Spectrum Brands Holdings Reports Fiscal 2017 Second Quarter Results, Expects Solid Second Half Growth

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MIDDLETON, Wis.–(BUSINESS WIRE)–Spectrum Brands Holdings, Inc. (NYSE: SPB), a global consumer products
company offering an expanding portfolio of leading brands providing
superior value to consumers and customers every day, today reported
results for the second quarter of fiscal 2017 ended April 2, 2017.

This press release includes non-GAAP metrics such as organic net sales,
adjusted diluted earnings per share (EPS), adjusted EBITDA, adjusted
EBITDA margin, organic adjusted EBITDA and adjusted free cash flow. See
Other Supplemental Information for reconciliation to comparable GAAP
metrics.

Fiscal 2017 Second Quarter Highlights:

  • Net sales of $1.17 billion in the second quarter of fiscal 2017
    decreased 3.3 percent compared to $1.21 billion last year. Excluding
    the negative impact of $9.7 million of foreign exchange, organic net
    sales fell 2.5 percent from the prior year.
  • Net income of $58.8 million and diluted EPS of $1.00 in the second
    quarter of fiscal 2017 decreased compared to net income of $92.6
    million and diluted EPS of $1.55 in fiscal 2016 primarily due to a
    lower effective tax rate last year relating to the adoption of a new
    accounting standard for stock compensation.
  • Adjusted diluted EPS of $1.19 in the second quarter of fiscal 2017
    improved 2.6 percent compared to $1.16 last year primarily due to
    lower interest costs, partially offset by the negative impact of
    foreign exchange.
  • Operating income of $144.1 million in the second quarter of fiscal
    2017 declined 3.0 percent compared to $148.5 million in fiscal 2016
    primarily as a result of lower volumes, the negative impact of foreign
    exchange and one-time operating expenses of $4.8 million associated
    with a retail bankruptcy, employee-related taxes from an acquired
    business and legal costs.
  • Operating income margin of 12.3 percent in the second quarter of
    fiscal 2017 was unchanged compared to the prior year.
  • Adjusted EBITDA of $220.1 million in the second quarter of fiscal
    2017 decreased 4.1 percent compared to $229.6 million in fiscal 2016.
    Excluding the negative impact of foreign exchange of $3.6 million,
    organic adjusted EBITDA of $223.7 million decreased 2.6 percent versus
    the prior year.
  • Adjusted EBITDA margin of 18.8 percent in the second quarter of
    fiscal 2017 was slightly lower compared to 19.0 percent in fiscal 2016
    primarily due to the negative impact of foreign exchange and one-time
    operating expenses of $4.8 million associated with a retail
    bankruptcy, employee-related taxes from an acquired business and legal
    costs.
  • Adjusted free cash flow is expected to grow to approximately
    $575-$590 million versus $535 million in fiscal 2016 and $454 million
    in fiscal 2015, based on expected net cash provided from operating
    activities of $695-$710 million after expected purchases of property,
    plant and equipment of $110-$120 million.

“Our second quarter performance was heavily impacted by delayed
inventory intake by major U.S. retailers of seasonal Home & Garden and
Global Auto Care products,” said Andreas Rouvé, Chief Executive Officer
of Spectrum Brands Holdings.

“We were lapping strong organic growth in the Home & Garden category
last year of 25%, driven in part by very favorable early spring weather
in the U.S. and the impact of the Zika virus which triggered
heavier-than-normal early season retailer orders,” he said. “We also
were impacted by some category softness especially in the small
appliances category, sluggish POS at certain retailers and retailer
inventory management controls.

“The planned exits of low-margin unprofitable businesses of
approximately $11 million impacted our second quarter sales by
approximately 0.9%, while our adjusted EBITDA included $4.8 million of
one-time, non-recurring costs related largely to a retail bankruptcy,
and legal and employee-related tax items,” Mr. Rouvé said. “At the same
time, we increased our R&D and marketing spending to support the
development and launch of innovative products in the out quarters.
Nonetheless, we were able to hold operating and adjusted EBITDA margin
levels as we also achieved savings from our efficiency enhancement
programs.

“Second quarter highlights included record results from Hardware and
Home Improvement, a solid performance by global batteries, and adjusted
EBITDA growth in Global Batteries & Appliances and Global Pet,” he said.
“Our e-commerce business once again grew at a double-digit rate, as we
invest more with our retail customers into this expanding consumer
shopping channel.

“Due to the delayed intake of the seasonal Home & Garden as well as
Global Auto Care products, we see a resumption of solid organic sales
and adjusted EBITDA growth in the second half and reiterate expectations
for a free cash flow increase of up to 10 percent this year,” Mr. Rouvé
said.

Fiscal 2017 Second Quarter Consolidated Financial Results

Net sales of $1.17 billion in the second quarter of fiscal 2017
decreased 3.3 percent compared to $1.21 billion in fiscal 2016.
Excluding the negative impact of $9.7 million of foreign exchange,
organic net sales declined 2.5 percent.

Gross profit and gross profit margin in the second quarter of fiscal
2017 were $455.2 million and 38.9 percent, respectively, compared to
$462.8 million and 38.3 percent, respectively, last year. The gross
profit margin percentage increase was primarily due to strong
productivity partially offset by the negative impact of foreign exchange.

Operating expenses of $311.1 million in the second quarter of fiscal
2017 fell slightly compared to $314.3 million in the prior year
primarily due to lower acquisition and integration related charges.

Operating income of $144.1 million in the second quarter of fiscal 2017
decreased 3.0 percent versus $148.5 million last year as a result of
lower volumes and the negative impact of foreign exchange. Operating
income margin of 12.3 percent in the second quarter of fiscal 2017 was
unchanged from 2016.

Net income was $58.8 million, or $1.00 diluted EPS, in the second
quarter of fiscal 2017 on average diluted shares and common stock
equivalents outstanding of 59.0 million. In the second quarter of fiscal
2016, net income was $92.6 million, or $1.55 diluted EPS, on average
diluted shares and common stock equivalents outstanding of 59.5 million.
The decrease in net income and diluted EPS was primarily due to a lower
effective tax rate last year relating to the adoption of a new
accounting standard for stock compensation. The Company generated
adjusted diluted EPS of $1.19 in the second quarter of fiscal 2017, an
increase of 2.6 percent versus $1.16 in the prior year.

Adjusted EBITDA of $220.1 million in the second quarter of fiscal 2017
decreased 4.1 percent compared to $229.6 million in fiscal 2016. HHI
delivered record second quarter adjusted EBITDA, and Global Batteries &
Appliances and Global Pet Supplies reported increased EBITDA. Excluding
the negative impact of $3.6 million of foreign exchange, organic
adjusted EBITDA of $223.7 declined 2.6 versus the second quarter of
fiscal 2016. Reported adjusted EBITDA margin decreased 20 basis points
to 18.8 percent compared to 19.0 percent last year.

Fiscal 2017 First Half Consolidated Financial Results

Net sales of $2.38 billion in the first six months of fiscal 2017
decreased 1.9 percent compared to $2.43 billion for the same period in
fiscal 2016. Excluding the negative impact of $28.4 million of foreign
exchange, organic net sales of $2.41 billion in the first half of fiscal
2017 fell 0.8 percent from the prior year.

Operating income of $295.2 million in the first half of fiscal 2017
increased slightly from $291.0 million last year, while operating income
margin improved to 12.4 percent versus 12.0 percent in 2016 primarily as
a result of lower acquisition and integration related charges.

Net income was $124.1 million, or $2.09 diluted income per share, in the
first six months of fiscal 2017 on average shares and common stock
equivalents outstanding of 59.3 million. In the first half of fiscal
2016, net income was $166.2 million, or $2.79 diluted income per share,
on average shares and common stock equivalents outstanding of 59.4
million. The Company generated adjusted EPS of $2.40 in the first half
of fiscal 2017, an increase of 11.1 percent compared to $2.16 last year
primarily as a result of operating efficiencies and lower interest
costs, partially offset by the negative impact of foreign exchange.

Fiscal 2017 first half adjusted EBITDA of $434.4 million compared to
adjusted EBITDA in the first half of fiscal 2016 of $436.7 million.
Excluding the negative impact of $10.3 million of foreign exchange,
adjusted EBITDA of $444.7 million increased 1.8 percent in the first
half of fiscal 2017 versus the prior year. The reported adjusted EBITDA
margin of 18.2 percent in the first half of fiscal 2017 increased
slightly compared to 18.0 percent in fiscal 2016.

Fiscal 2017 Second Quarter Segment Level Data

Global Batteries & Appliances (GBA)

             
Three Month Period Ended Six Month Period Ended
(in millions, except %) April 2, 2017 April 3, 2016 Variance April 2, 2017 April 3, 2016 Variance
Net Sales $ 413.5 $ 424.9 $ (11.4 ) (2.7 %) 1,023.0 $ 1,036.2 $ (13.2 ) (1.3 %)
Operating Income 38.4 38.9 (0.5 ) (1.3 %) 127.1 128.8 (1.7 ) (1.3 %)
Operating Income Margin 9.3 % 9.2 % 10 bps 12.4 % 12.4 % bps
Adjusted EBITDA 59.9 58.3 1.6 2.7 % 168.9 163.8 5.1 3.1 %
Adjusted EBITDA Margin 14.5 % 13.7 % 80 bps 16.5 % 15.8 % 70 bps

Second quarter net sales decreased as lower small appliances and
personal care net sales more than offset increased consumer battery
revenues. Organic net sales decreased 0.9 percent.

Global battery net sales increased $7.0 million or 3.9 percent. Solid
growth in the U.S. and Europe, primarily in alkaline and hearing aid
batteries, drove the improvement. Excluding negative foreign exchange
impacts of $2.0 million, organic net sales improved 5.1 percent.

Net sales for the global personal care product category fell $3.7
million or 3.4 percent. Lower U.S. and European revenues were largely
attributable to a combination of increased competitor promotions,
category softness, distribution adjustments, and higher post-holiday
inventory levels that reduced certain customer replenishment levels.
Excluding negative foreign exchange impacts of $2.0 million, organic net
sales declined 1.6 percent.

Net sales in the global small appliances product category declined $14.7
million or 10.6 percent. Reduced revenues were in large part a result of
global category softness, a Brexit-related decline in demand in the
U.K., and in the U.S. from inventory reduction by a major retailer.
Excluding negative foreign exchange impacts of $3.5 million, organic net
sales decreased 8.1 percent.

Second quarter operating income decreased with an increase in margin due
to one-time operating expenses of $2.9 million associated with a retail
bankruptcy and legal expenses, and an increase in restructuring and
integration costs offset by favorable mix, higher volumes and cost
savings. Increases in second quarter adjusted EBITDA and margins were
primarily a result of favorable mix, higher volumes and cost savings.
Excluding negative foreign exchange impacts of $3.2 million, organic
adjusted EBITDA of $63.1 million grew 8.2 percent.

Hardware & Home Improvement (HHI)

               
Three Month Period Ended Six Month Period Ended
(in millions, except %) April 2, 2017 April 3, 2016 Variance April 2, 2017 April 3, 2016 Variance
Net Sales $ 313.7 $ 301.7 $ 12.0 4.0 % $ 602.5 $ 584.3 $ 18.2 3.1 %
Operating Income 45.5 40.5 5.0 12.3 % 92.3 81.6 10.7 13.1 %
Operating Income Margin 14.5 % 13.4 % 110 bps 15.3 % 14.0 % 130 bps
Adjusted EBITDA 56.6 53.6 3.0 5.6 % 115.8 107.3 8.5 7.9 %
Adjusted EBITDA Margin 18.0 % 17.8 % 20 bps 19.2 % 18.4 % 80 bps

The HHI segment delivered record second quarter results. The net sales
increase was driven by growth in core U.S. residential security,
residential builders’ hardware and plumbing categories. The planned exit
of unprofitable businesses in Mexico adversely impacted sales growth by
approximately 1.3 percent. Excluding the positive impact of foreign
exchange of $1.3 million, organic net sales improved 3.5 percent.

Increases in second quarter operating income, adjusted EBITDA and
margins were primarily due to higher volumes and strong productivity
partially offset by one-time expenses of $1.1 million associated with
employee-related taxes from an acquired business. Excluding positive
foreign exchange impacts of $0.4 million, organic adjusted EBITDA of
$56.2 million grew 4.9 percent in the second quarter.

Global Pet Supplies (PET)

           
Three Month Period Ended Six Month Period Ended
(in millions, except %) April 2, 2017 April 3, 2016 Variance April 2, 2017 April 3, 2016 Variance
Net Sales $ 191.8 $ 208.5 $ (16.7 ) (8.0 %) $ 386.0 $ 411.9 $ (25.9 ) (6.3 %)
Operating Income 20.1 18.6 1.5 8.1 % 39.6 34.8 4.8 13.8 %
Operating Income Margin 10.5 % 8.9 % 160 bps 10.3 % 8.4 % 190 bps
Adjusted EBITDA 31.9 31.4 0.5 1.6 % 62.7 60.6 2.1 3.5 %
Adjusted EBITDA Margin 16.6 % 15.1 % 150 bps 16.2 % 14.7 % 150 bps

The second quarter net sales decline was the result of category softness
as well as significantly lower European dog and cat food sales driven
largely by acceleration of the planned exit of a pet food customer
tolling agreement. U.S. companion animal sales were negatively impacted
by the planned exits last year of low-margin private label rawhide and
chicken jerky business. These planned exits adversely impacted sales by
approximately 3.2 percent. Excluding the unfavorable impact of foreign
exchange of $3.4 million, organic net sales decreased 6.4 percent in the
second quarter.

Higher operating income, adjusted EBITDA and margins in the second
quarter were due to favorable mix and productivity improvements.
Excluding negative foreign exchange impacts of $0.1 million, organic
adjusted EBITDA of $32.0 million grew 1.9 percent.

Home and Garden (H&G)

           
Three Month Period Ended Six Month Period Ended
(in millions, except %) April 2, 2017 April 3, 2016 Variance April 2, 2017 April 3, 2016 Variance
Net Sales $ 131.9 $ 155.0 $ (23.1 ) (14.9 %) $ 181.7 $ 202.7 $ (21.0 ) (10.4 %)
Operating Income 31.5 39.8 (8.3 ) (20.9 %) 33.1 43.1 (10.0 ) (23.2 %)
Operating Income Margin 23.9 % 25.7 % (180 ) bps 18.2 % 21.3 % (310 ) bps
Adjusted EBITDA 35.6 44.2 (8.6 ) (19.5 %) 41.3 51.3 (10.0 ) (19.5 %)
Adjusted EBITDA Margin 27.0 % 28.5 % (150 ) bps 22.7 % 25.3 % (260 ) bps

Lower second quarter net sales, predominantly in the repellents and
outdoor controls categories, were driven by tighter retailer inventory
management programs as well as strong, early season retailer orders in
2016 due to favorable weather and the positive impact from Zika virus
concerns.

Operating income, adjusted EBITDA and margins declined in the second
quarter predominantly due to lower volumes and, to a lesser degree,
higher planned marketing expenses to support new product launches and
channel expansions.

Global Auto Care (GAC)

           
Three Month Period Ended Six Month Period Ended
(in millions, except %) April 2, 2017 April 3, 2016 Variance April 2, 2017 April 3, 2016 Variance
Net Sales $ 119.0 $ 119.5 $ (0.5 ) (0.4 %) $ 188.5 $ 193.3 $ (4.8 ) (2.5 %)
Operating Income 34.5 38.9 (4.4 ) (11.3 %) 47.6 48.6 (1.0 ) (2.1 %)
Operating Income Margin 29.0 % 32.6 % (360 ) bps 25.3 % 25.1 % 20 bps
Adjusted EBITDA 45.4 48.6 (3.2 ) (6.6 %) 65.2 67.8 (2.6 ) (3.8 %)
Adjusted EBITDA Margin 38.2 % 40.7 % (250 ) bps 34.6 % 35.1 % (50 ) bps

Slightly lower second quarter net sales were attributable largely to
reduced appearance revenues due to cooler weather conditions versus last
year.

Reduced operating income, adjusted EBITDA and margins in the second
quarter were the result of lower volumes and higher planned R&D and
marketing expenses for new product introductions.

Liquidity and Debt

Spectrum Brands completed its fiscal 2017 second quarter with a solid
liquidity position, including a cash balance of approximately $137
million and more than $470 million available on its $700 million Cash
Flow Revolver.

As of the end of the second quarter, the Company had approximately
$3,840 million of debt outstanding, consisting of approximately $202
million outstanding on its Cash Flow Revolver, a series of secured Term
Loans in the aggregate amount of $1,114 million, $2,274 million of
senior unsecured notes, and approximately $250 million of capital leases
and other obligations.

During the second quarter, the Company repurchased 44,550 shares of
common stock for $5.5 million or $122.38 per share on average.

Fiscal 2017 Outlook

Spectrum Brands expects fiscal 2017 reported net sales to grow above
category rates for most categories, along with an anticipated negative
impact from foreign exchange of approximately 100 to 150 basis points.

Fiscal 2017 adjusted free cash flow is projected to be approximately
$575-$590 million compared to $535 million in fiscal 2016. Capital
expenditures are expected to be in the range of $110 million to $120
million, including rollover spending from fiscal 2016. These incremental
investments will support footprint optimization, vertical integration
improvements, technology and innovation and are expected to enhance the
Company’s margin structure and organic net sales growth rate.

Conference Call/Webcast Scheduled for 9:00 A.M. Eastern Time Today

Spectrum Brands will host an earnings conference call and webcast at
9:00 a.m. Eastern Time today, May 2. 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 92829532. 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 Monday, May 15. 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 consumer batteries, 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, personal insect repellents, and
auto care products. Helping to meet the needs of consumers worldwide,
our Company offers a broad portfolio of market-leading, well-known and
widely trusted brands including Rayovac®, VARTA®, Kwikset®, Weiser®,
Baldwin®, National Hardware®, Pfister®, Remington®, George Foreman®,
Black + Decker®, Tetra®, Marineland®, Nature’s Miracle®, Dingo®,
8-in-1®, FURminator®, IAMS® and Eukanuba® (Europe only), Healthy-Hide®,
Digest-eeze™, Littermaid®, Spectracide®, Cutter®, Repel®, Hot Shot®,
Black Flag®, Liquid Fence®, Armor All®, STP® and A/C PRO®. Spectrum
Brands’ products are sold in approximately 160 countries. Spectrum
Brands Holdings generated net sales of approximately $5.04 billion in
fiscal 2016. 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 the Company’s debt covenant.
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.
Organic adjusted EBITDA
excludes the impact of currency exchange rate fluctuations and the
impact of acquisitions. 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 of 35%.

The Company’s management believes that free cash flow is useful to
both management and investors in their analysis of the Company’s ability
to service and repay its debt and meet its working capital requirements.

Free cash flow should not be considered in isolation or as a
substitute for pretax income, net income, cash provided by (used in)
operating activities or other statement of income or cash flow statement
data prepared in accordance with GAAP or as a measure of profitability
or liquidity.
In addition, the calculation of free cash flow does
not reflect cash used to service debt and therefore, does not reflect
funds available for investment or discretionary uses.
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

Certain matters discussed in this news release and other oral and
written statements by representatives of the Company regarding matters
such as the Company’s ability to meet its expectations for its fiscal
2017 (including expectations regarding capital expenditures and its
ability to increase its net sales, free cash flow and adjusted EBITDA)
may be forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. We have tried, whenever
possible, to identify these statements by using words like “future,”
“anticipate”, “intend,” “plan,” “estimate,” “believe,” “expect,”
“project,” “forecast,” “could,” “would,” “should,” “will,” “may,” and
similar expressions of future intent or the negative of such terms.

Contacts

Spectrum Brands Holdings, Inc.
Investor/Media Contact:
Dave
Prichard

608-278-6141

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