Spectrum Brands signs Disney deal, projects FY08 growth
Spectrum Brands, Inc. (NYSE: SPC) CEO Ken Hussey announced during a midday conference call that the consumer products maker signed an exclusive three-year deal with The Walt Disney Co. (NYSE: DIS). The agreement gives Spectrum the rights to feature Disney and Pixar characters on packaging and promotions. Under the deal, Spectrum will also be the exclusive supplier of batteries to Disney parks and will be identified as the official battery of Disney resorts.
The Atlanta-based company will take advantage of the deal this holiday season by releasing Disney-branded battery packages in Wal-Mart Stores, Inc.’s (NYSE: WMT) toy and infant care sections.
Hussey said the company is feeling “a little cautious” about consumer spending. In terms of exposure to an economic slowdown, he said Spectrum will be affected “just like every other consumer product company.”
“However, we think our value alternative positioning in many categories insulates us to some extent relative to our peers,” he said.
The chief executive said the firm’s fiscal 2008 plan calls for modest organic revenue growth in all categories.
“I think we’ll know better what to expect when we see what the holiday season holds for retailers a few weeks from now,” Hussey said. “We believe we are positioned to deliver operating and profit growth next year.”
For 2008, Spectrum plans to reduce its number of product offerings in order to reduce production and inventory costs, capital needs and operations complexity. Hussey said the firm is working to identify and evaluate products and customers that do not meet its goals of contributing to profitability. The company will terminate some of its business relationships—he cited Spectrum’s European private-label battery business as an example—in the process. The firm’s first goal is making the company “a more profitable entity,” he said.
The volatile credit environment has made it difficult for Spectrum to receive a “reasonable valuation” for its Home & Garden business that it is selling. In the most recent quarter, Spectrum took a $184.6 million charge after categorizing Home & Garden as a discontinued operation. There is “significant interest” in from buyers, Hussey said.
“I want to emphasize that this decision was made from a position of strength, not weakness. We believe the upside potential of holding on to the business and allowing credit conditions to ease far outweighs the downside risk,” the chief executive said.
He did not know what the timing of the sale will be, but said the business will “become more attractive with time.”
CFO Tony Genito noted there is another business the company is considering selling. Hussey said the company is selling businesses because he believes the firm’s debt level is “unacceptable.”
“The amount of absolute debt and leverage on our company is in excess of where I think we should be operating,” Hussey said. “It brings a degree of risk that I think is unacceptable for our company. The assets are phenomenal but it is the right strategic thing to do.”
At the end of the fourth quarter, Spectrum’s total debt was $2.46 billion, up 8% from $2.28 billion a year earlier.
Before the opening, Spectrum reported fourth-quarter sales of $548.2 million, higher than analyst estimates of $516 million and up 13% from $486.3 million a year earlier. The firm’s net loss for the period totaled $333 million, or $6.60 per share, from a loss of $439.4 million, or $8.88 per share, a year earlier. Excluding non-cash charges, Spectrum earned $0.23 per share, better than Wall Street projections of earning $0.05 per share.
The results included a non-cash charge of $211.3 million, or $4.19 per share, which reflected an increase in the valuation allowance against certain net deferred tax assets.
“[The non-cash charges] are related to historical issues and performance,” Hussey said. “We do not believe they are predictive of future results.”
Hussey said the results during the first six months of fiscal 2007 represented a downward trend, but the company has halted the negative trend.
“In my perspective, we are not in a turnaround, we have completed a turnaround,” Hussey said, after noting net sales increased 8.4% during the second half of the fiscal year.
During the fourth quarter ended Sept. 30, Spectrum’s operating expenses declined 67% to $191.4 million, from $583.3 million last year.
In midday trading, SPC shares are up 21.89%, or $0.88, at $4.90. Over the last 52 weeks, shares have ranged from $3.77 to $12.50.
