Here’s why you should hold onto the Spectrum Brand (SPB) stock now
Spectrum Marks SPB resisted despite high freight and raw material costs. The company has benefited from strong demand for its products, contributions from the Global Productivity Improvement Plan and the continued boom in companion animals. This led to a strong sales trend, which was maintained in the fourth quarter of fiscal 2021. Net sales not only exceeded Zacks’ consensus estimate, but also rose 2.8% from a year over year.
The company expects sales growth for fiscal 2022 in a medium to high range, driven by favorable currency effects. Management expects strong growth momentum in fiscal 2022.
The shares of this company Zacks Rank # 3 (Hold) have gained 8.5% in the last three months compared to the industrydecrease of 11.8%. The consensus estimate for fiscal 2022 earnings per share rose 54.3% to $ 3.44 in the past 60 days.
Image source: Zacks Investment Research
Factors promoting growth
Spectrum Brands has made good progress with its Global Productivity Improvement Plan (GPIP). The plan aims to improve the operational efficiency and effectiveness of the company, while focusing on consumer insights and functions conducive to growth, including technology, marketing, research and development.
The company’s fiscal 2021 fourth quarter results reflect the plan’s gains. Management has raised its savings target for the Global Productivity Improvement Plan to $ 200 million, which is expected to be generated by the end of fiscal 2022. The savings will likely be reinvested in initiatives to improve productivity. growth and information on consumers, R&D and marketing in each company.
The continued strength of the global pet care category also bodes well. This led to a 9.1% sales growth in the fourth quarter of the Global Pet Care business, driven by gains from acquisitions and growth in the animal category resulting from strong demand across all channels. This is the 12th consecutive quarter of sales growth for this activity. With consumers returning to in-store shopping, the company has seen a resurgence in pet stores.
In line with its global productivity improvement plan, the companion animal industry is on track with the exit of non-core assets and businesses to focus on core brands. The company is also on track with its plans to exploit the aquatic and reptile space. SPB is progressing well with the integration process of its new Omega Sea acquisition, which is now part of its Global Pet Care aquatic brand portfolio.
The company is working to strengthen its leadership in the dog chews category through the acquisition of Armitage Pet Care. The move will help it grow the chews business as Armitage is a well-known grocery brand in the UK and offers products such as dog and cat chews, treats and toys. The companion animal segment remains poised for near-term growth, supported by its robust innovation pipeline and growth strategy.
However, SPB is reeling from high freight and raw material costs, which impacted gross margin in the fourth quarter of fiscal 2021. The metric contracted 40 basis points (bps) year over year at 34.1%. General and administrative expenses increased by 8.8%, while as a percentage of sales they increased by 160 basis points to 28.8% due to strategic acquisitions, increased marketing investments and inflation.
The company reported an operating loss of $ 4 million compared to an operating profit of $ 30.5 million recorded in the same quarter last year. The decrease is mainly due to higher restructuring and transaction costs. Because of this, net income fell 2.6% year-over-year in the fourth quarter of the year. Management also stressed that inflationary pressure is expected to be more pronounced in the first half of 2022.
The company is taking pricing actions to overcome this hurdle. As a result, he expects the second half of fiscal 2022 to see improved results compared to the first half. To top it off, a VGM score de A reflects its inherent strength.
Actions to consider
Some higher ranked stocks in the same industry are Delta Clothing DLA, Guess GHG and Hanesbrands HBI.
Delta Apparel currently sports a Rank 1 of Zacks (strong buy). It has a surprise profit over the last four quarters of 95.5% on average. DLA stock has gained 11.9% in the past three months. You can see The full list of today’s Zacks # 1 Rank stocks here.
Zacks’ consensus estimate for Delta Apparel’s current year sales and earnings per share suggests growth of 11.6% and 9.4%, respectively, from figures released last year.
Guess currently sports a # 1 Zacks rank. It has a surprise profit over the last four quarters of 97% on average. GES shares have gained 14.5% in the past three months.
Zacks’ consensus estimate for Guess sales for the current year suggests year-over-year growth of 38.6%. GES’s consensus mark for earnings per share is set at $ 2.97, indicating a substantial improvement from a loss of 7 cents reported a year ago.
Hanesbrands currently has a Zacks Rank # 2 (Buy). The company has a surprise earnings for the last four quarters of 28.6% on average. HBI shares have gained 6.6% in the past three months.
Zacks ‘consensus estimate for Hanesbrands’ current year sales and profit suggests growth of 2% and 25.5%, respectively, from figures released last year.
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