Spectrum Brands managed a Wall Street beat on earnings in the third quarter, but outside influences proved a drag on the top line.
Net loss from continuing operations was $172.2 million, or $4.27 per diluted share, versus net income from continuing operations of $3 million, or seven cents per diluted share, in the year-prior quarter. Adjusted for one-time events, diluted earnings from continuing operations were 75 cents per diluted share versus 54 cents per diluted share in the year-earlier period, the company reported.
A Yahoo Finance analyst consensus estimate called for 40 cents per adjusted diluted share earnings in the quarter and revenue of $787.1 million.
Net sales declined 10.1% in the quarter year over year to $735.5 million, Spectrum noted, with a decrease in organic net sales of 9.7%, excluding the impact of $3.5 million from unfavorable foreign exchange rates. Net sales slipped due to retailer inventory management strategies and slower-than-expected category POS, offset by positive pricing adjustments. Operating loss was $124.7 million versus operating income of $38.7 million in the year-before period with the recognition of goodwill impairment of $111.1 million, intangible asset impairment of $53.7 million and past year gain from the remeasurement of contingent gain liability partially offset by lower distribution costs, fixed cost reduction efforts and reduced project spend on restructuring, optimization and strategic transaction initiatives.
In the Home and Personal Care segment, net sales fell to $276.6 million from $329.3 million in the quarter a year earlier as operating loss came in at $156.8 million versus operating income of $14.4 million.
The decrease in net sales primarily occurred due to a category decline arising from lower consumer demand for kitchen appliances. International market sales grew in the Personal Care and Kitchen Appliances categories, but sales in North America were lower due to lower consumer demand, increased competitive activities and continued retailer inventory management, Spectrum maintained.
In the Home & Garden segment, net sales fell to $186.6 million from $198.5 million in the quarter a year prior, as operating income declined to $26.2 million from $36.2 million.
Unanticipated adverse weather drove the net sales decrease leading to lower POS and lower-than-expected replenishment orders for the pest control category. Lower than anticipated POS late in the quarter also caused retailers to remain conservative with their inventory planning and further reduce stocks. Cleaning products sales gained in the low single digits, but the category POS remained challenged as consumer demand for cleaning products continues to slide with the decline of the COVID-19 pandemic and the performance in the category remains below expectations, according to Spectrum.
In announcing the financial results, David Maura, Spectrum chairman and CEO, said, “We have been challenged by a number of unanticipated developments throughout this year, including lower consumer demand resulting in significant sales volatility to our retail customers, cooler weather in the third quarter exacerbating this trend for our Home and Garden business, and the DOJ lawsuit to block the sale of our HHI business unit. While we are disappointed with our top-line performance in the quarter, I am pleased with the fact that our focus on profitability is paying off as we exceeded third-quarter EBITDA expectations, excluding investment income. We expect some of these short-term demand headwinds to continue in the fourth quarter and, therefore, expect to be towards the lower end of our earnings framework, excluding the investment income from the HHI proceeds. We also believe there is still excess inventory in the retail channel as well as our balance sheet, particularly in kitchen appliances. Going into fiscal ‘24, one of our goals is to continue to improve the health of our inventory.”
Maura added that the company’s HHI transaction had put the company in a debt-free position.
“Our balance sheet is stronger than it has ever been and we have taken a major step in the direction of becoming a faster growing, higher margin, pure-play Global Pet Care and Home and Garden company,” he said. “We have also repaid $1.6 billion of our outstanding debt and are returning capital to shareholders through a $500 million accelerated share repurchase program. In addition, our team is now able to refocus all their energy on our core businesses and with the stronger balance sheet, we believe we are very well positioned to drive long-term growth and profitability.”
