- Reported Sales Decline of 0.7% Including Negative Fx of
1.5%; Organic Sales Growth of 0.8%
- Launched Global Productivity Improvement Plan Expected to
Support Strategic Growth Investing; Phase I Captured Approximately
$35 Million of Annualized Benefits
- Affirms Full-Year Adjusted EBITDA Guidance of $560-$580
Million
Spectrum Brands Holdings, Inc. (NYSE: SPB), a leading global
branded consumer products company focused on driving innovation and
providing exceptional customer service, today reported results from
continuing operations for the third quarter of fiscal 2019 ended
June 30, 2019.
“Net sales and adjusted EBITDA performance this quarter were
consistent with our first half results, delivering on our plan to
establish in 2019 a stable base from which Spectrum Brands can
drive growth in future years. Our Q3 results reflected 0.8% organic
sales growth, including nearly 16% organic growth in Global Pet
Care. Other topline growth rates were negatively impacted by $20
million from the prior-year backlog benefit in Hardware & Home
Improvement, a cool, wet May and June this year in Home &
Garden, and prior-year listing losses in Home & Personal Care,”
said David Maura, Chairman and Chief Executive Officer of Spectrum
Brands Holdings.
“During the quarter, the Company invested approximately $20
million on the first phase of the Global Productivity Improvement
Plan and executed on approximately $35 million of annualized
sourcing savings, the majority of which will be realized in fiscal
2020. Additional opportunities have been identified across
procurement, G&A, process standardization, supply chain and
distribution and are expected to be realized over the next 24 to 36
months, with a substantial portion of these savings to be
reinvested in research and development, marketing and enabling
capabilities to drive growth and improve the efficiency of our
platform,” said Mr. Maura.
Fiscal 2019 Third Quarter Highlights from Continuing
Operations
Three Month Periods
Ended
(in millions, except per share and
%)
June 30, 2019
June 30, 2018
Variance
Net Sales
$
1,022.2
$
1,029.4
$
(7.2)
(0.7%)
Gross Profit
361.0
362.7
(1.7)
(0.5%)
Operating Income
92.8
106.8
(14.0)
(13.1%)
Net Loss from continuing operations
(24.7)
398.9
(423.6)
(106.2%)
Diluted EPS from continuing operations
$
(0.51)
$
11.68
$
(12.19)
(104.4%)
Non-GAAP Operating Metrics
Adjusted EBITDA from continuing
operations
$
172.9
$
177.7
$
(4.8)
(2.7%)
Adjusted EPS from continuing
operations
$
1.35
$
1.26
$
0.09
7.1%
- Net sales declined 0.7% driven by unfavorable foreign exchange
of 150 basis points. Organic sales increased 0.8% excluding the
impacts of foreign exchange with strong Global Pet Care sales
partially offset by lower revenues from Hardware & Home
Improvement, Home & Personal Care and Home & Garden.
- Gross profit margin increased 10 basis points as positive
pricing and productivity were partially offset by input cost
inflation, tariffs and unfavorable product mix.
- Operating income decreased as a result of higher distribution
costs, the absence of depreciation and amortization charges in the
prior year from Home & Personal Care, and higher restructuring
charges. Operating margin decreased 130 basis points.
- Net loss and diluted loss per share were driven by the
unrealized loss on Energizer common stock, the absence of a large
prior-year income tax benefit and higher tax expense this year
related to recently issued regulations under the 2017 Tax Cuts and
Jobs Act, partially offset by lower interest expense.
- Higher adjusted diluted EPS was attributable to lower interest
expense and shares outstanding.
- Adjusted EBITDA of $172.9 million declined 2.7%. Growth in
Global Pet Care and lower net corporate expenses were offset by
decreases in Hardware & Home Improvement, Home & Personal
Care and Home & Garden.
- Adjusted EBITDA margin fell 40 basis points driven primarily by
tariffs, higher input cost inflation and distribution costs, partly
offset by pricing and productivity.
Fiscal 2019 Third Quarter Segment Level Data
Hardware & Home Improvement (HHI)
Three Month Periods
Ended
(in millions, except %)
June 30, 2019
June 30, 2018
Variance
Net Sales
$
354.6
$
372.4
$
(17.8)
(4.8%)
Operating Income
57.6
51.1
6.5
12.7%
Operating Income Margin
16.2%
13.7%
250
bps
Adjusted EBITDA
$
67.7
$
73.9
$
(6.2)
(8.4%)
Adjusted EBITDA Margin
19.1%
19.8%
(70)
bps
Lower U.S. residential security and builders’ hardware net sales
were negatively impacted by $20 million of higher Kansas backlog
shipments in the prior year, while plumbing grew modestly.
Excluding the Kansas impact last year, organic sales growth would
have been approximately 1.1%. Excluding unfavorable foreign
exchange impacts of $1.8 million, organic net sales decreased
4.3%.
Improved operating income and margin were driven largely by
reduced restructuring costs. Lower adjusted EBITDA and margin were
primarily a result of higher input costs, partially offset by
positive pricing.
Home & Personal Care (HPC)
Three Month Periods
Ended
(in millions, except %)
June 30, 2019
June 30, 2018
Variance
Net Sales
$
243.4
$
254.4
$
(11.0)
(4.3%)
Operating (Loss) Income
5.7
21.3
(15.6)
(73.2%)
Operating (Loss) Income Margin
2.3%
8.4%
(610)
bps
Adjusted EBITDA
$
18.2
$
21.4
$
(3.2)
(15.0%)
Adjusted EBITDA Margin
7.5%
8.4%
(90)
bps
Net sales for small appliances decreased primarily from
prior-year lost distribution in the U.S. mass channel in
coffeemakers and toaster ovens while personal care sales in the
U.S. fell predominantly as a result of prior-year hair care
distribution losses in the mass channel. These were partially
offset by growth in Europe, primarily in e-commerce and U.K.
food/drug channels, as well as growth in Latin America. Excluding
unfavorable foreign exchange impacts of $10.3 million, organic net
sales were essentially flat.
Lower operating income was partly attributable to the absence of
depreciation and amortization charges in the prior year due to the
segment being classified as held for sale. In addition, the decline
in operating income and operating income margin, as well as
adjusted EBITDA and adjusted EBITDA margin, were impacted by higher
transaction foreign exchange and input costs, partially offset by
productivity.
Global Pet Care (PET)
Three Month Periods
Ended
(in millions, except %)
June 30, 2019
June 30, 2018
Variance
Net Sales
$
221.7
$
194.7
$
27.0
13.9%
Operating Income
26.5
15.0
11.5
76.7%
Operating Income Margin
12.0%
7.7%
430
bps
Adjusted EBITDA
$
39.0
$
34.9
$
4.1
11.7%
Adjusted EBITDA Margin
17.6%
17.9%
(30)
bps
Significantly higher net sales were attributable to continued
strong growth in U.S. companion animal, predominantly dog chews and
treats, along with modest growth in U.S. aquatics. Net sales in
Europe also grew, driven by favorable year-ago comparisons from
distribution center fulfillment constraints. Excluding unfavorable
foreign exchange impacts of $3.5 million, organic net sales grew
15.7%.
Improved operating income and margin were driven by the absence
of rawhide recall-related costs compared to last year and lower
restructuring expense this year. Higher adjusted EBITDA and
operating income reflected increased volumes in companion animal
and positive pricing, partially offset by higher manufacturing and
distribution costs.
Home & Garden (H&G)
Three Month Periods
Ended
(in millions, except %)
June 30, 2019
June 30, 2018
Variance
Net Sales
$
202.5
$
207.9
$
(5.4)
(2.6%)
Operating Income
48.0
52.2
(4.2)
(8.0%)
Operating Income Margin
23.7%
25.1%
(140)
bps
Adjusted EBITDA
$
53.3
$
57.0
$
(3.7)
(6.5%)
Adjusted EBITDA Margin
26.3%
27.4%
(110)
bps
Decreased net sales were driven by unfavorable weather
conditions during most of the quarter, with reduced sales in
household insect and outdoor controls being partially offset by
growth in repellents due to strong early season home center
orders.
Lower operating income, adjusted EBITDA and margins were driven
by increases in input costs and higher marketing and advertising
investments, partially offset by productivity and pricing
actions.
Liquidity and Debt
Spectrum Brands completed the third quarter of fiscal 2019 with
a strong liquidity position, including a cash balance of
approximately $161 million and approximately $724 million available
on its $800 million Cash Flow Revolver.
As of the end of the third quarter of fiscal 2019, the Company
had approximately $2,321 million of debt outstanding, consisting of
approximately $54 million drawn on its Cash Flow Revolver, $2,018
million of senior unsecured notes, and approximately $249 million
of capital leases and other obligations.
Fiscal 2019 Outlook for Continuing Operations
Spectrum Brands now expects reported net sales to be comparable
with the prior year, with foreign exchange expected to have a
negative impact of approximately 150 basis points based upon
current rates.
The Company also affirms its adjusted EBITDA guidance range of
$560-$580 million, and capital expenditures are now expected to be
between $60-$65 million.
Conference Call/Webcast Scheduled for 10:00 A.M. Eastern Time
Today
Spectrum Brands will host an earnings conference call and
webcast at 10:00 a.m. Eastern Time today, August 7. To access the
live conference call, U.S. participants may call 877-556-5260 and
international participants may call 973-532-4903. The conference ID
number is 1374058. 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 August 21. To access this replay, participants
may call 855-859-2056 and use the same conference ID number.
About Spectrum Brands Holdings, Inc.
Spectrum Brands Holdings, a member of the Russell 1000 Index, is
a global and diversified consumer products company and 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, our Company
offers a broad portfolio of market-leading, well-known and widely
trusted brands including Kwikset®, Weiser®, Baldwin®, National
Hardware®, Pfister®, Remington®, Black + Decker®, George Foreman®,
Russell Hobbs®, Tetra®, Marineland®, GloFish®, Nature’s Miracle®,
Dingo®, 8-in-1®, FURminator®, IAMS® and Eukanuba® (Europe only),
Healthy-Hide®, Digest-eeze™, DreamBone®, SmartBones®, Littermaid®,
Spectracide®, Cutter®, Repel®, Hot Shot®, Black Flag® and Liquid
Fence®. For more information, visit www.spectrumbrands.com.
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. 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. 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 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 2019 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 2019 and 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 impact
of actions taken by significant stockholders; (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 effects of general economic
conditions, including inflation, recession or fears of a recession,
depression or fears of a depression, labor costs and stock market
volatility or changes in trade, tariff, monetary or fiscal policies
in the countries where we do business; (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
implement, achieve and sustain manufacturing and distribution cost
efficiencies and productivity improvements, and fully realize
anticipated 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 pending or threatened litigation; (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 inability
to successfully integrate and operate new acquisitions at the level
of financial performance anticipated; (24) the unanticipated loss
of key members of senior management; (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.
SPECTRUM BRANDS HOLDINGS,
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME (Unaudited)
Three Month Periods
Ended
Nine Month Periods
Ended
(in millions, except per share
amounts)
June 30, 2019
June 30, 2018
June 30, 2019
June 30, 2018
Net sales
$
1,022.2
$
1,029.4
$
2,809.2
$
2,834.3
Cost of goods sold
660.7
665.2
1,835.3
1,843.4
Restructuring and related charges
0.5
1.5
1.5
3.5
Gross profit
361.0
362.7
972.4
987.4
Selling
152.1
147.1
459.1
453.3
General and administrative
80.6
76.1
263.6
238.4
Research and development
10.5
10.8
32.7
33.8
Acquisition and integration related
charges
4.8
5.5
16.4
20.4
Restructuring and related charges
20.2
16.4
40.7
51.9
Total operating expenses
268.2
255.9
812.5
797.8
Operating income
92.8
106.8
159.9
189.6
Interest expense
33.9
63.3
185.1
206.4
Other non-operating expense (income),
net
39.4
(1.2)
64.2
(2.0)
Income (loss) from continuing operations
before income taxes
19.5
44.7
(89.4)
(14.8)
Income tax expense (benefit)
44.2
(354.2)
18.2
(476.4)
Net (loss) income from continuing
operations
(24.7)
398.9
(107.6)
461.6
(Loss) Income from discontinued
operations, net of tax
(1.2)
33.8
699.1
526.5
Net income (loss)
(25.9)
432.7
591.5
988.1
Net income attributable to non-controlling
interest
—
27.1
1.2
104.1
Net income (loss) attributable to
controlling interest
$
(25.9)
$
405.6
$
590.3
$
884.0
Amounts attributable to controlling
interest
Net (loss) income from continuing
operations attributable to controlling interest
$
(24.7)
$
382.9
$
(108.8)
$
390.3
Net (loss) income from discontinued
operations attributable to controlling interest
(1.2)
22.7
699.1
493.7
Net (loss) income attributable to
controlling interest
$
(25.9)
$
405.6
$
590.3
$
884.0
Earnings Per Share
Basic earnings per share from continuing
operations
$
(0.51)
$
11.69
$
(2.12)
$
12.00
Basic earnings per share from discontinued
operations
(0.02)
0.70
13.62
15.17
Basic earnings per share
$
(0.53)
$
12.39
$
11.50
$
27.17
Diluted earnings per share from continuing
operations
$
(0.51)
$
11.68
$
(2.12)
$
11.94
Diluted earnings per share from
discontinued operations
(0.02)
0.69
13.62
15.10
Diluted earnings per share
$
(0.53)
$
12.37
$
11.50
$
27.04
Weighted Average Shares
Outstanding
Basic
48.8
32.7
51.3
32.5
Diluted
48.8
32.8
51.3
32.7
SPECTRUM BRANDS HOLDINGS,
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOW (Unaudited)
Nine Month Periods
Ended
(in millions)
June 30, 2019
June 30, 2018
Cash flows from operating
activities
Net cash used by operating activities from
continuing operations
$
(186.1)
$
(175.2)
Net cash (used) provided by operating
activities from discontinued operations
(250.4)
118.8
Net cash used by operating activities
(436.5)
(56.4)
Cash flows from investing
activities
Purchases of property, plant and
equipment
(40.3)
(56.6)
Proceeds from sales of property, plant and
equipment
0.1
2.8
Proceeds from sale of discontinued
operations, net of cash
2,854.4
1,546.8
Other investing activities, net
(0.2)
(0.5)
Net cash provided by investing activities
from continuing operations
2,814.0
1,492.5
Net cash used by investing activities from
discontinued operations
(5.4)
(194.3)
Net cash provided by investing
activities
2,808.6
1,298.2
Cash flows from financing
activities
Proceeds from issuance of debt
54.0
556.8
Payment of debt , including premium on
extinguishment
(2,475.1)
(1,010.6)
Payment of debt issuance costs
(0.1)
(0.4)
Treasury stock purchases
(268.5)
—
Purchases of subsidiary stock, net
—
(288.0)
Dividends paid to shareholders
(65.1)
—
Dividends paid by subsidiary to
non-controlling interest
—
(28.4)
Share based award tax withholding
payments, net of proceeds upon vesting
(3.3)
(24.3)
Other financing activities, net
(8.9)
20.7
Net cash used by financing activities from
continuing operations
(2,767.0)
(774.2)
Net cash (used) provided by financing
activities from discontinued operations
(2.2)
117.7
Net cash used by financing activities
(2,769.2)
(656.5)
Effect of exchange rate changes on cash
and cash equivalents
(2.9)
(3.1)
Net change in cash, cash equivalents and
restricted cash
(400.0)
582.2
Net change in cash, cash equivalents and
restricted cash in discontinued operations
—
37.7
Net change in cash, cash equivalents and
restricted cash in continuing operations
(400.0)
544.5
Cash, cash equivalents and restricted
cash, beginning of period
561.4
254.8
Cash, cash equivalents and restricted
cash, end of period
$
161.4
$
799.3
SPECTRUM BRANDS HOLDINGS,
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION (Unaudited)
(in millions)
June 30, 2019
Sept. 30, 2018
Assets
Cash and cash equivalents
$
161.4
$
552.5
Trade receivables, net
568.5
317.1
Other receivables
62.9
51.7
Inventories
718.6
583.6
Prepaid expenses and other current
assets
60.4
63.2
Current assets of business held for
sale
—
2,402.6
Total current assets
1,571.8
3,970.7
Property, plant and equipment, net
464.9
500.0
Deferred charges and other
28.5
231.8
Investments
204.7
—
Goodwill
1,451.0
1,454.7
Intangible assets, net
1,567.5
1,641.8
Total assets
$
5,288.4
$
7,799.0
Liabilities and Shareholders'
Equity
Current portion of long-term debt
$
13.8
$
26.9
Accounts payable
452.7
584.7
Accrued wages and salaries
65.4
55.1
Accrued interest
34.7
65.0
Other current liabilities
452.1
159.4
Current liabilities of business held for
sale
—
537.6
Total current liabilities
1,018.7
1,428.7
Long-term debt, net of current portion
2,275.2
4,624.3
Deferred income taxes
35.0
35.0
Other long-term liabilities
75.5
121.4
Total liabilities
3,404.4
6,209.4
Shareholders' equity
1,874.6
1,581.3
Noncontrolling interest
9.4
8.3
Total equity
1,884.0
1,589.6
Total liabilities and equity
$
5,288.4
$
7,799.0
SPECTRUM BRANDS HOLDINGS,
INC.
OTHER SUPPLEMENTAL INFORMATION
(Unaudited)
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:
- Proforma adjustment associated with the per share impact from
the Spectrum Merger, including the change in weighted average
shares from incremental shares issued to execute the share exchange
with Spectrum’s non-controlling interest, plus the inclusion of
income attributable to non-controlling interest in Spectrum
recognized by HRG Group, Inc. (“HRG”) prior to the consolidation of
the shareholder groups and recognition of Spectrum as a
wholly-owned business after completion of the Spectrum Merger for
the three and nine month periods ended June 30, 2018.
- Transaction related charges consist of (1) transaction costs
from qualifying acquisition transactions during the period, or
subsequent integration related project costs directly associated
with an acquired business; (2) post-divestiture separation costs
consisting of incremental costs incurred by the continuing
operations of the Company after completion of the GBL and GAC
divestitures to facilitate separation of shared operations,
development of transferred shared service operations, platforms and
personnel transferred as part of the divestitures and exiting of
TSAs and reverse TSAs with Energizer; (3) divestiture related
transaction costs that are recognized in continuing operations due
to the change in plan to cease marketing and selling of the HPC
business.
- Restructuring and related costs, which consist of project costs
associated with restructuring initiatives across segments;
- Unrealized gains and losses attributable to the Company’s
investment in Energizer common stock, acquired as part of
consideration received from the Company’s sale and divestiture of
GAC to Energizer;
- Foreign currency gains and losses attributable to multicurrency
loans that were entered with foreign subsidiaries in exchange for
the receipt of divestiture proceeds by the parent company through
the distribution of the respective foreign subsidiaries’ net assets
as part of the GBL and GAC divestitures. The Company has also
entered into various hedging arrangements to mitigate the
volatility of foreign exchange risk associated with such
loans.
- Purchase accounting inventory adjustments recognized in
earnings subsequent to an acquisition (when applicable);
- Non-cash asset impairments or write-offs of intangible assets,
goodwill, or property plant and equipment realized (when
applicable);
- Incremental costs associated with a safety recall in PET;
- Incremental costs directly associated with the Spectrum Merger
during the three and nine month periods ended June 30, 2018;
- Non-recurring HRG net operating costs during the three and nine
month periods ended June 30, 2018, considered to be redundant or
duplicative as a result of the Spectrum Merger and not considered a
component of the continuing commercial products company
post-merger, including compensation and benefits, directors fees,
professional fees, insurance, public company costs, amongst others,
and including interest and other non-recurring income that will
ultimately be eliminated following the transaction;
- Interest costs associated with HRG-originated debt during the
three and nine month periods ended June 30, 2018;
- Depreciation and amortization on long-lived assets from HPC
that was deferred during the three and nine month periods ended
June 30, 2018 while considered held for sale (effective December
27, 2017) and subsequently reclassified as held for use during the
three month period ended December 30, 2018, resulting in the
recognition of a cumulative true-up of amounts previously deferred;
and
- Other adjustments primarily consisting of costs attributable to
(1) operating margin on H&G sales to GAC discontinued
operations for the three and nine month periods ended June 30, 2019
and 2018, respectively; (2) expenses and cost recovery for flood
damage at Company facilities in Middleton, Wisconsin during the
three and nine month periods ended June 30, 2019; (3) certain fines
and penalties for delayed shipments following the completion of a
PET distribution center consolidation in EMEA during the nine month
period ended June 30, 2019; (4) legal and litigation costs
associated with Salus during the three and nine month periods ended
June 30, 2019 as they are not considered a component of the
continuing commercial products company, but continue to be
consolidated by the Company after completion of the Spectrum Merger
until the Salus operations can be wholly dissolved and/or
deconsolidated; and (5) incremental costs for separation of a key
executive during the three and nine month periods ended June 30,
2018.
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% and 24.5% for the three and nine month
periods ended June 30, 2019 and June 30, 2018, respectively, net of
adjustments made to diluted EPS, based upon enacted corporate tax
rate in the United States. The following is a reconciliation of
reported diluted EPS from continuing operations to adjusted diluted
EPS from continuing operations for the three and nine month periods
ended June 30, 2019 and 2018.
Three Month Periods
Ended
Nine Month Periods
Ended
June 30, 2019
June 30, 2018
June 30, 2019
June 30, 2018
Diluted EPS from continuing operations, as
reported
$
(0.51)
$
11.68
$
(2.12)
$
11.94
Adjustments:
Spectrum Merger share exchange proforma
adjustment
—
(4.27)
—
(3.58)
Transaction related charges
0.10
0.10
0.32
0.37
Restructuring and related charges
0.42
0.33
0.82
1.01
Debt refinancing costs
—
—
0.99
—
Unrealized loss on Energizer
investment
0.68
—
0.75
—
Foreign currency loss on multicurrency
divestiture loans
0.16
—
0.58
—
Purchase accounting inventory
adjustment
—
—
—
0.01
Pet safety recall
—
0.10
0.01
0.29
Spectrum Merger related transaction
costs
—
0.06
—
0.40
Non-recurring HRG net operating costs
—
0.03
—
0.24
Interest cost on HRG debt
—
0.37
—
1.50
Depreciation & amortization on HPC
long-lived assets
—
(0.20)
0.56
(0.40)
Other
0.04
0.06
0.09
0.08
Income tax adjustment
0.46
(7.00)
(0.24)
(9.44)
Total adjustments
1.86
(10.42)
3.88
(9.52)
Diluted EPS from continuing operations, as
adjusted
$
1.35
$
1.26
$
1.76
$
2.42
SPECTRUM BRANDS HOLDINGS,
INC.
OTHER SUPPLEMENTAL INFORMATION
(Unaudited)
ADJUSTED DILUTED EPS (continued)
The weighted average shares and adjusted earnings per share data
are adjusted for the three and nine month periods ended June 30,
2018, to reflect the reverse stock split and share exchange because
of the HRG Merger, which closed on July 13, 2018. For the three
month period ended December 31, 2017, the weighted average shares
was adjusted using (i) the 20-trading-day volume-weighted average
price per share of Spectrum common stock ending on July 12, 2018,
(ii) the number of shares of Spectrum common stock outstanding, the
number of shares of Spectrum common stock held by HRG and its
subsidiaries and the number of shares of Spectrum common stock
outstanding as of July 12, 2018, (iii) $328.2 million of HRG net
indebtedness and transaction expense at closing, and (iv) a $200.0
million upward adjustment contemplated by the Merger Agreement,
each HRG stockholder received approximately 0.1613 of a share of
the post-Merger combined company stock for each share of pre-Merger
common stock. The following is a recalculation of the weighted
average shares adjusted for the impact of the reverse stock split
and share exchange for the three and nine month periods ended June
30, 2018.
Three Month Period
Nine Month Period
(in millions, except per share
amounts)
Ended June 30, 2018
Ended June 30, 2018
Spectrum weighted average shares
55.4
56.7
Spectrum weighted average shares owned by
HRG
34.3
34.3
Spectrum weighted average shares owned by
third parties (A)
21.1
22.4
HRG weighted average shares
203.3
202.7
HRG share conversion at 1 to 0.1613
(B)
32.8
32.7
Total weighted average shares (A + B)
53.8
55.1
The following summarizes transaction related charges for the
three and nine month periods ended June 30, 2019 and 2018:
Three Month Periods
Ended
Nine Month Periods
Ended
(in millions)
June 30, 2019
June 30, 2018
June 30, 2019
June 30, 2018
HHI Integration
$
—
$
0.9
$
0.9
$
5.5
PetMatrix Integration
—
0.8
—
4.5
HPC divestiture related charges
0.6
2.4
6.1
7.8
GBL post divestiture separation costs
3.3
—
5.8
—
GAC post divestiture separation costs
—
—
0.4
—
Other integration related charges
0.9
1.4
3.2
2.6
Total
$
4.8
$
5.5
$
16.4
$
20.4
The following summarizes restructuring and related charges for
the three and nine month periods ended June 30, 2019 and 2018:
Three Month Periods
Ended
Nine Month Periods
Ended
(in millions)
June 30, 2019
June 30, 2018
June 30, 2019
June 30, 2018
Global productivity improvement plan
$
19.6
$
—
$
38.1
$
—
HHI distribution center consolidation
—
11.6
2.3
40.4
PET rightsizing initiative
—
3.1
—
7.1
Other restructuring activities
1.1
3.2
1.8
7.9
Total restructuring and related
charges
$
20.7
$
17.9
$
42.2
$
55.4
SPECTRUM BRANDS HOLDINGS,
INC.
OTHER SUPPLEMENTAL INFORMATION
(Unaudited)
NET SALES AND ORGANIC NET SALES
The following is a summary of net sales by segment for the three
and nine month periods ended June 30, 2019 and 2018,
respectively:
Three Month Periods
Ended
Nine Month Periods
Ended
(in millions, except %)
June 30, 2019
June 30, 2018
Variance
June 30, 2019
June 30, 2018
Variance
HHI
$
354.6
$
372.4
(17.8)
(4.8%)
$
990.7
$
1,016.8
(26.1)
(2.6%)
HPC
243.4
254.4
(11.0)
(4.3%)
782.3
827.5
(45.2)
(5.5%)
PET
221.7
194.7
27.0
13.9%
641.3
608.3
33.0
5.4%
H&G
202.5
207.9
(5.4)
(2.6%)
394.9
381.7
13.2
3.5%
Net Sales
$
1,022.2
$
1,029.4
(7.2)
(0.7%)
$
2,809.2
$
2,834.3
(25.1)
(0.9%)
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 and nine month periods ended June
30, 2019 compared to reported net sales for the three and nine
month periods ended June 30, 2018, respectively:
June 30, 2019
Three Month Periods Ended (in millions,
except %)
Net Sales
Effect of Changes in
Currency
Organic Net Sales
Net Sales June 30,
2018
Variance
HHI
$
354.6
$
1.8
$
356.4
$
372.4
$
(16.0)
(4.3%)
HPC
243.4
10.3
253.7
254.4
(0.7)
(0.3%)
PET
221.7
3.5
225.2
194.7
30.5
15.7%
H&G
202.5
—
202.5
207.9
(5.4)
(2.6%)
Net Sales
$
1,022.2
$
15.6
$
1,037.8
$
1,029.4
8.4
0.8%
June 30, 2019
Nine Month Periods Ended (in millions,
except %)
Net Sales
Effect of Changes in
Currency
Organic Net Sales
Net Sales June 30,
2018
Variance
HHI
$
990.7
$
5.7
$
996.4
$
1,016.8
$
(20.4)
(2.0%)
HPC
782.3
32.3
814.6
827.5
(12.9)
(1.6%)
PET
641.3
10.6
651.9
608.3
43.6
7.2%
H&G
394.9
—
394.9
381.7
13.2
3.5%
Total
$
2,809.2
$
48.6
$
2,857.8
$
2,834.3
23.5
0.8%
SPECTRUM BRANDS HOLDINGS,
INC.
OTHER SUPPLEMENTAL INFORMATION
(Unaudited)
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:
- Stock based and other incentive compensation costs that consist
of costs associated with long-term compensation arrangements and
other equity based compensation based upon achievement of long-term
performance metrics; and generally consist of non-cash, stock-based
compensation. During the year ending September 30, 2019, the
Company issued certain incentive bridge awards due to changes in
the Company’s long-term compensation plans that allow for cash
based payment upon employee election which have been included in
the adjustment but would not qualify for shared-based compensation
expense;
- Transaction related charges consist of (1) transaction costs
from qualifying acquisition transactions during the period, or
subsequent integration related project costs directly associated
with an acquired business; (2) post-divestiture separation costs
consisting of incremental costs incurred by the continuing
operations of the Company after completion of the GBL and GAC
divestitures to facilitate separation of shared operations,
development of transferred shared service operations, platforms and
personnel transferred as part of the divestitures and exiting of
TSAs and reverse TSAs with Energizer; (3) divestiture related
transaction costs that are recognized in continuing operations due
to the change in plan to cease marketing and selling of the HPC
business.
- Restructuring and related charges, which consist of project
costs associated with restructuring initiatives across the
segments;
- Unrealized gains and losses attributable to the Company’s
investment in Energizer common stock, acquired as part of
consideration received from the Company’s sale and divestiture of
GAC to Energizer;
- Foreign currency gains and losses attributable to multicurrency
loans that were entered with foreign subsidiaries in exchange for
the receipt of divestiture proceeds by the parent company through
the distribution of the respective foreign subsidiaries’ net assets
as part of the GBL and GAC divestitures. The Company has also
entered into various hedging arrangements to mitigate the
volatility of foreign exchange risk associated with such
loans;
- Incremental costs associated with a safety recall in PET;
- Non-cash purchase accounting inventory adjustments recognized
in earnings from continuing operations subsequent to an acquisition
(when applicable);
- Non-cash asset impairments or write-offs realized and
recognized in earnings from continuing operations (when
applicable);
- Incremental costs directly associated with the Spectrum Merger
during the three and nine month periods ended June 30, 2018;
- Non-recurring HRG net operating costs during the three and nine
month periods ended June 30, 2018, considered to be redundant or
duplicative as a result of the Spectrum Merger and not considered a
component of the continuing commercial products company
post-merger, including compensation and benefits, directors fees,
professional fees, insurance, public company costs, amongst others,
and including interest and other non-recurring income that will
ultimately be eliminated following the transaction; and
- Other adjustments primarily consisting of costs attributable to
(1) operating margin on H&G sales to GAC discontinued
operations for the three and nine month periods ended June 30, 2019
and 2018 respectively; (2) expenses and cost recovery for flood
damage at Company facilities in Middleton, Wisconsin during the
three and nine month periods ended June 30, 2019; (3) certain fines
and penalties for delayed shipments following the completion of a
PET distribution center consolidation in EMEA during the nine month
period ended June 30, 2019; (4) legal and litigation costs
associated with Salus during the three and nine month periods ended
June 30, 2019 as they are not considered a component of the
continuing commercial products company, but continue to be
consolidated by the Company after completion of the Spectrum Merger
until the Salus operations can be wholly dissolved and/or
deconsolidated; and (5) incremental costs for separation of a key
executive during the three and nine month periods ended June 30,
2018.
Adjusted EBITDA margin is calculated as adjusted EBITDA as a
percentage of reported net sales for the respective period.
SPECTRUM BRANDS HOLDINGS,
INC.
OTHER SUPPLEMENTAL INFORMATION
(Unaudited)
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 June 30, 2019
and 2018, including the calculation of adjusted EBITDA margin for
each of the respective periods.
Three Month Period Ended June 30, 2019
(in millions, except %)
HHI
HPC
PET
H&G
Corporate
Consolidated
Net income (loss) from continuing
operations
$
58.2
$
5.7
$
25.9
$
48.0
$
(162.5)
$
(24.7)
Income tax benefit
—
—
—
—
44.2
44.2
Interest expense
—
—
—
—
33.9
33.9
Depreciation and amortization
8.4
8.5
10.8
4.8
3.4
35.9
EBITDA
66.6
14.2
36.7
52.8
(81.0)
89.3
Share and incentive based compensation
—
—
—
—
15.6
15.6
Transaction related charges
—
0.7
0.7
—
3.4
4.8
Restructuring and related charges
1.1
3.2
1.4
0.4
14.6
20.7
Unrealized loss on Energizer
investment
—
—
—
—
33.2
33.2
Foreign currency loss on multicurrency
divestiture loans
—
—
—
—
7.7
7.7
Other
—
0.1
0.2
0.1
1.2
1.6
Adjusted EBITDA
$
67.7
$
18.2
$
39.0
$
53.3
$
(5.3)
$
172.9
Net Sales
$
354.6
$
243.4
$
221.7
$
202.5
$
—
$
1,022.2
Adjusted EBITDA Margin
19.1%
7.5%
17.6%
26.3%
—
16.9%
Three Month Period Ended June 30, 2018
(in millions, except %)
HHI
HPC
PET
H&G
Corporate
Consolidated
Net income (loss) from continuing
operations
$
52.1
$
18.8
$
14.4
$
52.1
$
261.5
$
398.9
Income tax benefit
—
—
—
—
(354.2)
(354.2)
Interest expense
—
—
—
—
63.3
63.3
Depreciation and amortization
8.9
—
10.6
4.7
3.7
27.9
EBITDA
61.0
18.8
25.0
56.8
(25.7)
135.9
Share based compensation
—
—
—
—
5.7
5.7
Transaction related charges
0.9
2.4
1.1
—
1.1
5.5
Restructuring and related charges
12.0
0.2
3.7
0.1
1.9
17.9
Pet safety recall
—
—
5.1
—
—
5.1
Spectrum merger related transaction
charges
—
—
—
—
3.1
3.1
Non-recurring HRG operating costs and
interest income
—
—
—
—
1.1
1.1
Other
—
—
—
0.1
3.3
3.4
Adjusted EBITDA
$
73.9
$
21.4
$
34.9
$
57.0
$
(9.5)
$
177.7
Net Sales
$
372.4
$
254.4
$
194.7
$
207.9
$
—
$
1,029.4
Adjusted EBITDA Margin
19.8%
8.4%
17.9%
27.4%
—
17.3%
SPECTRUM BRANDS HOLDINGS,
INC.
OTHER SUPPLEMENTAL INFORMATION
(Unaudited)
ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN
(continued)
The following is a reconciliation of reported net income (loss)
to adjusted EBITDA for the nine month periods ended June 30, 2019
and 2018, including the calculation of adjusted EBITDA margin for
each of the respective periods.
Nine Month Period Ended June 30, 2019
(in millions, except %)
HHI
HPC
PET
H&G
Corporate
Consolidated
Net income (loss) from continuing
operations
$
145.4
$
(9.0)
$
57.3
$
70.8
$
(372.1)
$
(107.6)
Income tax benefit
—
—
—
—
18.2
18.2
Interest expense
—
—
—
—
185.1
185.1
Depreciation and amortization
25.3
55.7
32.0
14.4
11.0
138.4
EBITDA
170.7
46.7
89.3
85.2
(157.8)
234.1
Share and incentive based compensation
—
—
—
—
38.7
38.7
Transaction related charges
0.9
6.3
1.6
—
7.6
16.4
Restructuring and related charges
4.3
4.7
6.4
1.4
25.4
42.2
Pet safety recall
—
—
0.7
—
—
0.7
Unrealized loss on Energizer
investment
—
—
—
—
38.2
38.2
Foreign currency loss on multicurrency
divestiture loans
—
—
—
—
29.5
29.5
Other
—
—
2.9
(0.7)
1.7
3.9
Adjusted EBITDA
$
175.9
$
57.7
$
100.9
$
85.9
$
(16.7)
$
403.7
Net Sales
$
990.7
$
782.3
$
641.3
$
394.9
$
—
$
2,809.2
Adjusted EBITDA Margin
17.8%
7.4%
15.7%
21.8%
—
14.4%
Nine Month Period Ended June 30, 2018
(in millions, except %)
HHI
HPC
PET
H&G
Corporate
Consolidated
Net income from continuing operations
$
101.8
$
65.9
$
42.5
$
73.5
$
177.9
$
461.6
Income tax benefit
—
—
—
—
(476.4)
(476.4)
Interest expense
—
—
—
—
206.4
206.4
Depreciation and amortization
31.4
8.8
31.7
14.0
10.7
96.6
EBITDA
133.2
74.7
74.2
87.5
(81.4)
288.2
Share based compensation
—
—
—
—
7.0
7.0
Transaction related charges
5.5
8.1
5.2
—
1.6
20.4
Restructuring and related charges
40.8
0.5
8.1
0.3
5.7
55.4
Inventory acquisition step-up
—
—
0.8
—
—
0.8
Pet safety recall
—
—
16.3
—
—
16.3
Spectrum merger related transaction
charges
—
—
—
—
22.0
22.0
Non-recurring HRG operating costs and
interest income
—
—
—
—
13.0
13.0
Other
—
—
—
(0.1)
3.3
3.2
Adjusted EBITDA
$
179.5
$
83.3
$
104.6
$
87.7
$
(28.8)
$
426.3
Net Sales
$
1,016.8
$
827.5
$
608.3
$
381.7
$
—
$
2,834.3
Adjusted EBITDA Margin
17.7%
10.1%
17.2%
23.0%
—
15.0%
SPECTRUM BRANDS HOLDINGS,
INC.
OTHER SUPPLEMENTAL INFORMATION
(Unaudited)
ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN
(continued)
The following is a reconciliation of forecasted net income to
adjusted EBITDA for the fiscal year ending September 30, 2019.
(in millions)
F2019
Net income
$
(104) - (70)
Income tax expense
16 - 37
Interest expense
215 - 225
Depreciation and amortization
170 - 180
EBITDA
317 - 352
Share and incentive based compensation
57
Transaction related charges
18 - 22
Restructuring and related charges
80 - 90
Pet safety recall
1
Unrealized loss on Energizer
investment
38
Foreign currency loss on multicurrency
divestiture loans
30
Other
4 - 5
Adjusted EBITDA
$
560 - 580
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190807005190/en/
Investor/Media Contact: Dave Prichard
608-278-6141
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