Spectrum Brands (SPB)

Household products company Spectrum Brands (NYSE:SPB) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 6% year on year to $675.7 million. Its non-GAAP profit of $0.68 per share was 50.7% below analysts’ consensus estimates.

Company Overview

A leader in multiple consumer product categories, Spectrum Brands (NYSE:SPB) is a diversified company with a portfolio of trusted brands spanning home appliances, garden care, personal care, and pet care.

Household products stocks are generally stable investments, as many of the industry's products are essential for a comfortable and functional living space. Recently, there's been a growing emphasis on eco-friendly and sustainable offerings, reflecting the evolving consumer preferences for environmentally conscious options. These trends can be double-edged swords that benefit companies who innovate quickly to take advantage of them and hurt companies that don't invest enough to meet consumers where they want to be with regards to trends.

Competitors include General Electric (NYSE:GE) in home appliances, Central Garden & Pet (NASDAQ:CENT) in pet care, Scotts Miracle-Gro (NYSE:SMG) in lawn and garden care, and Procter & Gamble (NYSE:PG) in personal care.

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $2.93 billion in revenue over the past 12 months, Spectrum Brands carries some recognizable products but is a mid-sized consumer staples company. Its size could bring disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale.

As you can see below, Spectrum Brands’s revenue declined by 1.5% per year over the last three years, a poor baseline for our analysis.

This quarter, Spectrum Brands missed Wall Street’s estimates and reported a rather uninspiring 6% year-on-year revenue decline, generating $675.7 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 1.4% over the next 12 months. While this projection indicates its newer products will spur better top-line performance, it is still below average for the sector.

When analyzing revenue growth, we care most about organic revenue growth. This metric captures a business’s performance excluding one-time events such as mergers, acquisitions, and divestitures as well as foreign currency fluctuations.

Spectrum Brands’s demand has been falling over the last eight quarters, and on average, its organic sales have declined by 1.2% year on year.

In the latest quarter, Spectrum Brands’s organic sales fell by 4.6% year on year. This decrease represents a further deceleration from its historical levels. We hope the business can get back on track.

All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products, has a stronger brand, and commands pricing power.

Spectrum Brands has good unit economics for a consumer staples company, giving it the opportunity to invest in areas such as marketing and talent to stay competitive. As you can see below, it averaged an impressive 36.5% gross margin over the last two years. That means for every $100 in revenue, $63.47 went towards paying for raw materials, production of goods, transportation, and distribution.

Spectrum Brands’s gross profit margin came in at 37.5% this quarter, in line with the same quarter last year but missing analysts’ estimates by 2.4%. Zooming out, Spectrum Brands’s full-year margin has been trending up over the past 12 months, increasing by 2.2 percentage points. If this move continues, it could suggest better unit economics due to some combination of stable to improving pricing power and input costs (such as raw materials).

Operating margin is an important measure of profitability accounting for key expenses such as marketing and advertising, IT systems, wages, and other administrative costs.

Spectrum Brands was profitable over the last two years but held back by its large cost base. Its average operating margin of 2.2% was weak for a consumer staples business. This result is surprising given its high gross margin as a starting point.

On the plus side, Spectrum Brands’s operating margin rose by 4.8 percentage points over the last year.

In Q1, Spectrum Brands generated an operating profit margin of 2.9%, down 7.7 percentage points year on year. Since Spectrum Brands’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, and administrative overhead increased.

We track the change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Spectrum Brands’s EPS grew at an astounding 37.8% compounded annual growth rate over the last three years, higher than its 1.5% annualized revenue declines. This tells us management adapted its cost structure in response to a challenging demand environment.

In Q1, Spectrum Brands reported EPS at $0.68, down from $1.62 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Spectrum Brands’s full-year EPS of $3.77 to grow 40.7%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

While Spectrum Brands posted positive free cash flow this quarter, the broader story hasn’t been so clean. Over the last two years, Spectrum Brands’s demanding reinvestments and muted organic growth have drained its resources, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 9.7%, meaning it lit $9.74 of cash on fire for every $100 in revenue.

Taking a step back, an encouraging sign is that Spectrum Brands’s margin expanded by 24.8 percentage points over the last year. Despite its improvement and recent free cash flow generation, we’d like to see more quarters of positive cash flow before recommending the stock.

Spectrum Brands’s free cash flow clocked in at $13.9 million in Q1, equivalent to a 2.1% margin. Its cash flow turned positive after being negative in the same quarter last year, marking a potential inflection point.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Spectrum Brands historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 0.5%, lower than the typical cost of capital (how much it costs to raise money) for consumer staples companies.

Spectrum Brands reported $96 million of cash and $715.8 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $324.3 million of EBITDA over the last 12 months, we view Spectrum Brands’s 1.9× net-debt-to-EBITDA ratio as safe. We also see its $2.3 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We struggled to find many positives in these results. Its EBITDA missed significantly and its EPS fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 6.6% to $57.74 immediately following the results.

Updated: May 11, 2025 at 10:35 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Spectrum Brands, you should also grasp the company’s longer-term business quality and valuation.

We see the value of companies helping consumers, but in the case of Spectrum Brands, we’re out. To begin with, its revenue has declined over the last three years, and analysts expect its demand to deteriorate over the next 12 months. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its cash burn raises the question of whether it can sustainably maintain growth. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Spectrum Brands’s P/E ratio based on the next 12 months is 11.7x. This valuation multiple is fair, but we don’t have much confidence in the company. There are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $87.88 on the company (compared to the current share price of $61.86).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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