Spectrum Brands Holdings: Still Attractive If You Can Handle It

Core Viewpoint - Spectrum Brands Holdings has undergone significant changes, including the sale of its Hardware and Home Improvement segment for $4.3 billion, which is substantial given its current market capitalization of $2.60 billion. The company is also actively managing its debt, which is expected to improve its financial position despite facing revenue declines and operational challenges [3][9][20]. Financial Developments - As of the end of Q2, Spectrum Brands had cash and cash equivalents of nearly $1.25 billion and is buying back approximately $1.17 billion worth of debt, which will reduce annual interest expenses by about $51.3 million [2][4]. - The company has issued $300 million in exchangeable senior notes due in 2029, with a low interest rate of 3.375%, and has the option for initial purchasers to buy an additional $50 million [14][19]. - The net proceeds from this issuance are expected to be $291.6 million, and the company plans to allocate $50 million for stock buybacks [7][19]. Revenue and Profitability - Spectrum Brands reported a 6.8% decline in revenue from $3.13 billion to $2.92 billion from 2022 to 2023, with the Home and Personal Care segment experiencing a 9.3% drop [9][10]. - The company's net loss increased from $77 million to $233.7 million, with significant impairments totaling $175.8 million [10][18]. - In the first half of the 2024 fiscal year, revenue fell 2.2% to $1.41 billion, primarily due to a 5% decline in the Home and Personal Care segment [18]. Operational Performance - Despite revenue declines, the company reported improvements in its bottom line, transitioning from a net loss of $74.6 million to a profit of $90.2 million in the first half of the 2024 fiscal year [18]. - EBITDA increased from $90.8 million to $196.6 million, indicating operational improvements despite challenges [18][19]. Valuation and Market Position - Spectrum Brands is currently valued at an EV/EBITDA ratio of 8.4, making it the cheapest among its peers, which include companies with significantly higher ratios [21]. - The company is expected to see EBITDA growth in the low double-digit range, with a projected EBITDA of approximately $341 million for the current year [19].