Spectrum Brands Reports Second Quarter 2007 Financial ResultsSpectrum Brands, Inc. Press Release (excerpted)
FlashlightNews.org - 5/10/2007
Rayovac parent company posts large quarterly loss, still planning sale of Home & Garden business
Rayovac 3-in-1 LED Flashlight
ATLANTA, Ga. - Spectrum Brands, Inc., (NYSE:SPC) a global consumer products company with a diverse portfolio of world-class brands, announced second quarter net sales of $439.7 million and a net loss of $4.77 per share for the quarter ended April 1, 2007. Excluding certain items which management believes are not indicative of the company’s on-going normalized operations, the company generated a diluted loss per share of $0.18. These items Include:
- pretax restructuring and related charges of $16.5 million, or $0.17 per share net of tax, associated with the rationalization of the company's Latin American and European businesses, the ongoing integration of the Global Pet Supplies business, and company-wide cost reduction initiatives announced in January;
- a non-cash pretax impairment charge of $214.0 million, or $3.84 per share net of tax, related to goodwill carried on the company's books (see further discussion below);
- $36.2 million, or $0.42 per share, of charges associated with a pre-payment premium incurred in connection with the refinancing of the company's senior credit facility and the write-off of deferred financing fees;
- professional fees of $3.9 million, or $0.05 per share, incurred in connection with the Home & Garden business sales process; and
- a loss from discontinued operations, net of tax, of $6.4 million, or $0.13 per share, related to the Home & Garden business, which is being held for sale.
During the second quarter of fiscal 2006, the company reported earnings per share of $0.01, which included earnings from discontinued operations, net of tax, of $0.04 per share, restructuring and related charges of $0.05 per share, and a gain on the sale of manufacturing facilities of $0.10.
Spectrum Brands' second quarter net sales were $439.7 million, compared with net sales of $414.7 million in the comparable period last year, an increase of 5.6 percent. The Global Batteries and Personal Care business segment generated year over year sales growth of 7.4 percent, with sales improvement in all geographic regions. Global battery sales increased 8.8 percent and sales of Remington branded products increased 3.4 percent. The Global Pet Supplies business segment also reported sales growth of 3.4 percent. Favorable foreign exchange rates had a $12.9 million positive impact on net sales during the quarter. Reported net sales exclude sales from the company's Home & Garden division, which is accounted for as a discontinued operation. The Home & Garden business generated $220.2 million in net sales during the quarter, a year over year increase of 4.7 percent.
Gross profit and gross margin for the quarter were $164.6 million and 37.4 percent, respectively, versus $158.9 million and 38.3 percent for the same period last year. Restructuring and related charges of $6.7 million were included in the current quarter's cost of goods sold; cost of goods sold in the comparable period last year included $0.4 million in similar charges. Prior to taking those restructuring and related charges into account, gross margin improved as the positive impact of price increases and increased volume offset increased raw material costs.
The company generated a second quarter operating loss of $209.9 million versus income of $18.1 million in the same quarter of fiscal 2006. The primary reasons for the decline were the $214.0 goodwill impairment charge and significantly increased restructuring and related charges of $16.5 million in fiscal 2007 compared with $4.2 million in the prior year. Other factors include increased distribution expense of approximately $5.8 million and higher commodity costs, including an increase of approximately $2.0 million in zinc costs.
Second Quarter Segment Results
The company’s Global Batteries and Personal Care segment reported net sales of $297.2 million, compared with $276.8 million reported last year. Foreign exchange translation contributed $10.1 million. Battery sales increased nine percent versus year ago results, with improvement in all geographic regions. In North America, Rayovac alkaline battery sales to consumers at retail increased eleven percent, in large part due to the successful implementation of price increases in January 2007. Latin American battery sales trends showed growth of eleven percent, benefiting from pricing and product mix. In Europe, while battery conditions remain challenging, the positive impact of the strong Euro was more than enough to offset the impact of negative product mix shifts. Remington branded products grew three percent during the quarter, primarily as a result of distribution and market share gains in Europe and Latin America. Segment profitability for Global Batteries and Personal Care was $22.1 million, an improvement over last year’s $13.4 million, primarily driven by higher sales.
Corporate expenses were $17.9 million as compared to $10.1 million in the prior year period. Fiscal 2007 second quarter expense included a $3.9 million write-off of deal costs associated with the company’s decision to sell the Home & Garden business, and $3.6 million attributable to incentive compensation accruals. Fiscal 2006 expense included no such accruals.
Interest expense increased to $69.2 million from $29.9 million in the comparable prior year period, primarily due to a prepayment premium of $11.6 million associated with the refinancing of the company’s senior credit facility and the write-off of debt issuance costs of $24.6 million.
As previously disclosed, Spectrum Brands is holding its Home & Garden business for sale, and will continue to report Home & Garden as discontinued operations until such time as a transaction is consummated. The impact of Home & Garden during the quarter was a loss of $6.4 million as compared with income of $3.4 million in the prior year. Operating income was $14.6 million versus $20.6 million last year. Year over year sales growth of five percent was offset by an increase in raw materials, manufacturing inefficiencies and increased selling and merchandising expense. Also included in the quarterly results were a $3.3 million increase in interest expense caused by higher borrowing rates and a one-time income tax charge of $5 million. Consumer purchases of Spectrum Brands’ home and garden products at retail grew 18 percent in the quarter as compared with the prior year period.