Spectrum Brands Holdings Posts 1st Quarter FY 2014 Financial Results [Professional Services Close - Up]
(Professional Services Close - Up Via Acquire Media NewsEdge) Spectrum Brands Holdings, Inc., a global and diversified consumer products company, reported record fiscal 2014 first quarter results for the period ended Dec. 29, 2013, and reconfirmed its outlook for a fifth consecutive year of record performance from the legacy business, coupled with continuing growth from its Hardware and Home Improvement (HHI) business.
In a release on Jan. 29, the Company said that its record first quarter was highlighted by solid results from its HHI and Home and Garden divisions; strong European results; margin improvements; net income, GAAP earnings per share, adjusted diluted earnings per share and adjusted EBITDA growth; and a record fiscal first quarter level of 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.
Separately on Jan. 29, Spectrum Brands said its Board of Directors approved a 20 percent increase in the quarterly common stock dividend to $0.30 per share from $0.25, reaffirming the Company's consistent and ongoing ability to generate strong free cash flow and its commitment to deliver attractive returns to its shareholders.
Fiscal 2014 First Quarter Results Highlights:
-Net sales of $1.10 billion in the first quarter of fiscal 2014, including the acquired HHI business, increased 26.5 percent versus $870.3 million a year ago; including HHI in the full prior year period on a pro forma basis, net sales increased 3.6 percent and 3.8 percent excluding the negative impact of foreign exchange.
-Net income of $54.3 million and diluted income per share of $1.03 in first quarter of fiscal 2014 improved from a net loss of $13.4 million and diluted loss per share of $0.26 in the prior year quarter.
-Adjusted diluted earnings per share, a non-GAAP measure, of $1.09 in the first quarter of fiscal 2014 increased 39.7 percent compared to $0.78 last year, including HHI in the full prior year period on a pro forma basis.
-Adjusted EBITDA, a non-GAAP measure, of $178.8 million in the first quarter of fiscal 2014 grew 36.8 percent versus $130.7 million in fiscal 2013; including HHI as if acquired at the beginning of fiscal 2013, adjusted EBITDA increased 11.4 percent.
-Adjusted EBITDA margin in the first quarter of fiscal 2014 increased to 16.2 percent compared to 15.1 percent in the year-ago quarter, including HHI in the full prior year period on a pro forma basis.
-Legacy Spectrum Brands adjusted EBITDA of $129.2 million in the first quarter of fiscal 2014 increased 1.7 percent versus the prior year, representing the 13th consecutive quarter of year-over-year adjusted EBITDA growth; legacy business fiscal 2014 first quarter adjusted EBITDA margin grew to 15.7 percent compared to 15.2 percent last year.
-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.
-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.
-Spectrum Brands issued $215 million and EUR225 million of term debt in the first quarter of fiscal 2014 to replace and reprice $513 million of existing term debt, which will reduce cash interest costs and, through the Euro portion placed in Germany, better align cash inflows with cash outflows related to principal, interest and taxes.
-In early January 2014 the Company's Home and Garden division acquired The Liquid Fence Company, the U.S. leader in the consumer animal repellents market in an immediately accretive transaction that provides a new and complementary position in a rapidly expanding segment of the $1.5 billion U.S. retail lawn and garden controls market.
"Our record first quarter results give us a strong start on delivering a fifth consecutive year of record financial performance from our legacy business along with strong growth from our HHI division," said Dave Lumley, Chief Executive Officer of Spectrum Brands Holdings. "We reported net income of $54 million and delivered adjusted EPS and adjusted EBITDA growth in the quarter with excellent margin improvements. Our HHI and Home and Garden divisions had especially solid results and, geographically, Europe once again was a bright performer.
"We also achieved a record level of continuous improvement savings for a fiscal first quarter," Lumley said. "This reinforces our ongoing focus to reduce our cost structure, more than offset higher product costs and continue to invest in many new products, some of which are launching now with more to follow in the months ahead.
"With our largely non-discretionary, non premium-priced replacement products," he said, "we will continue to pursue volume growth, new retailers, retail distribution gains, new products, cross-selling opportunities, geographic expansion, and select pricing actions while maintaining strict spending controls and achieving investment paybacks from our expanding global cost improvement initiatives.
"Given consumers' growing preference for on-line shopping, we also are increasing our investment and resources to partner with our retail customers' e-commerce platforms to help them increase their overall sales," he added.
"We believe value is winning in the marketplace with consumers worldwide and that our Spectrum Value Model of 'same or better performance/less price' is the optimum go-to-market strategy for our retail customers," Lumley said. "We are executing 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. 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 First Quarter Consolidated Financial Results
Spectrum Brands Holdings reported consolidated record net sales of $1.10 billion in the first quarter of fiscal 2014, an increase of 26.5 percent compared to $870.3 million a year earlier. The improvement was the result of the HHI acquisition completed on December 17, 2012. Including HHI in the full prior year period on a pro forma basis, net sales of $1.10 billion in the first quarter of fiscal 2014 increased 3.6 percent compared to $1.06 billion last year, and 3.8 percent excluding the negative impact of foreign exchange.
Excluding HHI, net sales for legacy Spectrum Brands of $822.2 million in the first quarter of fiscal 2014 decreased 1.7 percent versus $836.3 million in fiscal 2013, or 1.5 percent excluding the negative impact of foreign currency. The sales decline was primarily attributable to lower revenues in the Global Pet Supplies division due primarily to timing and retailer inventory reductions, as well as the one-time, incremental sales impact, primarily flashlights, of approximately $10 million in the prior year from Hurricane Sandy.
Gross profit and gross profit margin in the first quarter of fiscal 2014 of $381.2 million and 34.6 percent, respectively, compared to $288.2 million and 33.1 percent last year. Including HHI in the full prior year period on a pro forma basis, gross profit margin of 34.6 percent in this year's first quarter increased from 34.2 percent a year ago. The gross profit margin for legacy Spectrum Brands of 34.2 percent in the first quarter of fiscal 2014 compared to 34.1 percent in fiscal 2013.
Spectrum Brands reported net income of $54.3 million, or $1.03 diluted income per share, in the first quarter of fiscal 2014 on average shares and common stock equivalents outstanding of 52.7 million. In fiscal 2013, the Company reported a net loss of $13.4 million, or $0.26 diluted loss per share, on average shares and common stock equivalents outstanding of 51.8 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 $1.09 in the first quarter of fiscal 2014, a 39.7 percent increase compared to $0.78 in the prior year, including HHI in the full prior year period on a pro forma basis.
Adjusted EBITDA, a non-GAAP measure, of $178.8 million in the first quarter of fiscal 2014 increased 11.4 percent compared to adjusted EBITDA of $160.5 million in fiscal 2013, including HHI in the full prior year period on a pro forma basis. Adjusted EBITDA margin as a percentage of net sales increased to 16.2 percent compared to 15.1 percent in the year-ago quarter. Legacy Spectrum Brands adjusted EBITDA of $129.2 million in the first quarter of fiscal 2014 increased 1.7 percent versus the prior year, representing the 13th consecutive quarter of year-over-year adjusted EBITDA growth, with the adjusted EBITDA margin improving to 15.7 percent compared to 15.2 percent last year. 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.
Liquidity and Debt
Spectrum Brands completed its fiscal 2014 first quarter on December 29, 2013 with a solid liquidity position, including a cash balance of approximately $132 million and $167 million available on its ABL facility. During the first quarter of fiscal 2014, Spectrum Brands issued $215 million and EUR225 million of term debt to replace and reprice $513 million of existing term debt. The new term debt will reduce cash interest costs and, in addition, the Euro portion was placed in Germany to better align the Company's cash inflows with cash outflows related to principal, interest and taxes.
As of the end of the first quarter of fiscal 2014, Spectrum Brands had approximately $3,375 million of debt outstanding at par, consisting of its ABL facility of $110 million, senior secured Term Loans totaling the U.S. dollar equivalent of $1,752 million, $520 million of 6.375 percent senior unsecured notes, $570 million of 6.625 percent senior unsecured notes, $300 million of 6.75 percent senior unsecured notes and approximately $123 million of capital leases and other obligations. In addition, the Company had approximately $41 million of letters of credit outstanding.
Fiscal 2014 Outlook
Spectrum Brands expects fiscal 2014 net sales, as reported, to increase approximately at the rate of 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, Spectrum Brands expects to use its strong free cash flow to continue to reduce debt by approximately $250 million and delever its balance sheet, consistent with past practice, resulting in leverage (total debt to adjusted EBITDA) of approximately 4.2 times or less at the end of fiscal 2014.
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