in fiscal 2014 and expectations for free cash flow to increase to at least $350 million, a significant improvement from a record $254 million in fiscal 2013 and $208 million in fiscal 2012.
Fiscal 2014 Second Quarter Results Highlights:
- Net sales of $1.02 billion in the second quarter of fiscal 2014 increased 3.4 percent versus $987.8 million a year ago, and 4.0 percent excluding the negative impact of foreign exchange.
- Net income of $33.8 million and diluted income per share of $0.64 in the second quarter of fiscal 2014 improved from a net loss of $41.2 million and diluted loss per share of $0.79 in the prior year quarter.
- Adjusted diluted earnings per share, a non-GAAP measure, of $0.72 in the second quarter of fiscal 2014 increased 63.6 percent compared to $0.44 last year. See Table 3 for a reconciliation to GAAP earnings per share.
- Adjusted EBITDA, a non-GAAP measure, of $156.5 million in the second quarter of fiscal 2014 grew 9.2 percent versus $143.3 million in fiscal 2013, and 9.8 percent excluding the negative impact of foreign exchange, representing the 14thconsecutive quarter of year-over-year adjusted EBITDA growth. See Table 4 for a reconciliation to GAAP net income.
- Adjusted EBITDA margin in the second quarter of fiscal 2014 increased to 15.3 percent compared to 14.5 percent in the year-ago quarter.
- Fiscal 2014 net cash provided from operating activities after purchases of property, plant and equipment (free cash flow, a non-GAAP measure) expected to be at least $350 million compared to $254 million in fiscal 2013 and $208 million in fiscal 2012. See Table 6 for a reconciliation to projected GAAP Cash Flow from Operating Activities.
- Company expects to use its strong free cash flow to reduce term debt by approximately $250 million and lower its balance sheet leverage in the second half of fiscal 2014, consistent with the seasonality of its cash flows.
“We are pleased with our record results in the second quarter, which seasonally is our smallest quarter of the year,” said Dave Lumley, Chief Executive Officer of Spectrum Brands Holdings. “Combined with our record first quarter, we have solid first half momentum toward delivering a fifth consecutive year of record financial performance in fiscal 2014.
“Our second quarter had many notable highlights with broad-based contributions from our divisions globally,” Mr. Lumley said. “Virtually all of our divisions achieved higher net sales and adjusted EBITDA, enabling us to significantly grow our adjusted EPS and expand our adjusted EBITDA margin. In Europe we again delivered record results. In a region with negative foreign currency headwinds, our Latin American battery, personal care, small appliance and HHI sales all increased on a constant currency basis.
“We also overcame unusually harsh winter weather in January and part of February in the U.S. and Canada that hurt retailer store traffic and POS, particularly in our HHI and Pet businesses,” he said.
“Similar to the first quarter, we achieved a record level of continuous improvement savings for a fiscal second quarter,” Mr. Lumley said. “This reinforces our ongoing focus to reduce our cost structure, more than offset higher product costs and continue to invest in new products, many of which are launching in the second half of fiscal 2014 and into fiscal 2015.
“We are optimistic about the second half of the year, which should be much larger than our record first half and stronger than the second half of fiscal 2013,” Mr. Lumley said. “We have new products launching in all divisions, retail distribution gains secured, new retailer customers in place, continued geographic expansion, and select pricing actions. We will maintain strict spending controls and are on track to achieve a record level of cost reductions in fiscal 2014.
“Our Spectrum Value Model continues to work effectively around the world and is resonating with retailers and consumers in a global economy that remains challenging,” he said. “’Same or better performance/less price’, value-branded Spectrum Brands products are winning in today’s marketplace with today’s smart shoppers.
“We are executing well on our growth plans and are focused on delivering another year of steady, measured financial improvement, including a strong increase in free cash flow, in fiscal 2014,” Mr. Lumley said. “Our commitment remains to create greater shareholder value, with a focus on growing our adjusted EBITDA, reducing debt and deleveraging, and maximizing sustainable free cash flow.”
Fiscal 2014 Second Quarter Consolidated Financial Results
Spectrum Brands Holdings reported record net sales of $1.02 billion in the second quarter of fiscal 2014, an increase of 3.4 percent compared to $987.8 million a year earlier. The improvement was predominantly the result of higher net sales in the Company’s battery, personal care, home and garden, and HHI businesses. Excluding the negative impact of foreign exchange, net sales in the second quarter of fiscal 2014 improved 4.0 percent.
Gross profit and gross profit margin in the second quarter of fiscal 2014 was $359.6 million and 35.2 percent, respectively, compared to $322.9 million and 32.7 percent last year, which included $25.8 million of increased cost of goods sold from the sale of inventory that was revalued in connection with the HHI acquisition.
Spectrum Brands reported net income of $33.8 million, or $0.64 diluted income per share, in the second quarter of fiscal 2014 on average shares and common stock equivalents outstanding of 53.0 million. In fiscal 2013, the Company reported a net loss of $41.2 million, or $0.79 diluted loss per share, on average shares and common stock equivalents outstanding of 52.1 million. Adjusted for certain items in both fiscal years, which are presented in Table 3 of this press release and which management believes are not indicative of the Company’s ongoing normalized operations, the Company generated adjusted diluted earnings per share, a non-GAAP measure, of $0.72 in the second quarter of fiscal 2014, a 63.6 percent increase compared to $0.44 in the prior year.
Adjusted EBITDA, a non-GAAP measure, of $156.5 million in the second quarter of fiscal 2014 increased 9.2 percent compared to adjusted EBITDA of $143.3 million in fiscal 2013, and 9.8 percent excluding the negative impact of foreign exchange, which represented the 14 th consecutive quarter of year-over-year adjusted EBITDA growth. Adjusted EBITDA as a percentage of net sales (adjusted EBITDA margin) improved to 15.3 percent compared to 14.5 percent in the year-ago quarter. Adjusted EBITDA is a non-GAAP measurement of profitability which the Company believes is a useful indicator of the operating health of the business and its trends.
Fiscal 2014 First Half Consolidated Financial Results
Net sales of $2.12 billion in the first six months of fiscal 2014 increased 14.2 percent compared to $1.86 billion for the same period in fiscal 2013. The increase was the result of the HHI acquisition on December 17, 2012 and higher revenues for the home and garden business. Including HHI as if part of the Company for all of last year’s first six months, net sales of $2.12 billion increased 3.5 percent compared to $2.05 billion last year.
The Company reported GAAP net income of $88.1 million, or $1.67 diluted income per share, in the first six months of fiscal 2014 on average shares and common stock equivalents outstanding of 52.8 million. In the first half of fiscal 2013, the Company reported a GAAP net loss of $54.7 million, or $1.05 diluted loss per share, on average shares and common stock equivalents outstanding of 51.9 million. Adjusted for certain items in both years’ first six months, which are presented in Table 3 of this press release and which management believes are not indicative of the Company’s ongoing normalized operations, the Company generated adjusted diluted earnings per share, a non-GAAP measure, of $1.81 in the first half of fiscal 2014, a 48.4 percent increase compared to $1.22 in last year’s first six months.
Fiscal 2014 first half adjusted EBITDA of $335.2 million increased 10.3 percent compared to adjusted EBITDA in the first half of fiscal 2013 of $303.9 million, which includes the results of HHI as if acquired by Spectrum Brands at the beginning of last year’s first six months period. The adjusted EBITDA margin improved significantly to 15.8 percent versus 14.8 percent last year.
Fiscal 2014 Second Quarter Segment Level Data
Global Batteries & Appliances
The Global Batteries & Appliances segment reported fiscal 2014 second quarter net sales of $480.9 million, an increase of 2.6 percent versus $468.6 million in the year-ago quarter, and 3.3 percent excluding the negative impact of foreign exchange. Higher battery and personal care net sales more than offset slightly lower small appliances revenues.
Global battery sales in the second quarter of fiscal 2014 of $211.4 million improved 5.8 percent compared to $199.7 million in the second quarter of fiscal 2013, and 7.0 percent excluding the negative impact of foreign exchange. All geographic regions contributed to the solid increase. North American battery growth was primarily due to increased shipments to several existing customers and new retailer distribution. In Europe, strong VARTA® battery growth was driven by a combination of new customer listings, regional expansion and promotions. Latin American battery revenues increased on a constant currency basis primarily as a result of flashlight product launches throughout the region.
Net sales for the global personal care product category of $117.0 million in the second quarter of fiscal 2014 increased 2.4 percent versus $114.2 million last year, and 3.1 percent excluding the negative impact of foreign exchange. The improvement was driven by a continuation of solid revenue growth in Europe and Latin America in both the shaving and grooming and personal care categories. North American net sales were essentially unchanged in the second quarter.
The small appliances product category reported net sales in the second quarter of fiscal 2014 of $152.5 million versus $154.6 million in the year-ago quarter. Excluding the negative impact of foreign exchange, net sales were essentially flat. Higher European net sales from expansion into new channels and increased distribution at existing retailers were offset by a decline in North American net sales primarily from a non-recurrence of promotions. Latin American net sales on a constant currency basis grew strongly from new product introductions in several South and Central American countries.
With segment net income, as adjusted, of $35.7 million, the Global Batteries & Appliances segment reported adjusted EBITDA of $61.2 million in the second quarter of fiscal 2014, an increase of 7.6 percent compared to adjusted EBITDA of $56.9 million in the year-earlier quarter, when segment net income was $34.6 million.
Hardware & Home Improvement
The Hardware & Home Improvement (HHI) segment reported net sales of $266.9 million in the second quarter of fiscal 2014, an increase of 4.0 percent compared to $256.7 million in the prior year’s quarter. Net sales increased 5.1 percent excluding the negative impact of foreign exchange. The revenue growth was driven primarily by improvements in the residential security category and continued international expansion. Severe winter weather in the U.S. and Canada was a significant negative impact on net sales results in the second quarter.
The segment recorded net income, as adjusted, of $31.9 million in the second quarter of fiscal 2014 compared to $0.6 million in the prior year’s second quarter. Adjusted EBITDA in the second quarter of fiscal 2014 increased 11.3 percent to $45.3 million versus $40.7 million last year due to the increased volumes. The adjusted EBITDA margin in the second quarter of fiscal 2014 expanded to 17.0 percent versus 15.9 percent in the previous year’s second quarter.
Fiscal 2014 Outlook
Spectrum Brands expects fiscal 2014 net sales, as reported, to increase approximately at the rate of U.S. GDP growth compared to fiscal 2013 net sales, including HHI in the prior year on a pro forma basis. Fiscal 2014 free cash flow is expected to be at least $350 million and capital expenditures are projected to be approximately $70 million to $75 million. In the second half of fiscal 2014, the Company expects to use its strong free cash flow to make significant payments on its term debt, totaling approximately $250 million for the fiscal year, and delever its balance sheet, resulting in leverage (total debt to adjusted EBITDA) of approximately 4.2 times or less at the end of the fiscal year.
