Spectrum Brands Q1 Earnings Beat, Stock Falls on Soft Sales

Spectrum Brands Holdings Inc. SPB reported first-quarter fiscal 2025 results, wherein the top line increased year over year but missed the Zacks Consensus Estimate. The company’s earnings surpassed the Zacks Consensus Estimate and increased year over year.The company delivered a strong performance in the first quarter of fiscal 2025, driven by its brand-focused investments and e-commerce expansion. Building on last year’s momentum, key business segments saw notable growth, with the Home and Personal Care division achieving one of its best first quarters in recent history, fueled by a strong holiday season.Shares of the company declined 7.7% yesterday, led by the soft top-line performance. Shares of this Zacks Rank #4 (Sell) company have lost 17.4% in the past three months against the industry's 1.6% rise.SPB Stock's Past Three Months PerformanceImage Source: Zacks Investment ResearchSPB’s Q1 HighlightsSPB reported adjusted earnings of $1.02 per share, which surpassed the Zacks Consensus Estimate of 91 cents per share. The figure increased 61.9% from the year-ago quarter’s adjusted earnings of 63 cents per share, mainly attributable to lower interest expense and a reduction in outstanding shares, which was offset by a decline in adjusted EBITDA.Find the latest EPS estimates and surprises on Zacks Earnings Calendar.Spectrum Brands Holdings Inc. Price, Consensus and EPS Surprise Spectrum Brands Holdings Inc. price-consensus-eps-surprise-chart | Spectrum Brands Holdings Inc. QuoteSpectrum Brands' net sales grew 1.2% year over year to $700.2 million and missed the consensus estimate of $702 million. The increase was driven by a 1.9% increase in organic net sales. Organic sales exclude an impact of $5.1 million from adverse currency rates. Sales were also aided by an extended fall season, accelerated pre-season sales in Home & Garden (H&G), and strong e-commerce gains in Home & Personal Care (HPC). This was partially negated by a sales decline in the Global Pet Care (GPC) segment due to the strategic pull-forward of orders ahead of the S/4Hana ERP implementation.The gross profit advanced 5.3% year over year to $257.8 million, backed by higher sales, cost improvement initiatives and favorable foreign currency, partly offset by ocean freight inflation and higher tariffs following the expiration of exemptions on certain product lines. Meanwhile, the gross margin expanded 140 bps year over year to 36.8%.Adjusted EBITDA from continuing operations decreased 7.7% year over year to $77.8 million, due to lower investment income and higher brand-related investments, compensated by higher gross profit. The adjusted EBITDA margin contracted 110 bps year over year to 11.1%.Spectrum Brands’ Segmental PerformanceSales in the Home & Personal Care segment rose 1.4% year over year to $348.1 million due to organic sales growth of 3.1%, excluding unfavorable foreign currency impacts of $5.9 million. Organic sales in personal care were offset by decreases in the Home Appliances categories. The increase was driven by strong e-commerce performance outpacing traditional retail sales globally, while personal care sales increased across all regions, with Home Appliance sales growth in EMEA offset by declines in North America and other regions.The segment's adjusted EBITDA of $26.7 million was flat compared to last year, due to increased sales volume and cost improvement initiatives, somewhat offset by inflationary pressures, higher tariffs resulting from the expiration of exemptions on certain product lines and increased brand-focused investments. Meanwhile, the adjusted EBITDA margin declined 10 bps to 7.7%.The Global Pet Care segment's sales were down 6.1% year over year to $260 million, impacted by an organic sales decline of 6.4%. In North America, sales were impacted by the pull forward of $10 million of sales from the fourth quarter of fiscal 2024, ahead of the S/4Hana ERP implementation. In EMEA, Companion Animal sales grew in the mid-single digits, driven by the continued expansion of the Good Boy brand across Europe and strong demand for Dog and Cat Food. However, soft sales in global Aquatics affected sales across all regions.The segment's adjusted EBITDA of $51.5 million dropped 2.3% from the year-ago quarter. The decline was due to reduced sales volume, inflation and higher brand-focused investments somewhat offset by cost improvements and other favorable variances. However, the adjusted EBITDA margin expanded 80 bps to 19.8%.The Home & Garden segment's sales climbed 27.9% year over year to $92.1 million, mainly backed by seasonal inventory builds at key retailers, an extended fall selling season due to warmer weather and a pull-forward of sales into the fiscal first quarter, ahead of H&G’s Q2 go-live on S/4Hana. However, sales in most categories experienced growth except for Cleaning.The segment's adjusted EBITDA rose year over year to $9.3 million from an adjusted EBITDA loss of $0.7 million, while the adjusted EBITDA margin expanded 1110 bps to 10.1%. The increase in adjusted EBITDA was due to elevated sales volume, cost improvements and favorable trade variances somewhat offset by inflation and higher brand-focused investments in the period.Spectrum Brands’ Other FinancialsAs of Dec. 29, 2024, Spectrum Brands had a cash balance of $179.9 million. The company had an outstanding debt of $575.1 million, including $496.1 million of senior unsecured notes and $79 million of finance leases. Spectrum Brands had a total liquidity of $670.7 million, comprising the undrawn capacity on its cash flow revolver of $490.8 million. It exited the quarter with a net debt of about $395.2 million.In the first quarter of fiscal 2025, SPB repurchased 0.8 million for $72.9 million. The company repurchased $15.3 million in shares since the close of HHI, totaling $1.2 billion to date.What to Expect From SPB in Fiscal 2025?For fiscal 2025, Spectrum Brands anticipates a low single-digit increase in reported net sales and a mid to high single-digit rise in adjusted EBITDA. Adjusted free cash flow is likely to be roughly 50% of adjusted EBITDA. 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