Spectrum Brands Holdings Reports Fiscal 2023 First Quarter Results
Spectrum Brands Holdings reported a 5.8% decline in net sales, totaling $713.3 million for Q1 2023, primarily due to lower replenishment orders and slower holiday retail sales. The company incurred a net loss of $40 million and an adjusted EBITDA of $39.8 million, reflecting a 19.3% decrease year-over-year. Spectrum anticipates collecting $4.3 billion from the pending sale of its HHI division by June 2023. Despite the challenges, the company expects net sales to remain flat for the fiscal year while maintaining a low double-digit adjusted EBITDA growth expectation.
- Anticipated collection of $4.3 billion from HHI sale by June 2023.
- Focus on free cash flow generation achieved a $65 million inventory reduction.
- Net sales decreased by 5.8%, with an organic net sales decline of 9.5%
- Net loss from continuing operations increased by 32.5% year-over-year.
-
Net Sales Decreased
5.8% driven by Lower Replenishment Orders, Slower Holiday Retail Sales, Unfavorable Foreign Currency, Offset by Positive Pricing Adjustments
-
Net Loss from Continuing Operations of
$40.0 Million $39.8 Million
-
Focused Operating Strategy Towards Free Cash Flow Generation with
$65 million
-
The Company Expects to Collect
$4.3 Billion June 2023
-
Updating Fiscal 2023 Earnings Framework and Now Expect
Net Sales to be Flat to Prior Year While Maintaining Low Double-Digits Adjusted EBITDA Growth Expectation
"Our financial results for the quarter demonstrate our renewed focus on profitability, financial discipline and cost management. We are pleased that our first quarter EBITDA exceeded expectations, despite continued heavy inventory levels at retail weighing on the volume of products sold during the quarter. As we anticipated, we continue to be challenged by a difficult economic environment and face lower consumer demand compared to strong COVID related demand growth a year ago. While the volume decline and unfavorable foreign exchange were the main contributors of our EBITDA decline in the quarter, EBITDA was also negatively impacted by approximately
Continuing,
Fiscal 2023 First Quarter Highlights
|
Three Month Periods Ended |
|
|
|
|||||||||||
(in millions, except per share and %) |
|
|
|
|
|
Variance |
|||||||||
Net sales |
|
$ |
713.3 |
|
|
$ |
757.2 |
|
|
$ |
(43.9 |
) |
(5.8 |
)% |
|
Gross profit |
|
|
201.9 |
|
|
|
219.3 |
|
|
|
(17.4 |
) |
(7.9 |
)% |
|
Operating loss |
|
|
(20.2 |
) |
|
|
(23.8 |
) |
|
|
3.6 |
|
(15.1 |
)% |
|
Net loss from continuing operations |
|
|
(40.0 |
) |
|
|
(30.2 |
) |
|
|
(9.8 |
) |
32.5 |
% |
|
Diluted earnings per share from continuing operations |
|
$ |
(0.99 |
) |
|
$ |
(0.73 |
) |
|
$ |
(0.26 |
) |
35.6 |
% |
|
Non-GAAP Operating Metrics |
|
|
|
|
|
|
|
||||||||
Adjusted EBITDA from continuing operations |
|
$ |
39.8 |
|
|
$ |
49.3 |
|
|
$ |
(9.5 |
) |
(19.3 |
)% |
|
Adjusted EPS from continuing operations |
|
$ |
(0.32 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.26 |
) |
433.3 |
% |
|
-
Net sales decreased
5.8% with a decrease in organic net sales of9.5% , excluding the impact of$39.6 million $67.8 million
- Gross profit and gross profit margin declined from the reduction in sales, unfavorable mix and sales of higher cost inventory accumulated in the prior year.
- Operating loss decreased from lower distribution costs, fixed cost reduction efforts initiated in the prior year, plus reduced spend on restructuring, optimization and strategic transaction initiatives offsetting the decline in gross profit.
- Net loss increase and diluted earnings per share decrease were primarily driven by the increase in interest costs offsetting the decrease in operating loss.
-
Adjusted EBITDA decreased
19.3% and adjusted EBITDA margin decreased 90 basis points attributable to the decrease in volume and unfavorable impact of foreign exchange.
-
Adjusted diluted EPS decreased to a loss of
$0.32
Fiscal 2023 First Quarter Segment Level Data
Home & Personal Care (HPC)
|
Three Month Periods Ended |
|
|
|
|
||||||||||||
(in millions, except %) |
|
|
|
|
|
Variance |
|||||||||||
Net sales |
|
$ |
364.4 |
|
|
$ |
379.7 |
|
|
$ |
(15.3 |
) |
|
(4.0 |
)% |
||
Operating (loss) income |
|
|
(4.3 |
) |
|
|
20.4 |
|
|
|
(24.7 |
) |
|
n/m |
|
||
Operating (loss) income margin |
|
|
(1.2 |
%) |
|
|
5.4 |
% |
|
|
(660 |
) |
bps |
|
|||
Adjusted EBITDA |
|
$ |
13.2 |
|
|
$ |
27.4 |
|
|
$ |
(14.2 |
) |
|
(51.8 |
)% |
||
Adjusted EBITDA margin |
|
|
3.6 |
% |
|
|
7.2 |
% |
|
|
(360 |
) |
bps |
|
|||
n/m = not meaningful |
|
|
|
|
|
|
|
|
|||||||||
The decrease in net sales is primarily due to slower product category retail sales with an increasingly competitive landscape and high retail inventory levels limiting replenishment orders during the holiday season. Prior year pricing adjustments positively impacted net sales. Sales in EMEA were further impacted by the
The decrease in operating income, adjusted EBITDA and margins is driven by lower volume, the sales of higher cost inventory accumulated in the prior year, and unfavorable foreign currency in EMEA, which were partially mitigated by cost savings from the reduction of operating expenses initiated in the prior year. Operating income was further impacted by incremental costs from the integration of the Tristar Business, and dissolution of
Global Pet Care (GPC)
|
Three Month Periods Ended |
|
|
|
|
||||||||||||
(in millions, except %) |
|
|
|
|
|
Variance |
|||||||||||
Net sales |
|
$ |
277.5 |
|
|
$ |
302.2 |
|
|
$ |
(24.7 |
) |
|
(8.2 |
)% |
||
Operating income |
|
|
22.7 |
|
|
|
12.3 |
|
|
|
10.4 |
|
|
84.6 |
% |
||
Operating income margin |
|
|
8.2 |
% |
|
|
4.1 |
% |
|
|
410 |
|
bps |
|
|||
Adjusted EBITDA |
|
$ |
37.2 |
|
|
$ |
38.7 |
|
|
$ |
(1.5 |
) |
|
(3.9 |
)% |
||
Adjusted EBITDA margin |
|
|
13.4 |
% |
|
|
12.8 |
% |
|
|
60 |
|
bps |
|
|||
The decrease in net sales was driven by higher retail inventory levels limiting replenishment orders and lower retail sales in hard good categories, primarily with pet specialty retailers, offset by new positive pricing adjustments in EMEA and the impact of prior year price increases. Sales and distribution for the chews & treats category continue to grow from prior year with declines in other hard goods and aquatic environments as compared to prior year elevated levels. EMEA sales were negatively impacted by unfavorable foreign exchange rates and lower aquatic sales offset by growth in companion animal sales including dog & cat food. Organic net sales decreased
Operating income and margin increased due to lower distribution costs compared to prior year disruptions, positive pricing adjustments and savings from prior year cost reduction initiatives, offset by lower volumes and unfavorable foreign currency impact. Adjusted EBITDA decreased due to lower volumes with margin increase due to pricing adjustments and operating expense savings.
Home & Garden (H&G)
|
Three Month Periods Ended |
|
|
|
|
||||||||||||
(in millions, except %) |
|
|
|
|
|
Variance |
|||||||||||
Net sales |
|
$ |
71.4 |
|
|
$ |
75.3 |
|
|
$ |
(3.9 |
) |
|
(5.2 |
)% |
||
Operating loss |
|
|
(7.2 |
) |
|
|
(15.7 |
) |
|
|
8.5 |
|
|
(54.1 |
)% |
||
Operating loss margin |
|
|
(10.1 |
)% |
|
|
(20.8 |
)% |
|
|
1,070 |
|
bps |
|
|||
Adjusted EBITDA |
|
$ |
(2.4 |
) |
|
$ |
(7.3 |
) |
|
$ |
4.9 |
|
|
(67.1 |
)% |
||
Adjusted EBITDA margin |
|
|
(3.4 |
)% |
|
|
(9.7 |
)% |
|
|
630 |
|
bps |
|
|||
The net sales decrease was primarily driven by higher retail inventory reducing replenishment needs and lower early seasonal inventory investment across pest control product categories, offset by pricing adjustments initiated in the prior year. Cleaning products realized year-over-year growth with increased distribution and price increases following integration-related disruptions in the prior year.
Operating loss improvement with increases in adjusted EBITDA and margins were driven by pricing, operational performance and annualization of operating cost savings initiatives from the prior year, plus higher integration-related costs in the prior year following the Rejuvenate acquisition further benefiting operating income.
Liquidity and Debt
As of the end of the quarter, the Company had a cash balance of
Proforma net leverage at the end of the first quarter was 6.2 times, compared to 5.4 times at the end of the previous quarter. The Company entered into an amendment to the credit agreement to temporarily increase the maximum consolidated leverage ratio permitted from 6.0 to 1.0 to be no greater than 7.0 to 1.0 until the earliest of (i)
Fiscal 2023 Earnings Framework
From a capital structure perspective, the Company is targeting a long-term net leverage ratio of 2.0 - 2.5 times after full deployment of HHI sale proceeds.
Conference Call/Webcast Scheduled for
A replay of the live broadcast will be accessible through the Event Calendar page in the Investor Relations section of the Company’s website.
About
Non-GAAP Measurements
Management believes that certain non-GAAP financial measures may be useful in certain instances to provide additional meaningful comparisons between current results and results in prior operating periods. Within this document, including the tables that follow, reference is made to organic net sales, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), adjusted EBITDA margin, and adjusted earnings per share (EPS). 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 foreign currency exchange fluctuations and the impact of acquisitions (when applicable) when there is no comparable sales in the prior period. Organic sales growth is calculated by comparing organic net sales to net sales in the prior comparative period. The effect of changes in foreign currency exchange rates is determined by translating the period’s net sales using the foreign currency exchange rates that were in effect during the prior comparative period. 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, because interest, taxes, depreciation and amortization can differ greatly between organizations as a result of differing capital structures and tax strategies. Adjusted EBITDA can also be a useful measure for determining the Company's debt covenant compliance. 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. Management uses adjusted diluted EPS as 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 of
Forward-Looking Statements
We have made or implied certain forward-looking statements in this document. All statements, other than statements of historical facts included or incorporated by reference in this document, including, without limitation, statements or expectations regarding our business strategy, future operations, financial condition, estimated revenues, projected costs, earnings power, projected synergies, prospects, plans and objectives of management, outcome of any litigation and information concerning expected actions of third parties are forward-looking statements. When used in this document, the words future, anticipate, pro forma, seek, intend, plan, envision, estimate, believe, belief, expect, project, forecast, outlook, earnings framework, goal, target, could, would, will, can, should, may and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.
Since these forward-looking statements are based upon our current expectations of future events and projections and are subject to a number of risks and uncertainties, many of which are beyond our control and some of which may change rapidly, actual results or outcomes may differ materially from those expressed or implied herein, and you should not place undue reliance on these statements. Important factors that could cause our actual results to differ materially from those expressed or implied herein include, without limitation: (1) the COVID-19 pandemic, economic, social and political conditions or civil unrest, terrorist attacks, acts of war, natural disasters, other public health concerns or unrest in
Some of the above-mentioned factors are described in further detail in the sections entitled Risk Factors in our annual and quarterly reports, as applicable. You should assume the information appearing in this document is accurate only as of the end of the period covered by this document, or as otherwise specified, as our business, financial condition, results of operations and prospects may have changed since that date. Except as required by applicable law, including the securities laws of
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) |
||||||||
|
Three Month Periods Ended |
|||||||
(in millions, except per share amounts) |
|
|
|
|
||||
Net sales |
|
$ |
713.3 |
|
|
$ |
757.2 |
|
Cost of goods sold |
|
|
511.4 |
|
|
|
537.9 |
|
Gross profit |
|
|
201.9 |
|
|
|
219.3 |
|
Selling |
|
|
131.3 |
|
|
|
146.3 |
|
General and administrative |
|
|
84.6 |
|
|
|
89.2 |
|
Research and development |
|
|
6.2 |
|
|
|
7.6 |
|
Total operating expenses |
|
|
222.1 |
|
|
|
243.1 |
|
Operating loss |
|
|
(20.2 |
) |
|
|
(23.8 |
) |
Interest expense |
|
|
33.4 |
|
|
|
21.8 |
|
Other non-operating (income) expense, net |
|
|
(1.5 |
) |
|
|
0.6 |
|
Loss from continuing operations before income taxes |
|
|
(52.1 |
) |
|
|
(46.2 |
) |
Income tax benefit |
|
|
(12.1 |
) |
|
|
(16.0 |
) |
Net loss from continuing operations |
|
|
(40.0 |
) |
|
|
(30.2 |
) |
Income from discontinued operations, net of tax |
|
|
19.5 |
|
|
|
38.8 |
|
Net (loss) income |
|
|
(20.5 |
) |
|
|
8.6 |
|
Net income from continuing operations attributable to non-controlling interest |
|
|
0.3 |
|
|
|
— |
|
Net income from discontinued operations attributable to non-controlling interest |
|
|
0.1 |
|
|
|
0.4 |
|
Net (loss) income attributable to controlling interest |
|
$ |
(20.9 |
) |
|
$ |
8.2 |
|
Amounts attributable to controlling interest |
|
|
|
|
||||
Net loss from continuing operations attributable to controlling interest |
|
$ |
(40.3 |
) |
|
$ |
(30.2 |
) |
Net income from discontinued operations attributable to controlling interest |
|
|
19.4 |
|
|
|
38.4 |
|
Net (loss) income attributable to controlling interest |
|
$ |
(20.9 |
) |
|
$ |
8.2 |
|
Earnings Per Share |
|
|
|
|
||||
Basic earnings per share from continuing operations |
|
$ |
(0.99 |
) |
|
$ |
(0.73 |
) |
Basic earnings per share from discontinued operations |
|
|
0.48 |
|
|
|
0.93 |
|
Basic earnings per share |
|
$ |
(0.51 |
) |
|
$ |
0.20 |
|
Diluted earnings per share from continuing operations |
|
$ |
(0.99 |
) |
|
$ |
(0.73 |
) |
Diluted earnings per share from discontinued operations |
|
|
0.48 |
|
|
|
0.93 |
|
Diluted earnings per share |
|
$ |
(0.51 |
) |
|
$ |
0.20 |
|
Weighted Average Shares Outstanding |
|
|
|
|
||||
Basic |
|
|
40.9 |
|
|
|
41.3 |
|
Diluted |
|
|
40.9 |
|
|
|
41.3 |
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited) |
||||||||
|
Three Month Periods Ended |
|||||||
(in millions) |
|
|
|
|
||||
Cash flows from operating activities |
|
|
|
|
||||
Net cash used by operating activities from continuing operations |
|
$ |
(57.0 |
) |
|
$ |
(255.8 |
) |
Net cash used by operating activities from discontinued operations |
|
|
(7.2 |
) |
|
|
(15.3 |
) |
Net cash used by operating activities |
|
|
(64.2 |
) |
|
|
(271.1 |
) |
Cash flows from investing activities |
|
|
|
|
||||
Purchases of property, plant and equipment |
|
|
(10.0 |
) |
|
|
(14.1 |
) |
Proceeds from disposal of property, plant and equipment |
|
|
— |
|
|
|
0.1 |
|
Net cash used by investing activities from continuing operations |
|
|
(10.0 |
) |
|
|
(14.0 |
) |
Net cash used by investing activities from discontinued operations |
|
|
(3.6 |
) |
|
|
(5.0 |
) |
Net cash used by investing activities |
|
|
(13.6 |
) |
|
|
(19.0 |
) |
Cash flows from financing activities |
|
|
|
|
||||
Payment of debt |
|
|
(3.3 |
) |
|
|
(3.2 |
) |
Proceeds from issuance of debt |
|
|
90.0 |
|
|
|
465.0 |
|
Payment of debt issuance costs |
|
|
(2.3 |
) |
|
|
— |
|
|
|
|
— |
|
|
|
(110.0 |
) |
Dividends paid to shareholders |
|
|
(17.1 |
) |
|
|
(17.3 |
) |
Share based award tax withholding payments, net of proceeds upon vesting |
|
|
(10.5 |
) |
|
|
(24.5 |
) |
Net cash provided by financing activities from continuing operations |
|
|
56.8 |
|
|
|
310.0 |
|
Net cash used by financing activities from discontinued operations |
|
|
(0.4 |
) |
|
|
(0.4 |
) |
Net cash provided by financing activities |
|
|
56.4 |
|
|
|
309.6 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
5.7 |
|
|
|
(2.5 |
) |
Net change in cash, cash equivalents and restricted cash in continuing operations |
|
|
(15.7 |
) |
|
|
17.0 |
|
Cash, cash equivalents, and restricted cash, beginning of period |
|
|
243.9 |
|
|
|
190.0 |
|
Cash, cash equivalents, and restricted cash, end of period |
|
$ |
228.2 |
|
|
$ |
207.0 |
|
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited) |
||||||
(in millions) |
|
|
|
|
||
Assets |
|
|
|
|
||
Cash and cash equivalents |
|
$ |
228.0 |
|
$ |
243.7 |
Trade receivables, net |
|
|
269.8 |
|
|
247.4 |
Other receivables |
|
|
121.1 |
|
|
95.7 |
Inventories |
|
|
702.3 |
|
|
780.6 |
Prepaid expenses and other current assets |
|
|
48.3 |
|
|
51.2 |
Current assets of business held for sale |
|
|
1,811.1 |
|
|
1,816.7 |
Total current assets |
|
|
3,180.6 |
|
|
3,235.3 |
Property, plant and equipment, net |
|
|
264.2 |
|
|
263.8 |
Operating lease assets |
|
|
78.6 |
|
|
82.5 |
Deferred charges and other |
|
|
66.6 |
|
|
38.7 |
|
|
|
965.0 |
|
|
953.1 |
Intangible assets, net |
|
|
1,210.8 |
|
|
1,202.2 |
Total assets |
|
$ |
5,765.8 |
|
$ |
5,775.6 |
Liabilities and Shareholders' Equity |
|
|
|
|
||
Current portion of long-term debt |
|
$ |
12.5 |
|
$ |
12.3 |
Accounts payable |
|
|
365.2 |
|
|
453.1 |
Accrued wages and salaries |
|
|
26.4 |
|
|
28.4 |
Accrued interest |
|
|
49.1 |
|
|
27.6 |
Other current liabilities |
|
|
201.1 |
|
|
203.0 |
Current liabilities of business held for sale |
|
|
427.0 |
|
|
463.7 |
Total current liabilities |
|
|
1,081.3 |
|
|
1,188.1 |
Long-term debt, net of current portion |
|
|
3,267.7 |
|
|
3,144.5 |
Long-term operating lease liabilities |
|
|
52.5 |
|
|
56.0 |
Deferred income taxes |
|
|
62.7 |
|
|
60.1 |
Other long-term liabilities |
|
|
62.2 |
|
|
57.8 |
Total liabilities |
|
|
4,526.4 |
|
|
4,506.5 |
Shareholders' equity |
|
|
1,232.8 |
|
|
1,263.2 |
Non-controlling interest |
|
|
6.6 |
|
|
5.9 |
Total equity |
|
|
1,239.4 |
|
|
1,269.1 |
Total liabilities and equity |
|
$ |
5,765.8 |
|
$ |
5,775.6 |
|
OTHER SUPPLEMENTAL INFORMATION (Unaudited) |
NET SALES AND ORGANIC
The following is a summary of net sales by segment for the three month periods ended
|
Three Month Periods Ended |
|
|
|
|
||||||||
(in millions, except %) |
|
|
|
|
|
Variance |
|||||||
HPC |
|
$ |
364.4 |
|
$ |
379.7 |
|
$ |
(15.3 |
) |
|
(4.0 |
)% |
GPC |
|
|
277.5 |
|
|
302.2 |
|
|
(24.7 |
) |
|
(8.2 |
)% |
H&G |
|
|
71.4 |
|
|
75.3 |
|
|
(3.9 |
) |
|
(5.2 |
)% |
|
|
$ |
713.3 |
|
$ |
757.2 |
|
|
(43.9 |
) |
|
(5.8 |
)% |
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 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
|
|
|
|
|
|
|
||||||||||||||||||||
Three Month Periods Ended (in millions, except %) |
|
|
|
Effect of
|
|
Net Sales Excluding Effect of Changes in Currency |
|
Effect of Acquisitions |
|
Organic |
|
|
|
Variance |
||||||||||||
HPC |
|
$ |
364.4 |
|
$ |
25.7 |
|
$ |
390.1 |
|
$ |
(67.8 |
) |
|
$ |
322.3 |
|
$ |
379.7 |
|
$ |
(57.4 |
) |
(15.1 |
)% |
|
GPC |
|
|
277.5 |
|
|
13.9 |
|
|
291.4 |
|
|
— |
|
|
|
291.4 |
|
|
302.2 |
|
|
(10.8 |
) |
(3.6 |
)% |
|
H&G |
|
|
71.4 |
|
|
— |
|
|
71.4 |
|
|
— |
|
|
|
71.4 |
|
|
75.3 |
|
|
(3.9 |
) |
(5.2 |
)% |
|
Total |
|
$ |
713.3 |
|
$ |
39.6 |
|
$ |
752.9 |
|
$ |
(67.8 |
) |
|
$ |
685.1 |
|
$ |
757.2 |
|
|
(72.1 |
) |
(9.5 |
)% |
|
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 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:
- Stock based compensation costs consist of costs associated with long-term incentive compensation arrangements that generally consist of non-cash, stock-based compensation;
- Incremental amounts attributable to strategic transactions and business development initiatives including, but not limited to, the acquisition or divestitures of a business, costs to effect and facilitate a transaction, including such cost to integrate or separate the respective business. These amounts are excluded from our performance metrics as they are reflective of incremental investment by the Company towards business development activities, incremental costs attributable to such transactions and are not considered recurring or reflective of the continuing ongoing operations of the consolidated group or segments;
- Incremental amounts realized towards restructuring and optimization projects including, but not limited to, costs towards the development and implementation of strategies to optimize operations and improve efficiency, reduce costs, increase revenues, increase or maintain our current profit margins, including recognition of one-time exit or disposal costs. These amounts are excluded from our ongoing performance metrics as they are reflective of incremental investment by the Company towards significant initiatives controlled by management, incremental costs directly attributable to such initiatives, indirect impact or disruption to operating performance during implementation, and are not considered recurring or reflective of the continuing ongoing operations of the consolidated group or segments;
- Unallocated shared costs associated with discontinued operations from certain shared and center-led administrative functions the Company's business units excluded from income from discontinued operations as they are not a direct cost of the discontinued business but a result of indirect allocations, including but not limited to, information technology, human resources, finance and accounting, supply chain, and commercial operations. Amounts attributable to unallocated shared costs would be mitigated through subsequent strategic or restructuring initiatives, transition services agreements, elimination of extraneous costs, or re-allocations or absorption of existing continuing operations following the completed sale of the discontinued operations;
- Non-cash purchase accounting adjustments recognized in earnings from continuing operations subsequent to an acquisition, including, but not limited to, the costs attributable to the step-up in inventory value and the incremental value in operating lease assets with below market rent, among others;
-
Non-cash gain from the reduction in the contingent consideration liability recognized during the three month period ended
January 1, 2023 associated with the Tristar Business acquisition in the prior year onFebruary 18, 2022 ;
- Non-cash asset impairments or write-offs realized and recognized in earnings from continuing operations;
-
Impact from the early settlement of foreign currency cash flow hedges in the prior year, resulting in subsequent assumed losses at the original stated maturities of foreign currency cash flow hedges in our EMEA region that were settled early in the prior year due to changes in the Company's legal entity organization structure and forecasted purchasing strategy of HPC finished goods inventory within the region, resulting in the recognition of excluded gains in the prior year intended to mitigate cost through the year ending
September 30, 2023 .
- Incremental costs recognized by the HPC segment attributable to the realization of product recalls initiated by the Company in the prior year.
-
Incremental reserves for non-recurring litigation or environmental remediation activity including the proposed settlement on outstanding litigation matters at our H&G division attributable to significant and unusual nonrecurring claims with no previous history or precedent with remeasurements during the three month period ended
January 2, 2022 ; and
-
Other adjustments are primarily attributable to (1) costs associated with Salus as they are not considered a component of the continuing commercial products company; (2) key executive severance related costs; (3) insurable losses and cost recovery associated with hurricane damages at a key supplier of our Glofish business and loss realized from misapplied funds during the three month period ended
January 1, 2023 .
Adjusted EBITDA margin is calculated as adjusted EBITDA as a percentage of reported net sales for the respective periods.
|
OTHER SUPPLEMENTAL INFORMATION (Unaudited) |
ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN (continued)
The following is a reconciliation of reported net income (loss) from continuing operations to adjusted EBITDA and adjusted EBITDA margin for the three month period ended
(in millions, except %) |
|
HPC |
|
GPC |
|
H&G |
|
Corporate |
|
Consolidated |
||||||||||
Net (loss) income from continuing operations |
|
$ |
(4.2 |
) |
|
$ |
23.0 |
|
|
$ |
(7.2 |
) |
|
$ |
(51.6 |
) |
|
$ |
(40.0 |
) |
Income tax benefit |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12.1 |
) |
|
|
(12.1 |
) |
Interest expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
33.4 |
|
|
|
33.4 |
|
Depreciation |
|
|
3.2 |
|
|
|
3.7 |
|
|
|
1.8 |
|
|
|
3.5 |
|
|
|
12.2 |
|
Amortization |
|
|
2.1 |
|
|
|
5.5 |
|
|
|
2.8 |
|
|
|
— |
|
|
|
10.4 |
|
EBITDA |
|
|
1.1 |
|
|
|
32.2 |
|
|
|
(2.6 |
) |
|
|
(26.8 |
) |
|
|
3.9 |
|
Share based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3.3 |
|
|
|
3.3 |
|
Tristar integration |
|
|
5.7 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5.7 |
|
HHI divestiture |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.5 |
|
|
|
1.5 |
|
HPC separation initiatives |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2.4 |
|
|
|
2.4 |
|
Coevorden operations separation |
|
|
— |
|
|
|
1.3 |
|
|
|
— |
|
|
|
— |
|
|
|
1.3 |
|
Fiscal 2022 restructuring |
|
|
— |
|
|
|
— |
|
|
|
0.2 |
|
|
|
0.4 |
|
|
|
0.6 |
|
Global ERP transformation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.6 |
|
|
|
1.6 |
|
HPC brand portfolio transitions |
|
|
1.0 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.0 |
|
|
|
|
2.9 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2.9 |
|
Other project costs |
|
|
— |
|
|
|
0.8 |
|
|
|
— |
|
|
|
2.3 |
|
|
|
3.1 |
|
Unallocated shared costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6.3 |
|
|
|
6.3 |
|
Non-cash purchase accounting adjustments |
|
|
0.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.5 |
|
Gain from remeasurement of contingent consideration liability |
|
|
(1.5 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1.5 |
) |
Early settlement of foreign currency cash flow hedges |
|
|
2.6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2.6 |
|
HPC product recall |
|
|
0.3 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.3 |
|
Salus and other |
|
|
0.6 |
|
|
|
2.9 |
|
|
|
— |
|
|
|
0.8 |
|
|
|
4.3 |
|
Adjusted EBITDA |
|
$ |
13.2 |
|
|
$ |
37.2 |
|
|
$ |
(2.4 |
) |
|
$ |
(8.2 |
) |
|
$ |
39.8 |
|
Net sales |
|
$ |
364.4 |
|
|
$ |
277.5 |
|
|
$ |
71.4 |
|
|
$ |
— |
|
|
$ |
713.3 |
|
Adjusted EBITDA margin |
|
|
3.6 |
% |
|
|
13.4 |
% |
|
|
(3.4 |
)% |
|
|
— |
|
|
|
5.6 |
% |
|
OTHER SUPPLEMENTAL INFORMATION (Unaudited) |
ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN (continued)
The following is a reconciliation of reported net income (loss) from continuing operations to adjusted EBITDA and adjusted EBITDA margin for the three month period ended
(in millions, except %) |
|
HPC |
|
GPC |
|
H&G |
|
Corporate |
|
Consolidated |
||||||||||
Net income (loss) from continuing operations |
|
$ |
19.0 |
|
|
$ |
11.7 |
|
|
$ |
(15.8 |
) |
|
$ |
(45.1 |
) |
|
$ |
(30.2 |
) |
Income tax benefit |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(16.0 |
) |
|
|
(16.0 |
) |
Interest expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
21.8 |
|
|
|
21.8 |
|
Depreciation |
|
|
3.1 |
|
|
|
3.5 |
|
|
|
1.8 |
|
|
|
3.8 |
|
|
|
12.2 |
|
Amortization |
|
|
4.7 |
|
|
|
5.7 |
|
|
|
2.9 |
|
|
|
— |
|
|
|
13.3 |
|
EBITDA |
|
|
26.8 |
|
|
|
20.9 |
|
|
|
(11.1 |
) |
|
|
(35.5 |
) |
|
|
1.1 |
|
Share based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5.6 |
|
|
|
5.6 |
|
Tristar acquisition |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.7 |
|
|
|
1.7 |
|
Rejuvenate integration |
|
|
— |
|
|
|
— |
|
|
|
4.3 |
|
|
|
— |
|
|
|
4.3 |
|
Armitage integration |
|
|
— |
|
|
|
0.7 |
|
|
|
— |
|
|
|
— |
|
|
|
0.7 |
|
Omega integration |
|
|
— |
|
|
|
0.9 |
|
|
|
— |
|
|
|
— |
|
|
|
0.9 |
|
HPC separation initiatives |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.7 |
|
|
|
1.7 |
|
HHI divestiture |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4.3 |
|
|
|
4.3 |
|
Coevorden operations separation |
|
|
— |
|
|
|
3.2 |
|
|
|
— |
|
|
|
— |
|
|
|
3.2 |
|
Global ERP transformation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2.9 |
|
|
|
2.9 |
|
GPC distribution center transition |
|
|
— |
|
|
|
12.8 |
|
|
|
— |
|
|
|
— |
|
|
|
12.8 |
|
Global productivity improvement program |
|
|
0.5 |
|
|
|
0.2 |
|
|
|
— |
|
|
|
1.1 |
|
|
|
1.8 |
|
Other project costs |
|
|
0.1 |
|
|
|
— |
|
|
|
— |
|
|
|
2.0 |
|
|
|
2.1 |
|
Unallocated shared costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6.8 |
|
|
|
6.8 |
|
Legal and environmental remediation reserves |
|
|
— |
|
|
|
— |
|
|
|
(0.5 |
) |
|
|
— |
|
|
|
(0.5 |
) |
Salus and other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
Adjusted EBITDA |
|
$ |
27.4 |
|
|
$ |
38.7 |
|
|
$ |
(7.3 |
) |
|
$ |
(9.5 |
) |
|
$ |
49.3 |
|
|
|
$ |
379.7 |
|
|
$ |
302.2 |
|
|
$ |
75.3 |
|
|
$ |
— |
|
|
$ |
757.2 |
|
Adjusted EBITDA margin |
|
|
7.2 |
% |
|
|
12.8 |
% |
|
|
(9.7 |
)% |
|
|
— |
|
|
|
6.5 |
% |
|
OTHER SUPPLEMENTAL INFORMATION (Unaudited) |
ADJUSTED DILUTED EPS
We define adjusted diluted earnings per share (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:
- Incremental amounts attributable to strategic transactions and business development initiatives including, but not limited to, the acquisition or divestitures of a business, costs to effect and facilitate a transaction, including such cost to integrate or separate the respective business. These amounts are excluded from our performance metrics as they are reflective of incremental investment by the Company towards business development activities, incremental costs attributable to such transactions and are not considered recurring or reflective of the continuing ongoing operations of the consolidated group or segments;
- Incremental amounts realized towards restructuring and optimization projects including, but not limited to, costs towards the development and implementation of strategies to optimize operations and improve efficiency, reduce costs, increase revenues, increase or maintain our current profit margins, including recognition of one-time exit or disposal costs. These amounts are excluded from our ongoing performance metrics as they are reflective of incremental investment by the Company towards significant initiatives controlled by management, incremental costs directly attributable to such initiatives, indirect impact or disruption to operating performance during implementation, and are not considered recurring or reflective of the continuing ongoing operations of the consolidated group or segments;
- Unallocated shared costs associated with discontinued operations from certain shared and center-led administrative functions the Company's business units excluded from income from discontinued operations as they are not a direct cost of the discontinued business but a result of indirect allocations, including but not limited to, information technology, human resources, finance and accounting, supply chain, and commercial operations. Amounts attributable to unallocated shared costs would be mitigated through subsequent strategic or restructuring initiatives, transition services agreements, elimination of extraneous costs, or re-allocations or absorption of existing continuing operations following the completed sale of the discontinued operations;
- Non-cash purchase accounting adjustments recognized in earnings from continuing operations subsequent to an acquisition, including, but not limited to, the costs attributable to the step-up in inventory value and the incremental value in operating lease assets with below market rent, among others;
-
Non-cash gain from the reduction in the contingent consideration liability recognized during the three month period ended
January 1, 2023 associated with the Tristar Business acquisition in the prior year onFebruary 18, 2022 ;
- Non-cash asset impairments or write-offs realized and recognized in earnings from continuing operations;
-
Impact from the early settlement of foreign currency cash flow hedges in the prior year, resulting in subsequent assumed losses at the original stated maturities of foreign currency cash flow hedges in our EMEA region that were settled early in the prior year due to changes in the Company's legal entity organization structure and forecasted purchasing strategy of HPC finished goods inventory within the region, resulting in the recognition of excluded gains in the prior year intended to mitigate costs through the year ending
September 30, 2023 .
- Incremental costs recognized by the HPC segment attributable to the realization of product recalls initiated by the Company in the prior year.
-
Incremental interest costs realized during the three month period ended
January 1, 2023 for fees paid towards the amendment to the credit agreement to temporarily increase the maximum consolidated leverage ratio permitted from 6.0 to 1.0 to be no greater than 7.0 to 1.0 until the earliest of (i)September 29, 2023 , or (ii) 10 business days after the closing of the HHI divestiture or the receipt of the related termination fee.
-
Incremental reserves for non-recurring litigation or environmental remediation activity including the proposed settlement on outstanding litigation matters at our H&G division attributable to significant and unusual nonrecurring claims with no previous history or precedent with remeasurements during the three month period ended
January 2, 2022 ;
-
Other adjustments are primarily attributable to (1) costs associated with Salus as they are not considered a component of the continuing commercial products company; (2) key executive severance related costs; (3) insurable losses and cost recovery associated with hurricane damages at a key supplier of our Glofish business and loss realized from misapplied funds during the three month period ended
January 1, 2023 ; and
-
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 endedJanuary 1, 2023 andJanuary 2, 2022 based upon enacted corporate tax rate inthe United States .
|
OTHER SUPPLEMENTAL INFORMATION (Unaudited) |
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
|
Three Month Periods Ended |
|||||||
|
|
|
|
|
||||
Diluted EPS from continuing operations, as reported |
|
$ |
(0.99 |
) |
|
$ |
(0.73 |
) |
Adjustments: |
|
|
|
|
||||
Tristar acquisition and integration |
|
|
0.14 |
|
|
|
0.04 |
|
HHI divestiture |
|
|
0.04 |
|
|
|
0.10 |
|
HPC separation initiatives |
|
|
0.06 |
|
|
|
0.04 |
|
Coevorden operations separation |
|
|
0.03 |
|
|
|
0.08 |
|
Rejuvenate integration |
|
|
— |
|
|
|
0.10 |
|
Armitage integration |
|
|
— |
|
|
|
0.02 |
|
Omega integration |
|
|
— |
|
|
|
0.02 |
|
Fiscal 2022 restructuring |
|
|
0.01 |
|
|
|
— |
|
Global ERP transformation |
|
|
0.04 |
|
|
|
0.07 |
|
HPC brand portfolio transitions |
|
|
0.02 |
|
|
|
— |
|
|
|
|
0.07 |
|
|
|
— |
|
GPC distribution center transition |
|
|
— |
|
|
|
0.31 |
|
Global productivity improvement program |
|
|
— |
|
|
|
0.04 |
|
Other project costs |
|
|
0.08 |
|
|
|
0.06 |
|
Unallocated shared costs |
|
|
0.15 |
|
|
|
0.17 |
|
Non-cash purchase accounting adjustments |
|
|
0.01 |
|
|
|
— |
|
Gain from remeasurement contingent consideration liability |
|
|
(0.04 |
) |
|
|
— |
|
Early settlement of foreign currency cash flow hedges |
|
|
0.06 |
|
|
|
— |
|
HPC product recalls |
|
|
0.01 |
|
|
|
— |
|
Debt amendment costs |
|
|
0.06 |
|
|
|
— |
|
Legal and environmental |
|
|
— |
|
|
|
(0.01 |
) |
Salus and other |
|
|
0.12 |
|
|
|
— |
|
Pre-tax adjustments |
|
$ |
0.86 |
|
|
$ |
1.04 |
|
Income tax adjustment |
|
|
(0.19 |
) |
|
|
(0.37 |
) |
Total adjustments |
|
$ |
0.67 |
|
|
$ |
0.67 |
|
Diluted EPS from continuing operations, as adjusted |
|
$ |
(0.32 |
) |
|
$ |
(0.06 |
) |
View source version on businesswire.com: https://www.businesswire.com/news/home/20230209005792/en/
Investor/Media Contact:
Source:
FAQ
What were the net sales figures for Spectrum Brands in Q1 2023?
How much did Spectrum Brands lose in Q1 2023?
What is the adjusted EBITDA for Spectrum Brands in Q1 2023?
What does Spectrum Brands expect for net sales in fiscal 2023?
When does Spectrum Brands expect to close the HHI sale?
