Spectrum Brands Holdings Reports Fiscal 2023 Second Quarter Results

• Spectrum Brands has Resolved the Lawsuit with the U.S. Department of Justice (the “DOJ”) Regarding ASSA ABLOY’s Acquisition of HHI Segment
• The Company Expects to Collect $4.3 Billion Upon Completion of the Sale of HHI, Anticipated to Close no Later Than the End of June 2023
• Net Sales Decreased 9.7% Driven by Retailer Inventory Strategy Leading to Lower Replenishment Orders, Slower Category POS and Unfavorable Foreign Currency, Offset by Positive Pricing Adjustments
• Net Loss from Continuing Operations of $75.0 Million and Adjusted EBITDA of $51.0 Million
• Inventory Reduction of $170 million in the Quarter, including HHI Business, Resulting in Positive Free Cash Flow
• Updating Fiscal 2023 Earnings Framework and Now Expect Net Sales to Decline Mid Single-Digits to Prior Year and Adjusted EBITDA to be Down Low to Mid Single-Digits

MIDDLETON, Wis.–(BUSINESS WIRE)–Spectrum Brands Holdings, Inc. (NYSE: SPB; “Spectrum Brands” or the “Company”), a leading global branded consumer products and home essentials company focused on driving innovation and providing exceptional customer service, today reported results from continuing operations for the second quarter of fiscal 2023 ended April 2, 2023.

“I am pleased to announce that with the settlement agreement with the DOJ, we have reached a critical milestone in the completion of the sale of our Hardware and Home Improvement business to ASSA ABLOY for $4.3 billion in cash. We remain confident that the transaction will close no later than June 30, 2023. We believe that HHI will be better positioned for growth and innovation under ASSA ABLOY’s stewardship, and are excited for our HHI colleagues who have found an excellent home. This is a meaningful strategic pivot for Spectrum Brands, which will strengthen our balance sheet by making us a net debt free company, and allow us to devote all our resources to and prioritize the long-term growth of our remaining businesses. This transaction will also bring us closer to our long-term goal of becoming a faster growing, higher margin, pure play Global Pet Care and Home & Garden company,” said David Maura, Chairman and Chief Executive Officer of Spectrum Brands.

Continuing, Mr. Maura commented, “On the operating front, while our Global Pet Care and Home and Personal Care businesses performed in line with or better than our expectations, we are disappointed with the results in our Home and Garden business for this quarter. We are facing some additional short-term headwinds as our key retail partners for the Home and Garden categories have continued to reduce inventory in the quarter compared to a typical seasonal build. Based upon the lower first half demand and this further inventory reduction by our retailers, we are lowering our expectations for the year. We now expect our sales in the year to be below consumer demand, which should normalize once we get past the current fiscal year. On the positive side, our renewed focus on profitability, working capital discipline, and cost management continues to pay off as we have reduced our inventory by over $340 million in the last nine months and generated positive free cash flow so far this fiscal year.”

• Net sales decreased 9.7% with a decrease in organic net sales of 10.1%, excluding the impact of $19.4 million of unfavorable foreign exchange rates and acquisition sales of $22.1 million. Net sales declined due to retailer inventory management strategies and slower category POS, offset by positive pricing adjustments.
• Gross profit and gross profit margin declined from the reduction in sales volume, unfavorable mix and sales of higher cost inventory accumulated in the prior year, offset by positive pricing.
• Operating loss increased with the recognition of an intangible asset impairment of $67 million offset by lower distribution costs, fixed cost reduction efforts, plus reduced project spend on restructuring, optimization and strategic transaction initiatives.
• Net loss increase and diluted earnings per share decrease were primarily driven by the increase in operating loss and interest costs.
• Adjusted EBITDA decreased 35.4% and adjusted EBITDA margin decreased 280 basis points attributable to the decrease in volume and unfavorable impact of foreign exchange.
• Adjusted diluted EPS decreased to a loss of $0.14 per share due to lower Adjusted EBITDA.

Fiscal 2023 Second Quarter Segment Level Data

Global Pet Care (GPC)

Net sales improved in the second quarter as compared to the first quarter, which was pressured by customers’ focus on inventory management leading to lower replenishment orders. The increase in net sales compared to last year was due to strong growth in companion animals, driven by chews in North America and Dog and Cat food in EMEA, partially offset by declines in other hard goods and aquatic environments as compared to prior year elevated levels. The sales were also helped by prior year price increases and new positive pricing adjustments in EMEA partially overcoming the unfavorable impact of foreign exchange. Organic net sales increased 3.1%, excluding unfavorable foreign currency impacts of $7.6 million.

Operating income, Adjusted EBITDA and margin increased due to lower distribution costs compared to prior year disruptions, positive pricing adjustments, savings from prior year cost reduction initiatives, and additional cost reduction actions in the current year. This was partially offset by lower volumes and unfavorable foreign currency impact.

Home & Garden (H&G)

The net sales decrease was primarily driven by reduction in retailer inventory compared to a strong prior year inventory build ahead of the season. Adverse weather conditions late in the quarter also negatively impacted the pest controls category POS and resulted in lower replenishment orders. Cleaning products sales decreased as a slow start to the spring cleaning season contributed to a POS decline in the relevant categories.

The operating loss, lower Adjusted EBITDA and margins were driven by the impact of the sales decline offset by the benefits of fixed cost restructuring and operational cost reductions initiated during the second half of last year. Operating income was also impacted by impairment of intangible assets.

Home & Personal Care (HPC)

The decrease in net sales is primarily due to category decline from lower consumer demand, particularly in kitchen appliances, and continued retailer inventory management in North America. Sales in EMEA were also impacted by lower consumer demand. Organic net sales decreased 14.9%, excluding acquisition sales of $22.1 million and unfavorable foreign currency impact of $11.8 million.

The operating loss was driven by impairment of intangible assets and lower Adjusted EBITDA. The decrease in Adjusted EBITDA and margins is driven by lower volume, the sales of higher cost inventory accumulated in the prior year, and unfavorable foreign currency in EMEA, which were partially mitigated by cost savings from the reduction of operating expenses initiated in the prior year and additional actions undertaken during the second quarter of fiscal 23.

Liquidity and Debt

As of the end of the quarter, the Company had a cash balance of $328 million and $3,222 million of debt outstanding, consisting of $2,014 million of senior unsecured notes, $1,117 million of term loans and revolver draws and $91 million of finance leases.

Proforma net leverage at the end of the second quarter was 6.3 times, compared to 6.2 times at the end of the previous quarter. In the first quarter, the Company entered into an amendment to its credit agreement to temporarily increase the maximum consolidated leverage ratio permitted from 6.0 to 1.0 to be no greater than 7.0 to 1.0 until the earliest of (i) September 29, 2023, or (ii) 10 business days after the closing of the HHI divestiture or the receipt of the related termination fee.

Fiscal 2023 Earnings Framework

Spectrum Brands now expects reported net sales to decline by mid single-digits in Fiscal 2023, with foreign exchange expected to have a negative impact based upon current rates. Fiscal 2023 Adjusted EBITDA is expected to decline by low to mid single-digits.

From a capital structure perspective, the Company is targeting a long-term net leverage ratio of 2.0 – 2.5 times after full deployment of HHI sale proceeds.

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 12, 2023. The 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. Participants may register here. Instructions will be provided to ensure the necessary audio applications are downloaded and installed. Users can obtain these at no charge.

A replay of the live broadcast will be accessible through the Event Calendar page in the Investor Relations section of the Company’s website.

About Spectrum Brands Holdings, Inc.

Spectrum Brands Holdings is a home-essentials company with a mission to make living better at home. We focus on delivering innovative products and solutions to consumers for use in and around the home through our trusted brands. We are a leading supplier of specialty pet supplies, lawn and garden and home pest control products, personal insect repellents, shaving and grooming products, personal care products, and small household appliances. Helping to meet the needs of consumers worldwide, Spectrum Brands offers a broad portfolio of market-leading, well-known and widely trusted brands including Tetra®, DreamBone®, SmartBones®, Nature’s Miracle®, 8-in-1®, FURminator®, Healthy-Hide®, Good Boy®, Meowee!®, OmegaOne®, Spectracide®, Cutter®, Repel®, Hot Shot®, Rejuvenate®, Black Flag®, Liquid Fence®, Remington®, George Foreman®, Russell Hobbs®, Black+Decker®, PowerXL®, Emeril Lagasse®, and Copper Chef®. For more information, please visit www.spectrumbrands.com. Spectrum Brands – A Home Essentials Company™

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. Within this document, including the tables that follow, reference is made to organic net sales, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), adjusted EBITDA margin, and adjusted earnings per share (EPS). 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 foreign currency exchange fluctuations and the impact of acquisitions (when applicable) when there is no comparable sales in the prior period. Organic sales growth is calculated by comparing organic net sales to net sales in the prior comparative period. The effect of changes in foreign currency exchange rates is determined by translating the period’s net sales using the foreign currency exchange rates that were in effect during the prior comparative period. 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, because interest, taxes, depreciation and amortization can differ greatly between organizations as a result of differing capital structures and tax strategies. Adjusted EBITDA can also be a useful measure for determining the Company’s debt covenant compliance. 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. Management uses adjusted diluted EPS as 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 25.0%. 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. Supplemental tables have been provided within the Appendix to this document to demonstrate reconciliation of non-GAAP measurements to the most comparable GAAP measure.

Forward-Looking Statements

We have made or implied certain forward-looking statements in this document. All statements, other than statements of historical facts included or incorporated by reference in this document, including, without limitation, statements or expectations regarding our business strategy, future operations, financial condition, estimated revenues, projected costs, earnings power, projected synergies, prospects, plans and objectives of management, outcome of any litigation and information concerning expected actions of third parties are forward-looking statements. When used in this document, the words future, anticipate, pro forma, seek, intend, plan, envision, estimate, believe, belief, expect, project, forecast, outlook, earnings framework, goal, target, could, would, will, can, should, may and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.

Since these forward-looking statements are based upon our current expectations of future events and projections and are subject to a number of risks and uncertainties, many of which are beyond our control and some of which may change rapidly, actual results or outcomes may differ materially from those expressed or implied herein, and you should not place undue reliance on these statements. Important factors that could cause our actual results to differ materially from those expressed or implied herein include, without limitation: (1) the COVID-19 pandemic, economic, social and political conditions or civil unrest, terrorist attacks, acts of war, natural disasters, other public health concerns or unrest in the United States or the international markets impacting our business, customers, employees (including our ability to retain and attract key personnel), manufacturing facilities, suppliers, capital markets, financial condition and results of operations, all of which tend to aggravate the other risks and uncertainties we face; (2) the impact of a number of local, regional and global uncertainties could negatively impact our business; (3) the negative effect of the armed conflict between Russia and Ukraine and its impact on those regions and surrounding regions, including on our operations and on those of our customers, suppliers and other stakeholders; (4) our increased reliance on third-party partners, suppliers and distributors to achieve our business objectives; (5) the impact of expenses resulting from the implementation of new business strategies, divestitures or current and proposed restructuring and optimization activities, including distribution center changes which are complicated and involve coordination among a number of stakeholders, including our suppliers and transportation and logistics handlers; (6) the impact of our indebtedness and financial leverage position on our business, financial condition and results of operations; (7) 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; (8) any failure to comply with financial covenants and other provisions and restrictions of our debt instruments; (9) the effects of general economic conditions, including the impact of, and changes to tariffs and trade policies, inflation, recession or fears of a recession, depression or fears of a depression, labor costs and stock market volatility or monetary or fiscal policies in the countries where we do business; (10) the impact of fluctuations in transportation and shipment costs, fuel costs, commodity prices, costs or availability of raw materials or terms and conditions available from suppliers, including suppliers’ willingness to advance credit; (11) interest rate fluctuations; (12) changes in foreign currency exchange rates that may impact our purchasing power, pricing and margin realization within international jurisdictions; (13) the loss of, significant reduction in or dependence upon, sales to any significant retail customer(s), including their changes in retail inventory levels and management thereof; (14) competitive promotional activity or spending by competitors, or price reductions by competitors; (15) the introduction of new product features or technological developments by competitors and/or the development of new competitors or competitive brands; (16) changes in consumer spending preferences and demand for our products, particularly in light of economic stress and the COVID-19 pandemic; (17) our ability to develop and successfully introduce new products, protect our intellectual property and avoid infringing the intellectual property of third parties; (18) our ability to successfully identify, implement, achieve and sustain productivity improvements, cost efficiencies (including at our manufacturing and distribution operations) and cost savings; (19) the seasonal nature of sales of certain of our products; (20) the impact weather conditions may have on the sales of certain of our products; (21) the effects of climate change and unusual weather activity as well as our ability to respond to future natural disasters and pandemics and to meet our environmental, social and governance goals; (22) the cost and effect of unanticipated legal, tax or regulatory proceedings or new laws or regulations (including environmental, public health and consumer protection regulations); (23) 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; (24) the impact of existing, pending or threatened litigation, government regulation or other requirements or operating standards applicable to our business; (25) the impact of cybersecurity breaches or our actual or perceived failure to protect company and personal data, including our failure to comply with new and increasingly complex global data privacy regulations; (26) changes in accounting policies applicable to our business; (27) our discretion to adopt, conduct, suspend or discontinue any share repurchase program (including our discretion to conduct purchases, if any, in a variety of manners including open-market purchases or privately negotiated transactions); (28) our ability to utilize net operating loss carry-forwards to offset tax liabilities from future taxable income; (29) our ability to consummate the announced Hardware and Home Improvement (“HHI”) divestiture on the expected terms and within the anticipated time period, or at all, which is dependent on the parties’ ability to satisfy certain closing conditions and our ability to realize the benefits of the transaction, including reducing the financial leverage of the Company, investing in the organic growth of the Company, funding any future acquisitions, returning capital to shareholders and/or maintaining our quarterly dividends; (30) the risk that ASSA ABLOY and Fortune Brands fail to satisfy the conditions to closing of their divestiture transaction and/or otherwise fail to consummate their divestiture transaction in connection with the settlement with the U.S. Department of Justice; (31) the risk that regulatory approvals that are required to complete the proposed HHI divestiture may not be realized, may take longer than expected or may impose adverse conditions; (32) our ability to successfully integrate the February 18, 2022, acquisition of the home appliances and cookware products business from Tristar Products, Inc. into the Company’s Home and Personal Care (“HPC”) business and realize the benefits of this acquisition; (33) our ability to separate the Company’s HPC business and create an independent Global Appliances business on expected terms, and within the anticipated time period, or at all, and to realize the potential benefits of such business; (34) our ability to create a pure play consumer products company composed of our Global Pet Care and Home & Garden business and to realize the expected benefits of such creation, and within the anticipated time period, or at all; (35) our ability to successfully implement further acquisitions or dispositions and the impact of any such transactions on our financial performance; (36) the impact of actions taken by significant stockholders; and (37) the unanticipated loss of key members of senior management and the transition of new members of our management teams to their new roles.

Some of the above-mentioned factors are described in further detail in the sections entitled Risk Factors in our annual and quarterly reports, as applicable. You should assume the information appearing in this document is accurate only as of the end of the period covered by this document, or as otherwise specified, as our business, financial condition, results of operations and prospects may have changed since that date.

Contacts

Investor/Media Contact:

Faisal Qadir 608-278-6207

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