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Coverage Initiation: Spectrum Brands
The Value Line Investment Survey recently began tracking Spectrum Brands Holdings, Inc. (SPB). The Wisconsin-based corporation manufactures and markets a diverse portfolio of consumer products.
Spectrum Brands can trace its history back to the early 1900s. At that time, The French Battery Company was founded in Madison, Wisconsin. It would later change its name to the Rayovac Company, and its batteries and related products can be found on the shelves of retailers to this day. Over the last hundred years, the company that would eventually become Spectrum Brands completed a number of acquisitions, large and small, that expanded its product offerings and market reach. Along with Rayovac batteries, it currently owns a number of well-known products, such as Remington (electric shavers and other personal care products), Black & Decker (the home appliances division), George Foreman (home cooking grills), TETRA (pet supplies), and many others.
The global recession that took hold in late 2007 was particularly harmful to the company. Demand for the majority of its products declined sharply, and its hefty debt load severely hampered operations. In fact, in February of 2009, Spectrum was unable to make a $25.8 million interest payment on its senior subordinated notes, which triggered default. Soon after, Spectrum filed for Chapter 11 bankruptcy protection. During the reorganization period, the company discontinued a number of its brands, renegotiated its debt obligations, and reduced operating expenses. It emerged from Chapter 11 on March 18, 2010 and began trading on the NYSE under the symbol SPB shortly thereafter.
Since it exited bankruptcy proceedings, Spectrum Brands has performed relatively well. In fiscal 2010 (ended September 30, 2010), it posted earnings of more than $63 million, or $1.21 a share (Financial results were non-GAAP, and excluded restructuring, acquisition, and debt financing charges that stemmed from the Chapter 11 proceedings.) For the year, 34% of its sales were derived from consumer batteries; 22% pet supplies; 13% home and garden control products; 10% electric shaving and grooming; 9% small appliances; 12% other. At this time, its near- and long-term prospects appear healthy, since demand for its diverse product lineup ought to remain solid. However, its large debt load remains a concern. As of April 3, 2011, long-term obligations accounted for the majority of total capital, and servicing the debt could once again become a problem if operations struggle in the future.
In sum, Spectrum Brands recently made its debut in The Value Line Investment Survey. In our opinion, the marketer of consumer products possesses good growth prospects, but the stock is mainly for the more venturesome investors.
At the time of its article’s writing, the author did not have positions in any of the companies mentioned.