Spectrum Brands Holdings (NYSE:SPB)

First Quarter 2012 Results

• Net sales of $848.8 million for the first quarter of fiscal 2012, a decrease of 1.4 percent compared with $861.1 million for the same period in fiscal 2011.
• Adjusted diluted earnings per share of $0.69, a non-GAAP measure, for the first quarter of fiscal 2012, an increase of 46.8 percent compared with $0.47 in fiscal 2011’s first quarter.

With our solid first quarter reported today, we believe we are on target to deliver yet another year of measured growth and additional value creation in fiscal 2012,” said Dave Lumley, Chief Executive Officer of Spectrum Brands Holdings. “We posted strong EPS in the quarter versus a loss per share in 2011, and, perhaps most importantly, achieved a third consecutive first-quarter record for adjusted EBITDA of $125 million, a 2 percent improvement.

“Spectrum Brands is truly on the move, and these are exciting times for our Company,” Mr. Lumley said. “We expect higher net sales, a swing to net income from a net loss, and improved adjusted EBITDA and free cash flow in fiscal 2012 from organic growth and bolt-on acquisitions, along with a continued emphasis on debt paydown and balance sheet deleveraging. Spectrum Brands’ time is truly now.”

Fiscal 2012 Outlook

The Company expects fiscal 2012 net sales to increase at or above the rate of GDP. The Company further expects net income in fiscal 2012 versus a net loss in fiscal 2011, with fiscal 2012 adjusted EBITDA expected to grow at a higher percentage increase than net sales. The Company also reaffirms its fiscal 2012 goal of at least $200 million of net cash provided from operating activities after purchases of property, plant and equipment, or free cash flow. Capital expenditures are projected to approximate $45 million in fiscal 2012.

Common Stock Repurchase Program

In October 2011, the Company’s Board of Directors approved a new $30 million common stock repurchase program. The authorization is effective for 12 months. The repurchase program may be suspended or discontinued at any time.

During the first quarter of fiscal 2012, the Company repurchased 491,297 shares of its common stock at an average price of $26.41 per share, for a total cost of $13.0 million.

MADISON, Wis.--(BUSINESS WIRE)--Spectrum Brands Holdings, Inc. (NYSE: SPB), a global consumer products company with market-leading brands, today reiterated its fiscal 2011 expectations to deliver an increase in adjusted EBITDA to between $455 million and $465 million with free cash flow improving to between $155 million and $165 million. The Company said it remained on track to deliver a cumulative debt reduction on its original $750 million Senior Secured Term Loan of at least $200 million by the end of fiscal 2011, with $90 million of voluntary prepayments already made to date for a current Term Loan balance of $658 million. The Company said it now expects fiscal 2011 net sales growth in the range of 1.5 to 2.5 percent. The revised net sales forecast is primarily due to challenges in the retail marketplace.

“This is truly a new beginning for Spectrum Brands, signifying the positive momentum of our company as we move forward on solid footing with a strong, global portfolio of brands,” said Kent Hussey, CEO of Spectrum Brands. “As a result of the successful implementation of operational and financial restructuring initiatives in recent years as well as cost savings and market share gains in some of our key product segments, we have achieved improved profitability and positive cash flow. Now, as we look forward to adding the Russell Hobbs’ portfolio of well-known brands to our offerings later this year, I believe we are well positioned to deliver increased value to our shareholders.”

Source: Business Wire (March 15, 2010)

On November 6, 2009 we issued an alert that SPEB had recently emerged from Chapter 11 bankruptcy. Over My Twenty years of investment experience buying stocks that have emerged from bankruptcy have been a highly rewarding strategy.  During the chapter 11 process the company communicates with the courts and debt holders to develop a viable operating plan that will ensure the survival of the company, while satisfying its obligations. Typically, all or a good deal of the common stock is cancelled and new stock is issued upon exiting chapter 11, often resulting in a tight float.  Many times, the restructured firm is eventually acquired.  The chance for investment success in these situations often depends on the terms of the restructuring arrangement as it relates to money the company owes to debt holders, vendors and suppliers.

I have found the best opportunities occur when most of the debts are forgiven in exchange for newly issued stock. The fact that debt holders are willing to accept stock shows a confidence in the long-term survival of the company.

Initially, the case of Spectrum Brands posed some challenges which is why it had not been originally coded as a GeoSpecial:

• All debt was not forgiven
• Financial leverage is above industry averages
• The company is exposed to foreign exchange risk
• The company operates in economic sensitive product categories.
• The stock had nearly doubled from its chapter 11 exit price by the time  had i found it.

Recently, my curiosity in the SPEB story has been somewhat piqued led :

• Bullish initial fiscal 2010 EBITDA guidance of $335 million to $345 million
• The announcement of a proposed merger that would increased the 2010 EBITDA forecast to a range of $430 to $440 million and reduce its risk profile.
• The company's comments that the merger (all-stock transaction) values Spectrum at an enterprise value of $2.6 billion, or $965 million net of debt, which equates to $31.50 per share net of Spectrum’s outstanding indebtedness. (The Merger Agreement proposes to bring Russell Hobbs’ network of well-known small appliance brands into Spectrum’s operating structure to form a new global consumer products company with an estimated $3 billion in annual revenues.)
• In contemplation of this deal, Spectrum intends to pursue listing its common stock on a major exchange.

What i found particularly interesting is that SPEB announced amendments to the merger :

• The board has agreed to accept alternative business combination proposals:

"To the extent that the Company receives a written alternative proposal during the go shop period that the Board of Directors, acting through or consistent with a special committee of the Board of Directors, determines would, on its own or in certain cases together with other alternative proposals, reasonably be expected to result in a superior proposal to the combination with Russell Hobbs, the Company is permitted to continue discussions with any party that submits such superior proposal after the termination of the go shop periodd."

• The board is attempting to increase liquidity in its stock:

"Under the terms of the pre-amended support agreement, the Harbinger Parties were generally prohibited from acquiring additional shares of the common stock of Spectrum Brands until the termination of the Merger Agreement. The letter agreement modifies the support agreement to permit the Harbinger Parties to purchase up to 100,000 shares of the common stock per week, up to an aggregate of two million shares, in order to provide additional liquidity to Spectrum Brands stockholders."

This is a high risk Special Situation play. I am banking that the recent news  may give shares a short-term lift. Considering SPEB as a long term investment option will require a significant amount of additional due diligence.

Maj

Sources: Business Wire (February 9, 2010 - 8:00 AM EST),  Business Wire (March 2, 2010)

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