Spectrum Brands(SPB) - 2025 Q2 - Quarterly Results

Executive Summary & Outlook Spectrum Brands reported a challenging Q2 FY2025 with declining sales and profitability, leading to a strategic pivot focused on cash flow, supply chain shifts, and pet category acquisitions - Net sales decreased 6.0% and organic sales decreased 4.6%, driven by soft demand in Global Pet Care and North American Appliances, and timing of retailer inventory purchases in Home & Garden[3] - The company repurchased 2.0 million shares in Q2 for $159.9 million, totaling 16.3 million shares for $1.28 billion since the HHI divestiture[3] - In response to tariff pressures and weakening demand, the company has pivoted its strategy to maximize cash, expecting to generate approximately $160 million of free cash flow in FY2025 and suspending its earnings framework[3][9] - The company is accelerating efforts to move its supply base out of China for the U.S. market, with a primary focus on the Home & Personal Care (HPC) business[3][8] - The company aims to strengthen its portfolio with acquisitions, particularly in the pet categories, with a vision to at least double the size of its pet asset organically and through M&A[7] Consolidated Financial Performance Consolidated Q2 FY2025 net sales decreased 6.0% to $675.7 million, with net income and Adjusted EBITDA also significantly declining due to lower volumes and tariffs Q2 FY2025 Financial Highlights (vs. Q2 FY2024) | Metric | Q2 2025 | Q2 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales ($ millions) | $675.7 | $718.5 | (6.0)% | | Gross Profit ($ millions) | $253.4 | $273.4 | (7.3)% | | Gross Profit Margin | 37.5% | 38.1% | (60) bps | | Net Income from Continuing Operations ($ millions) | $1.8 | $49.9 | (96.4)% | | Diluted EPS from Continuing Operations | $0.06 | $1.65 | (96.4)% | | Adjusted EBITDA ($ millions) | $71.3 | $112.3 | (36.5)% | | Adjusted EBITDA Margin | 10.6% | 15.6% | (500) bps | | Adjusted EPS from Continuing Operations | $0.68 | $1.40 | (51.4)% | - The decrease in net sales was primarily due to category softness in North American markets for Global Pet Care and Home & Personal Care, along with the timing of retailer inventory builds in Home & Garden[11] - Gross margin decreased due to lower volume, higher trade promotions, unfavorable mix, inflation, and higher tariffs, partially offset by cost improvement actions[11] Segment Performance All three segments experienced declines in Q2 FY2025 net sales and Adjusted EBITDA, driven by North American market softness, retailer inventory timing, and lower category demand Global Pet Care (GPC) Global Pet Care net sales decreased 7.1% to $269.2 million, with Adjusted EBITDA falling 19.7% due to North American softness and increased investments GPC Q2 FY2025 Performance (vs. Q2 FY2024) | Metric | Q2 2025 | Q2 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales ($ millions) | $269.2 | $289.9 | (7.1)% | | Adjusted EBITDA ($ millions) | $50.0 | $62.3 | (19.7)% | | Adjusted EBITDA Margin | 18.6% | 21.5% | (290) bps | - Companion Animal sales declined mid-single digits, driven by low double-digit declines in North America, while EMEA organic sales grew mid-single digits. Global Aquatics sales declined due to continued category softness[12] Home & Garden (H&G) Home & Garden net sales decreased 5.2% to $152.3 million, with Adjusted EBITDA down 8.6%, primarily due to the timing of retailer inventory builds H&G Q2 FY2025 Performance (vs. Q2 FY2024) | Metric | Q2 2025 | Q2 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales ($ millions) | $152.3 | $160.7 | (5.2)% | | Adjusted EBITDA ($ millions) | $26.7 | $29.2 | (8.6)% | | Adjusted EBITDA Margin | 17.5% | 18.2% | (70) bps | - The sales decrease was due to the phasing of seasonal inventory builds at retailers, which pulled sales forward into Q1[14] Home & Personal Care (HPC) Home & Personal Care net sales fell 5.1% to $254.2 million, with Adjusted EBITDA significantly declining 59.0% due to lower North American demand and tariffs HPC Q2 FY2025 Performance (vs. Q2 FY2024) | Metric | Q2 2025 | Q2 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales ($ millions) | $254.2 | $267.9 | (5.1)% | | Adjusted EBITDA ($ millions) | $7.3 | $17.8 | (59.0)% | | Adjusted EBITDA Margin | 2.9% | 6.6% | (370) bps | - North American sales declined high single digits, while LATAM organic sales increased low double-digits. EMEA organic net sales were relatively flat[16] - Adjusted EBITDA margin declined sharply to 2.9% from 6.6% last year, driven by lower volumes, higher trade spend, unfavorable mix, and incremental tariffs[17] Liquidity and Debt As of March 30, 2025, the company reported total liquidity of $504.6 million and net debt of approximately $560.9 million Liquidity and Debt Position (as of March 30, 2025) | Item | Amount (in millions) | | :--- | :--- | | Cash Balance | $96.0 | | Total Liquidity | $504.6 | | Total Debt Outstanding | $656.9 | | Net Debt | $560.9 | Fiscal 2025 Outlook The company suspended its Fiscal 2025 earnings framework due to global trade uncertainties and softening consumer demand, while maintaining its long-term net leverage target - The company suspended its Fiscal 2025 earnings framework due to uncertainty caused by global trade conditions, tariffs, and softening global consumer demand[19][9] - The company continues to target a long-term net leverage ratio of 2.0 - 2.5 times[19] Appendix: Financial Statements This appendix presents the unaudited condensed consolidated financial statements, including Statements of Income, Cash Flow, and Financial Position, for the specified periods Condensed Consolidated Statements of Income For the three months ended March 30, 2025, net sales were $675.7 million, with net income from continuing operations significantly decreasing to $1.8 million Condensed Consolidated Statements of Income (Three Months Ended) | (in millions) | March 30, 2025 | March 31, 2024 | | :--- | :--- | :--- | | Net sales | $675.7 | $718.5 | | Gross profit | $253.4 | $273.4 | | Operating income | $19.5 | $75.9 | | Net income from continuing operations | $1.8 | $49.9 | Condensed Consolidated Statements of Cash Flow For the six months ended March 30, 2025, net cash used by operating activities from continuing operations was $48.6 million, a reversal from the prior year Condensed Consolidated Statements of Cash Flow (Six Months Ended) | (in millions) | March 30, 2025 | March 31, 2024 | | :--- | :--- | :--- | | Net cash (used) provided by operating activities from continuing operations | $(48.6) | $80.7 | | Net cash used by financing activities | $(195.0) | $(553.8) | | Net change in cash, cash equivalents and restricted cash | $(272.3) | $(8.2) | Condensed Consolidated Statements of Financial Position As of March 30, 2025, total assets were $3,537.0 million and total liabilities were $1,651.7 million, with cash and equivalents at $96.0 million Condensed Consolidated Statements of Financial Position | (in millions) | March 30, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Total current assets | $1,342.8 | $1,578.6 | | Total assets | $3,537.0 | $3,842.3 | | Total current liabilities | $573.1 | $687.1 | | Total liabilities | $1,651.7 | $1,700.6 | | Total equity | $1,885.3 | $2,141.7 | Appendix: Non-GAAP Reconciliations This appendix provides definitions and reconciliations for key non-GAAP financial measures, including Organic Net Sales, Adjusted EBITDA, Adjusted Diluted EPS, and Adjusted Free Cash Flow Net Sales and Organic Net Sales Reconciliation For Q2 FY2025, reported net sales were $675.7 million, with organic net sales of $685.8 million after adjusting for foreign currency impact Reconciliation of Reported Net Sales to Organic Net Sales (Q2 FY2025) | (in millions) | Net Sales | Effect of FX | Organic Net Sales | Organic Change (%) | | :--- | :--- | :--- | :--- | :--- | | GPC | $269.2 | $2.4 | $271.6 | (6.3)% | | H&G | $152.3 | $0.0 | $152.3 | (5.2)% | | HPC | $254.2 | $7.7 | $261.9 | (2.2)% | | Total | $675.7 | $10.1 | $685.8 | (4.6)% | Adjusted EBITDA Reconciliation Adjusted EBITDA for Q2 FY2025 was $71.3 million, reconciled from net income of $1.8 million, with key adjustments including non-cash impairment charges Reconciliation of Net Income to Adjusted EBITDA (Q2) | (in millions) | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net income from continuing operations | $1.8 | $49.9 | | Income tax expense | $9.6 | $25.5 | | Interest expense | $7.5 | $16.9 | | Depreciation & Amortization | $24.5 | $25.4 | | Non-cash impairment charges | $15.7 | $39.5 | | Representation and warranty insurance proceeds | — | $(65.0) | | Other Adjustments | $12.2 | $19.9 | | Adjusted EBITDA | $71.3 | $112.3 | Adjusted Diluted EPS Reconciliation Adjusted diluted EPS from continuing operations for Q2 FY2025 was $0.68, reconciled from a reported diluted EPS of $0.06, primarily due to non-cash impairment charges Reconciliation of Diluted EPS to Adjusted Diluted EPS (Q2) | (per share amounts) | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Diluted EPS from continuing operations | $0.06 | $1.65 | | Pre-tax adjustments | $0.87 | $(0.32) | | Tax impact of adjustments | $(0.25) | $0.07 | | Adjusted Diluted EPS | $0.68 | $1.40 | Adjusted Free Cash Flow Reconciliation For the six months ended March 30, 2025, adjusted free cash flow was a use of $58.4 million, reconciled from net cash used by operating activities Reconciliation to Adjusted Free Cash Flow (Six Months Ended) | (in millions) | March 30, 2025 | March 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities from continuing operations | $(48.6) | $80.7 | | Purchases of property, plant and equipment | $(15.1) | $(20.9) | | Free cash flow | $(63.7) | $59.8 | | Adjustments | $5.3 | $(44.9) | | Adjusted free cash flow | $(58.4) | $14.9 | Forward-Looking Statements This section outlines forward-looking statements and details numerous risks, including economic conditions, geopolitical conflicts, supply chain disruptions, and tariffs, that could impact future results - The report contains forward-looking statements regarding business strategy, future free cash flows, tariffs, and supply chain efforts, which are subject to numerous risks and uncertainties[30][31] - Key risk factors include economic conditions, tariffs and trade policies, supply chain disruptions (including relocation efforts), inflation, recession fears, changes in consumer spending preferences, and geopolitical instability such as the Russia-Ukraine and Israel-Hamas wars[32][33]