Spectrum Brands (NYSE: SPC), the maker of Rayovac batteries, hearing aides and flashlights got lit up last week with its stock falling from over $20 to under $15. This is on top of a slide that has taken the company down from a 52-week high of $43 almost a year ago. You could have taken almost two-thirds of your money and set it on fire to keep you warm.
According to Reuters, the company said sales for fiscal Q2 (4/3/06) would only be $625 million, not the $654 million that Wall Street analysts expected. The company also said it would cut 350 jobs. The company has almost 10,000 employees.
The excuse for the miss was that several large customers apparently reduced inventories and Spectrum's sales got squeezed. The company also said that sales and share in Europe were eroding. Spectrum added that its lawn and garden and Remington business continued to do fairly well. Costs cuts should save about $40 million annually.
Spectrum is a company with a boat load of debt, almost $2.3 billion. Most of this was taken on when the company bought United Industries and Tetra Holding within the last year.
Revenue in Q1, which ended January 1, 2006 were $620 million, up from $491 million in the year earlier period. But, revenue from acquisitions added $185 million, so the increase is not so rosy as it might appear. Operating income was $52 million for the period versus $61 million a year earlier. Restructuring charges in the 2006 quarter make the comparison a bit better, but not much.
Interest expense in Q1 06 skyrocketed to $41 million from $17 million a year earlier.
CIBC upgraded this stock to "Sector Outperform" as recently as March. The company stated last week that it anticipates no liquidity problems. On the last day in January, the company was guiding for full year revenue of $2.7 billion.
If the company is to be believed, and some of its businesses are doing well, it remains to be seen if the battery business can be stabilized and prudent cost cuts can continue. The debt is large, but the company is stating that, for the time being, it is not too large. Energizer Brands (NYSE:ENR), a competitor in the battery business also has debt, though not quite as much, and its stock has not suffered nearly as much. And, the sight of the gallows does focus the mind. Earnings and cash flow must go up for Spectrum to make a go of it.
A little bit of positive news, and the huge sell-off in the stock could reverse itself, at least temporarily.
SPC 1-yr Chart
Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He has also been president of Switchboard.com which was the 10th most visited site on the internet at the time, according to MediaMetrix. He has been chief executive of FutureSource, LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in the companies he writes about. McIntyre can be reached at firstname.lastname@example.org.
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