Spectrum Brands, Inc. Announces Third Quarter Financial Results
Spectrum Brands, Inc. Press Release (excerpted)FlashlightNews.org - 08/07/2006
Spectrum Brands continues to face challenges in European battery business, leading contributor to disappointing third quarter results
Spectrum Brands
ATLANTA, Ga. - Spectrum Brands, Inc. (NYSE:SPC), a global consumer products company with a diverse portfolio of world-class brands, announced financial results of diluted earnings per share of five cents for its fiscal third quarter ended July 2, 2006. Excluding certain adjustments which management believes are not indicative of the company's on-going normalized operations, diluted earnings per share for its fiscal third quarter would have been $0.22. (See Table 3, "Reconciliation of GAAP to Adjusted Financial Data," for further detail).
Last year, the company reported diluted earnings per share of $0.46 for the quarter ended July 3, 2005. The company estimates that the prior year's third quarter diluted earnings per share, excluding certain adjustments which management believes are not indicative of the company's ongoing normalized operations, were $0.70.
"Spectrum Brands continues to face challenges in our European battery business, which was the leading contributor to our disappointing third quarter results," said David A. Jones, chairman and chief executive officer. "We also generated lower-than-expected sales this quarter from Remington men's shaving in North America at Father's Day. However, there were a number of bright spots in our third quarter results, including a strong performance from Remington branded products in Europe and a modest but encouraging sequential improvement in our North American battery business.
"The Spectrum Brands management team is fully focused on improving our financial performance. We are moving quickly to stabilize our European battery business and to execute on our growth strategy throughout the rest of our product portfolio. We continue to make good progress on our cost reduction initiatives. In addition, we are examining ways to reduce debt and leverage levels and strengthen our balance sheet through potential divestiture of selected assets with the goal of becoming a leaner, more flexible organization well-positioned to create long-term shareholder value."
Financial results for the quarter ended July 2, 2006 include results from Tetra Holding GmbH, acquired on April 29, 2005, and Jungle Labs, acquired on September 1, 2005. Financial results for periods prior to the acquisition dates exclude Tetra and Jungle. On January 25, 2006 Spectrum Brands divested its Canadian fertilizer technology and professional products businesses. As a result of this sale, the company has reported the third quarter and year-to-date results of these businesses as discontinued operations in the condensed consolidated statements of operations for both 2006 and 2005.
Third Quarter Results
Spectrum Brands' third quarter net sales were $698.3 million, as compared to $707.8 million for the same period last year. The revenue contribution from acquisitions was $22.8 million. Foreign exchange translation contributed a net positive $5.0 million.
Gross profit and gross margin for the quarter was $265.5 million and 38.0 percent, respectively, versus $270.2 million and 38.2 percent for the same period last year. Cost of goods sold during the quarter included $2.7 million in restructuring and related charges. Prior year results included a $7.3 million inventory valuation charge related to the United and Tetra acquisitions and $7.8 million in restructuring and related charges associated with the closure of a French manufacturing facility. Excluding these charges, gross profit margin for the third quarter was 38.4 percent versus 40.3 percent for the same period last year. The decline in gross margin percentage resulted primarily from lower sales in the global battery business and increased raw material costs.
Operating income was $49.0 million, or 7.0 percent of sales, versus fiscal 2005's third quarter operating income of $69.0 million, or 9.7 percent of sales. Operating expenses in 2006 included net restructuring and related charges and other costs of $9.8 million primarily attributable to the United integration and rationalization of the company's European sales and marketing organization. In 2005 operating expenses included $7.3 million in net restructuring and related charges and other costs primarily related to the United acquisition. Adjusted operating income for the third quarter was $61.5 million, or 8.8 percent of sales, compared to $91.4 million, or 12.9 percent of sales last year. Distribution costs were $9.7 million higher than compared with a year ago, in large part due to significant increases in fuel costs. Increased investment in advertising spending added another $2.2 million to operating expenses.
Third Quarter Segment Results
North American net sales were $394.2 million compared with $412.8 million reported last year. Battery and lighting sales declined 11 percent versus last year, as the company has not yet fully recovered from market share and distribution losses that occurred in 2005 and earlier in fiscal 2006. Remington branded product sales declined by 27 percent, largely the result of a weak category performance in Father's Day men's shaver sales. In the company's lawn and garden business, consumer purchases of Spectrum Brands products at retail grew five percent during the third quarter; however, reported lawn and garden sales grew at a three percent rate primarily as a result of retail customers' inventory reduction programs. North American segment profits were $61.7 million versus $72.3 million reported last year, as a result of the year over year sales decline.
European/ROW net sales were $117.1 million versus $137.3 million in the prior year. Sales of Remington branded products grew by 19 percent as a result of strong penetration gains in continental Europe. However, this improvement was more than offset by an unfavorable product mix shift from branded to private label battery sales and from higher margin specialty retail distribution channels to lower margin food and mass channels, which contributed to a 23 percent sales decline from batteries. Segment profitability for the quarter was $4.3 million compared with $18.0 million last year, primarily a function of lower battery sales volume and higher raw material costs.
In Latin America, net sales increased to $54.6 million as compared to $49.6 million in the third quarter last year. Sales growth was driven by strong performance from Remington branded products in the region combined with modest growth in battery and lighting product sales. Favorable foreign exchange translation contributed $1.5 million to net sales. Latin American segment profitability of $4.2 million was flat versus last year as rising commodity prices and higher selling and marketing expenses offset higher revenues.