Spectrum Brands Swings to Loss on HPC Impairment Despite Sales Surge
Spectrum Brands Holdings posted a $20.3 million net loss in its fiscal third quarter even as net sales rose 7.7% and adjusted EBITDA more than doubled.
Spectrum Brands Holdings (SPB) reported a net loss from continuing operations of $20.3 million for its fiscal third quarter, a $40.8 million swing from a year earlier, after taking a $104.0 million non-cash impairment tied to its Home & Personal Care business. The charge came even as the consumer-products maker posted its strongest quarterly sales growth in a year.
The quarter capped three straight periods of accelerating top-line momentum. Net sales fell 3.3% in the fiscal first quarter, rose 4.9% in the second, and climbed 7.7% in the third, or 6.6% on an organic basis. Adjusted EBITDA followed the same arc, moving from a 19.5% decline in the first quarter to 17.8% growth in the second and 106.7% growth in the third, reaching $158.3 million versus $76.6 million a year earlier. Gross margin expanded 1,140 basis points to 49.2% from 37.8%.
Much of that acceleration reflected a $60.6 million one-time tariff refund recognized in the quarter. Stripped of the refund, gross margin still rose 330 basis points and adjusted EBITDA still grew 27.5% to $97.7 million. The impairment that drove the quarter's net loss was linked to Spectrum's recent investment from Oaktree Capital Management, which closed during the period and added $61.2 million in preferred-share proceeds from a noncontrolling interest along with a $61.8 million redeemable noncontrolling-interest balance to the balance sheet.
Diluted earnings per share from continuing operations swung to a loss of $1.11 from income of $1.25 in the fiscal first quarter and $0.96 in the second, a decline of $1.94 from the prior-year period, reflecting the impairment and higher income tax expense despite a smaller share count.
Home & Garden delivered the quarter's strongest segment performance, with net sales up 19.0%, or 19.1% organically, and adjusted EBITDA margin up 200 basis points to 22.4%. Home & Personal Care margin improved to 15.4% from 2.7% a year earlier, a 1,270 basis-point gain that included the tariff refund; excluding it, the margin still rose 270 basis points to 5.4%. Global Pet Care organic sales growth slowed to 2.9%, with EMEA sales declining after customers pulled orders forward into the second quarter ahead of an SAP S4/HANA enterprise-resource-planning rollout.
Spectrum raised its fiscal-year adjusted EBITDA guidance for the second consecutive quarter, moving from low-single-digit growth reiterated in February to low-to-mid-single-digit growth in May and now to mid-single-digit growth excluding tariff refunds. Net sales guidance of flat-to-low-single-digit growth was unchanged across all three quarters.
Net debt leverage fell to 1.02 times adjusted EBITDA from 1.65 times in the fiscal first quarter and 1.66 times in the second, giving the company added balance-sheet room as it integrates the Oaktree transaction into its Home & Personal Care unit.