Spectrum Brands Holdings Reports Fiscal 2020 First Quarter Results





Middleton, WI, January 30, 2020 – Spectrum Brands Holdings, Inc. (NYSE: SPB; “Spectrum Brands” or the “Company”), a leading global branded consumer products company focused on driving innovation and providing exceptional customer service, today reported results from continuing operations for the first quarter of fiscal 2020 ended December 29, 2019. 



“We experienced organic growth in Home & Personal Care and Global Pet Care, while timing issues in Home & Garden and Hardware & Home Improvement drove us flat overall during the quarter. The decline in adjusted EBITDA was in line with our expectations as tariffs exceeded the ramp-up of our productivity improvements. We expect to resume sales growth this quarter and, additionally, savings from our Global Productivity Improvement Plan are expected to offset our tariff headwinds. We continue to expect net sales, adjusted EBITDA and free cash flow growth in 2020,” said David Maura, Chairman and Chief Executive Officer of Spectrum Brands Holdings. 



“We continued to make progress on a number of fronts in the first quarter. First, we entered into an agreement for the sale of our dog and cat food manufacturing operations in Coevorden, The Netherlands. This action represents progress against our plan in Global Pet Care to exit non-core assets and focus our efforts on our core growth brands. Second, we rewarded shareholders by executing a $125 million ASR and repurchasing 1.3 million shares of common stock for $81.4 million through open market repurchases during the quarter. And third, we made significant progress on our plans to generate over $100 million of run-rate savings from Global Productivity Improvement Plan over the next 15 to 18 months,” said Mr. Maura. 



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Fiscal 2020 First Quarter Highlights







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Fiscal 2020 First Quarter Segment Level Data

Hardware & Home Improvement (HHI) 









Lower net sales were driven by residential security and builders’ hardware, partially offset by growth in plumbing. The decline in residential security was driven lower builder volume and builder’s hardware was driven by timing of orders from a large customer. Organic net sales decreased 2.5%.



Lower operating income, adjusted EBITDA and margins were driven by tariff costs and lower volumes, partially offset by higher pricing and lower distribution costs.



Home & Personal Care (HPC)

 





Net sales were driven by growth in Europe in both personal care and small appliances. Net sales in the U.S. declined at a more moderate rate compared to fiscal 2019, with declines in personal care and small appliances pressured by department store and specialty channels. Excluding unfavorable foreign exchange impacts of $5.2 million, organic net sales grew 3.2%.

Higher operating income, adjusted EBITDA and EBITDA margins were driven by productivity and higher volumes. Higher operating income this quarter was impacted by $29.3 million in higher non-cash depreciation and amortization charges recorded in the year ago quarter due primarily to the segment being removed as held for sale.

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Global Pet Care  (GPC)





Higher net sales were attributable to continued growth in U.S. companion animal, predominantly dog chews and treats in mass and online channels, despite difficult comparisons in the prior year. Net sales were also impacted by a decline in U.S. aquatics. European sales grew in both aquatic and companion animal. Excluding unfavorable foreign exchange impacts of $1.2 million, organic net sales grew 1.1%.



The operating loss was driven by charges related to the European dog and cat food manufacturing operations being recognized as held for sale and the related impairment of intangible assets, as well as higher restructuring charges from the previously disclosed exit of our Latin America rawhide facilities. Adjusted EBITDA and EBITDA margin growth was driven by productivity, positive pricing and volume growth, partially offset by higher tariff costs. 



Home & Garden (H&G) 







Lower net sales in repellents and household insect controls were impacted by higher than normal inventory levels at retail, softness in the overall category POS and timing of shipments, partially offset by growth in outdoor controls with stronger early season orders.

Decreases in operating income, adjusted EBITDA and margins were driven by increases in manufacturing costs due to a later seasonal inventory build this year, lower volumes, and advertising spending, which were partially offset by productivity.







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Liquidity and Debt

Spectrum Brands completed the quarter with a strong liquidity position, including a cash balance of approximately $142 million and approximately $678 million available on its $800 million Cash Flow Revolver.

As of the end of the first quarter of fiscal 2020, the Company had approximately $2,369 million of debt outstanding, consisting of approximately $2,021 million of senior unsecured notes, $103 million of Revolver borrowings and approximately $245 million of capital leases and other obligations.

In January 2020, the Company paid the previously disclosed payment to Energizer in connection with the divestiture of the VARTA business. 

Fiscal 2020 Outlook for Continuing Operations

Spectrum Brands continues to expect low single-digit reported net sales growth, with foreign exchange expected to have a slightly negative impact based upon current rates.

We continue to expect fiscal 2020 adjusted EBITDA to be between $570 and $590 million, and adjusted free cash flow to be between $240 million and $260 million.

Conference Call/Webcast Scheduled for 9:00 A.M. Eastern Time Today



Spectrum Brands will host an earnings conference call and webcast at 9:00 a.m. Eastern Time today, January 30, 2020.  To access the live conference call, U.S. participants may call 877-604-7329 and international participants may call 602-563-8688.  The conference ID number is 4238158.  A live webcast and related presentation slides will be available by visiting the Event Calendar page in the Investor Relations section of Spectrum Brands’ website at www.spectrumbrands.com.

A replay of the live webcast also will be accessible through the Event Calendar page in the Investor Relations section of the Company’s website.  A telephone replay of the conference call will be available through February 13.  To access this replay, participants may call 855-859-2056 and use the same conference ID number.



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About Spectrum Brands Holdings, Inc.



Spectrum Brands Holdings, a member of the Russell 1000 Index, is a leading supplier of residential locksets, residential builders’ hardware, plumbing, 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, Spectrum Brands offers a broad portfolio of market-leading, well-known and widely trusted brands including Kwikset®, Weiser®, Baldwin®, National Hardware®, Pfister®, Remington®, George Foreman®, Russell Hobbs®, Black+Decker®, Tetra®, Marineland®, Nature’s Miracle®, Dingo®, 8-in-1®, FURminator®, IAMS® and Eukanuba® (Europe only), Digest-eeze™, Healthy-Hide®, Littermaid®, Spectracide®, Cutter®, Repel®, Hot Shot®, Black Flag® and Liquid Fence®. For more information, please visit www.spectrumbrands.com.



Non-GAAP Measurements



Management believes that certain non-GAAP financial measures may be useful in providing additional meaningful comparisons between current results and results in prior periods.  Management believes that organic net sales provide for a more complete understanding of underlying business trends of regional and segment performance by excluding the impact of currency exchange rate fluctuations and the impact of acquisitions.  In addition, within this release, including the supplemental information attached hereto, reference is made to adjusted diluted EPS, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), and adjusted EBITDA margin.   Adjusted EBITDA is a metric used by management to evaluate segment performance 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 is one of the measures used for determining compliance with the Company’s debt covenants.  Adjusted EBITDA excludes certain items that are unusual in nature or not comparable from period to period.  Adjusted EBITDA margin reflects adjusted EBITDA as a percentage of net sales of the Company.  The Company’s management uses adjusted diluted EPS 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 EPS 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.  An income tax adjustment is included in adjusted diluted EPS 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.  Adjusted free cash flow provides useful information to investors regarding our ability to generate cash from business operations that is available for acquisitions and other investments, service of debt principal, dividends and share repurchases and to meet working capital requirements.  Our definition of adjusted free cash flow takes into consideration capital investments required to maintain operations of our businesses and execute our strategy.  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

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GAAP results.  Other Supplemental Information has been provided to demonstrate reconciliation of non-GAAP measurements discussed above to most relevant GAAP financial measurements.



Forward-Looking Statements



This document contains, and certain oral and written statements made by our representatives from time to time may contain, forward-looking statements, including, without limitation, statements made under “Fiscal 2020 Outlook for Continuing Operations”, statements regarding our Global Productivity Improvement Plan and other statements regarding the Company’s ability to meet its expectations for its fiscal 2020. We have tried, whenever possible, to identify these statements by using words like “future,” “anticipate”, “intend,” “plan,” “estimate,” “believe,” “belief,” “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) the impact of our indebtedness on our business, financial condition and results of operations; (2) the impact of restrictions in our debt instruments on our ability to operate our business, finance our capital needs or pursue or expand business strategies; (3) any failure to comply with financial covenants and other provisions and restrictions of our debt instruments; (4) the effects of general economic conditions, including the impact of, and changes, to tariffs and trade policies, inflation, recession or fears of a recession, depression or fears of a depression, labor costs and stock market volatility or monetary or fiscal policies in the countries where we do business; (5) the impact of fluctuations in commodity prices, costs or availability of raw materials or terms and conditions available from suppliers, including suppliers’ willingness to advance credit; (6) interest rate and exchange rate fluctuations; (7) the loss of significant reduction in, or dependence upon, sales to any significant retail customer(s); (8) competitive promotional activity or spending by competitors, or price reductions by competitors; (9) the introduction of new product features or technological developments by competitors and/or the development of new competitors or competitive brands; (10) the impact of actions taken by significant stockholders; (11) changes in consumer spending preferences and demand for our products; (12) our ability to develop and successfully introduce new products, protect our intellectual property and avoid infringing the intellectual property of third parties; (13) our ability to successfully identify, implement, achieve and sustain productivity improvements (including our Global Productivity Improvement Plan), cost efficiencies (including at our manufacturing and distribution operations), and cost savings; (14) the seasonal nature of sales of certain of our products; (15) the effects of climate change and unusual weather activity; (16) the cost and effect of unanticipated legal, tax or regulatory proceedings or new laws or regulations (including environmental, public health and consumer protection regulations); (17) public perception regarding the safety of products that we manufacture and sell, including the potential for environmental liabilities, product liability claims, litigation and other claims related to products manufactured by us and third parties; (18) the impact of existing, pending or threatened litigation, regulation or other requirements or operating standards applicable to our business; (19) the impact of cybersecurity breaches or our actual or perceived failure to protect company and personal data; (20) changes in accounting policies applicable to our business; (21) our ability to utilize net operating loss carry-forwards to offset tax liabilities from future taxable income; (22) the impact of expenses resulting from the implementation of new business strategies, divestitures or current and proposed restructuring activities; (23) our ability to successfully implement further acquisitions or dispositions and the

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impact of any such transactions on our financial performance; (24) the unanticipated loss of key members of senior management and the transition of new members of our management teams to their new roles; (25) the effects of political or economic conditions, terrorist attacks, acts of war or other unrest in international markets; and (26) the other risk factors set forth in the securities filings of Spectrum Brands Holdings, Inc., including the most recently filed Annual Report on Form 10-K and subsequent Quarterly Report(s) on Form 10-Q.

Spectrum Brands 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 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 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 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. 

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ADJUSTED DILUTED EPS



We define adjusted diluted EPS as reported diluted EPS excluding the effect of one-time, non-recurring activity and volatility associated with our income tax expense. The Company believes that adjusted diluted EPS provides further insight and comparability in operating performance as it eliminates the effects of certain items that are not comparable from one period to the next. Adjustments to diluted EPS include the following: 





Income tax adjustment to diluted EPS is to exclude the impact of adjusting the valuation allowance against deferred taxes and other tax related items in order to reflect a normalized ongoing effective tax rate of 25.0% for the three month periods ended December 29, 2019 and December 30, 2018 based upon enacted corporate tax rate in the United States.



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ADJUSTED DILUTED EPS (continued)



The following is a reconciliation of reported diluted EPS from continuing operations to adjusted diluted EPS from continuing operations for the three month periods ended December 29, 2019 and December 30, 2018.





The following summarizes transaction related charges for the three month periods ended December 29, 2019 and December 30, 2018:







The following summarizes restructuring and related charges for the three month periods ended December 29, 2019 and December 30, 2018:









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NET SALES AND ORGANIC NET SALES



The following is a summary of net sales by segment for the three month periods ended December 29, 2019 and December 30, 2018:  









We define organic net sales as reported net sales excluding the effect of changes in foreign currency exchange rates and acquisitions. We believe this non-GAAP measure provides useful information to investors because it reflects regional and operating segment performance from our activities without the effect of changes in currency exchange rate and/or acquisitions. We use organic net sales as one measure to monitor and evaluate our regional and segment performance. Organic growth is calculated by comparing organic net sales to reported net sales in the prior year. The effect of changes in currency exchange rates is determined by translating the period’s net sales using the currency exchange rates that were in effect during the prior period. Net sales are attributed to the geographic regions based on the country of destination. We exclude net sales from acquired businesses in the current year for which there are no comparable sales in the prior period. The following is a reconciliation of reported sales to organic sales for the three month period ended December 29, 2019 compared to reported net sales for the three month period ended December 30, 2018:







 

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ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN



Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, Amortization) is a non-GAAP metric used by management that we believe provides useful information to investors because it reflects ongoing operating performance and trends of our segments excluding certain non-cash based expenses and/or non-recurring items during each of the comparable periods 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. Further, adjusted EBITDA is a measure used for determining the Company’s debt covenant. EBITDA is calculated by excluding the Company’s income tax expense, interest expense, depreciation expense and amortization expense (from intangible assets) from net income. Adjusted EBITDA further excludes the following:  





Adjusted EBITDA margin is calculated as adjusted EBITDA as a percentage of reported net sales for the respective periods. 





































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ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN (continued)



The following is a reconciliation of reported net income (loss) to adjusted EBITDA for the three month periods ended December 29, 2019 and December 30, 2018, including the calculation of adjusted EBITDA margin for each of the respective periods.







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FORECASTED ADJUSTED EBITDA



The following is a reconciliation of forecasted net income to adjusted EBITDA for the year ending September 30, 2020







FORECASTED ADJUSTED FREE CASH FLOW



The following is a reconciliation of forecasted net cash flow from operating activities to adjusted free cash flow for the year ending September 30, 2020

























































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