Spectrum Brands SPB has been resilient despite elevated freight and raw-material costs. The company has been gaining from solid demand for its products, contributions from the Global Productivity Improvement Plan and the continued pet boom. This led to a robust sales trend, which was retained in fourth-quarter fiscal 2021. Net sales not only surpassed the Zacks Consensus Estimate but also grew 2.8% year over year.
The company anticipates fiscal 2022 sales growth in the mid to high-single digits, driven by favorable foreign currency impacts. Management expects strong growth momentum in fiscal 2022.
Shares of this Zacks Rank #3 (Hold) company have gained 8.5% in the past three months against the industry’s decline of 11.8%. The consensus estimate for fiscal 2022 earnings per share has increased 54.3% to $3.44 in the past 60 days.
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Factors Supporting Growth
Spectrum Brands has been progressing well with its Global Productivity Improvement Plan (GPIP). The plan aims at improving the company’s operating efficiency and effectiveness, while focusing on consumer insights, and growth-enabling functions, including technology, marketing, research and development.
The company’s fourth-quarter fiscal 2021 results reflected gains from the plan. Management raised its savings target for the global productivity improvement plan to $200 million, which is likely to be generated by the end of fiscal 2022. The savings are likely to be reinvested into growth initiatives and consumer insights, R&D, and marketing across each business.
Continued strength in the global pet care category also bodes well. This led to fiscal fourth-quarter sales growth of 9.1% in the Global Pet Care business, driven by gains from acquisitions and growth in the animal category stemming from strong demand across all channels. This marked the 12th successive quarter of sales growth for this business. With consumers returning to in-store shopping, the company has been witnessing a resurgence in pet stores.
In sync with its Global Productivity Improvement Plan, the pet business is on track with exiting non-core assets and activities to focus on core brands. The company is also on track with its plans to tap the aquatics and reptile space. SPB is progressing well with the integration process of its newly acquired Omega Sea, which is now part of its Global Pet Care portfolio of aquatic brands.
The company is making efforts to strengthen its leadership in the dog chews category via the acquisition of Armitage Pet Care. The move will help it expand the chews business as Armitage is a well-known grocery brand in the U.K. and offers products such as dog chews, cat chews, treats and toys. The pet segment remains poised for growth in the near term, backed by its pipeline of robust innovation and growth strategy.
However, SPB is reeling under elevated freight and raw-material costs, which impacted the gross margin in the fourth quarter of fiscal 2021. The metric contracted 40 basis points (bps) year over year at 34.1%. SG&A expenses rose 8.8%, while as a percentage of sales, it increased 160 bps to 28.8% due to strategic acquisitions, a rise in marketing investments and inflation.
The company reported an operating loss of $4 million against an operating income of $30.5 million reported in the year-ago quarter. The downside was mainly due to higher restructuring and transaction-related expenses. Owing to this, the bottom line fell 2.6% year over year in the fiscal fourth quarter. Management also highlighted that inflation pressure is expected to be more pronounced in the first half of 2022.
The company is undertaking pricing actions to overcome this hurdle. As a result, it expects the second half of fiscal 2022 to witness improved results from the first half. Topping it, a VGM Score of A reflects its inherent strength.
Stocks to Consider
Some better-ranked stocks from the same industry are Delta Apparel DLA, Guess GES and Hanesbrands HBI.
Delta Apparel currently sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter earnings surprise of 95.5% on average. The DLA stock has gained 11.9% in the past three months. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Delta Apparel’s current financial-year sales and earnings per share suggests growth of 11.6% and 9.4%, respectively, from the year-ago period’s reported numbers.
Guess currently sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 97% on average. Shares of GES have gained 14.5% in the past three months.
The Zacks Consensus Estimate for Guess’ current financial-year sales suggests year-over-year growth of 38.6%. The consensus mark for GES’ earnings per share is pegged at $2.97, indicating a substantial improvement from a loss of 7 cents reported in the year-ago period.
Hanesbrands currently carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 28.6%, on average. Shares of HBI have gained 6.6% in the past three months.
The Zacks Consensus Estimate for Hanesbrands’ current financial-year sales and earnings suggests growth of 2% and 25.5%, respectively, from the year-ago period’s reported numbers.
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