Spectrum Brands(SPB) - 2025 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements, including statements of financial position, income, and cash flows, along with detailed notes on accounting policies Condensed Consolidated Statements of Financial Position Total assets decreased to $3,537.0 million, primarily due to reduced cash and increased treasury stock, while total equity declined to $1,885.3 million Condensed Consolidated Statements of Financial Position (in millions) | Account | March 30, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $96.0 | $368.9 | | Inventories | $542.6 | $462.1 | | Total current assets | $1,342.8 | $1,578.6 | | Goodwill | $860.7 | $864.9 | | Total assets | $3,537.0 | $3,842.3 | | Liabilities and Equity | | | | Total current liabilities | $573.1 | $687.1 | | Long-term debt, net | $632.0 | $551.4 | | Total liabilities | $1,651.7 | $1,700.6 | | Total equity | $1,885.3 | $2,141.7 | | Total liabilities and equity | $3,537.0 | $3,842.3 | Condensed Consolidated Statements of Income Net sales decreased to $675.7 million, with net income from continuing operations sharply falling to $1.8 million due to lower sales, an impairment, and the absence of a prior-year gain Condensed Consolidated Statements of Income (in millions, except per share) | Metric | Three Months Ended Mar 30, 2025 | Three Months Ended Mar 31, 2024 | Six Months Ended Mar 30, 2025 | Six Months Ended Mar 31, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $675.7 | $718.5 | $1,375.9 | $1,410.7 | | Gross profit | $253.4 | $273.4 | $511.2 | $518.4 | | Operating income | $19.5 | $75.9 | $64.2 | $101.0 | | Net income from continuing operations | $1.8 | $49.9 | $26.4 | $67.4 | | Net income | $1.2 | $60.9 | $25.0 | $90.1 | | Diluted EPS from continuing operations | $0.06 | $1.65 | $0.95 | $2.09 | - The significant drop in operating and net income for the three-month period is partially attributable to a $65.0 million gain from representation and warranty insurance proceeds that was recognized in the prior-year period (Q2 2024) and was absent in the current period[16] Condensed Consolidated Statements of Cash Flows Net cash used by operating activities significantly increased to $49.3 million, while investing activities shifted to a net use, and financing activities primarily funded treasury stock repurchases Condensed Consolidated Statements of Cash Flows (in millions) | Activity | Six Months Ended Mar 30, 2025 | Six Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Net cash (used) provided by operating activities | $(49.3) | $(0.8) | | Net cash (used) provided by investing activities | $(15.2) | $544.1 | | Net cash used by financing activities | $(195.0) | $(553.8) | | Net change in cash, cash equivalents and restricted cash | $(272.3) | $(8.2) | Notes to the Condensed Consolidated Financial Statements This section details accounting policies and financial items, including restructuring, revenue recognition, customer concentration, asset impairment, debt, and share repurchases - The company initiated restructuring in its HPC and GPC segments, incurring $4.0 million in exit and disposal costs during the six months ended March 30, 2025, with an additional $6 million forecasted[32][33] - Two large retail customers account for a significant concentration of risk, representing 34.8% of net sales for the three months ended March 30, 2025, and 43.1% of net trade receivables[39][40][43] - An impairment charge of $15.7 million was recognized on the PowerXL® tradename during the quarter due to declining sales expectations and a change in direct-to-consumer strategy[49] - The company repurchased 2.8 million shares for $232.8 million in the six months ended March 30, 2025, through open market purchases, including under Rule 10b5-1 plans[70] - In the prior year (Q2 2024), the company recognized a $65.0 million gain from insurance proceeds related to the Tristar Business acquisition, which significantly impacts year-over-year comparisons[82] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a challenging quarter with declining net sales and adjusted EBITDA, driven by lower volumes and prior-year comparisons, while addressing new U.S. tariffs and maintaining strong liquidity Consolidated Results Summary (in millions) | Metric | Three Months Ended Mar 30, 2025 | Three Months Ended Mar 31, 2024 | Variance | Variance % | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $675.7 | $718.5 | $(42.8) | (6.0)% | | Gross Profit | $253.4 | $273.4 | $(20.0) | (7.3)% | | Net Income from Continuing Operations | $1.8 | $49.9 | $(48.1) | (96.4)% | | Adjusted EBITDA | $71.3 | $112.3 | $(41.0) | (36.5)% | - New U.S. tariffs on Chinese imports are expected to significantly impact operations by increasing costs. The company has temporarily paused finished goods imports from China and is actively pursuing sourcing alternatives, particularly for the HPC segment[105] Segment Financial Data All three segments, Global Pet Care, Home & Garden, and Home and Personal Care, reported lower net sales and adjusted EBITDA for the quarter Q2 Net Sales by Segment (in millions) | Segment | Q2 2025 Net Sales | Q2 2024 Net Sales | Variance | Variance % | | :--- | :--- | :--- | :--- | :--- | | Global Pet Care (GPC) | $269.2 | $289.9 | $(20.7) | (7.1)% | | Home & Garden (H&G) | $152.3 | $160.7 | $(8.4) | (5.2)% | | Home and Personal Care (HPC) | $254.2 | $267.9 | $(13.7) | (5.1)% | Q2 Adjusted EBITDA by Segment (in millions) | Segment | Q2 2025 Adj. EBITDA | Q2 2024 Adj. EBITDA | Variance | Variance % | | :--- | :--- | :--- | :--- | :--- | | Global Pet Care (GPC) | $50.0 | $62.3 | $(12.3) | (19.7)% | | Home & Garden (H&G) | $26.7 | $29.2 | $(2.5) | (8.6)% | | Home and Personal Care (HPC) | $7.3 | $17.8 | $(10.5) | (59.0)% | Liquidity and Capital Resources The company maintains strong liquidity of $504.6 million, despite a significant decrease in cash flow from operations, and expects sufficient resources for future needs - As of March 30, 2025, the company had total liquidity of $504.6 million, comprising $96.0 million in cash and cash equivalents and $408.6 million available under its credit facility[137] - Cash used by operating activities for the six-month period was $48.6 million, compared to providing $80.7 million in the prior year period, a decrease of $129.3 million[133][134] - The company paid cash dividends of $25.3 million ($0.47 per share) during the six months ended March 30, 2025[136] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes in the company's market risk factors occurred during the six-month period ended March 30, 2025 - No material change in the Company's market risk has occurred during the six-month period ended March 30, 2025[151] Item 4. Controls and Procedures Management concluded disclosure controls were effective, with internal control changes due to the ongoing implementation of a new global ERP system - Management concluded that disclosure controls and procedures are effective as of the end of the reporting period[152] - The company is undergoing a multi-year implementation of a new global ERP system. During the period, the system was implemented for the GPC and H&G businesses in North America, leading to modifications of internal controls[153] PART II OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, and other required disclosures Item 1. Legal Proceedings The company is involved in various ordinary course litigation matters, none of which are expected to materially affect its financial condition - The Company is involved in various litigation matters arising from the ordinary course of business and does not expect them to have a material adverse effect on its operations or financial condition[156] Item 1A. Risk Factors A key risk factor is the company's international supply chain exposure to unfavorable trade policies, particularly increased U.S. tariffs on Chinese imports, which could materially affect results - A significant risk factor is the company's exposure to international supply chains and unfavorable trade policies, such as increased U.S. tariffs on goods from China. These tariffs have required price increases or resulted in lower gross margins and could have a material adverse effect on the business[158] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not issue unregistered equity securities but continued its common stock repurchase program, buying back 2.0 million shares for $162.3 million Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Dec 30, 2024 - Jan 26, 2025 | 799,204 | $84.64 | | Jan 27, 2025 - Feb 23, 2025 | 854,911 | $81.65 | | Feb 24, 2025 - Mar 30, 2025 | 304,894 | $73.89 | - The repurchases were made under a $500 million common stock repurchase program authorized by the Board of Directors on May 20, 2024[160] Item 5. Other Information No company officers or directors adopted, modified, or terminated Rule 10b5-1 trading plans during the second quarter of fiscal 2025 - No officers or directors adopted, modified, or terminated any Rule 10b5-1(c) trading plans during the three-month period ended March 30, 2025[161] Item 6. Exhibits This section indexes exhibits filed with Form 10-Q, including CEO and CFO certifications and XBRL data files - The report includes a list of guarantor subsidiaries (Exhibit 22.1), CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2), and XBRL data files (Exhibits 101 and 104)[162][166]