Factors Likely To Shape Spectrum Brands' (SPB) Q1 Earnings

Spectrum Brands Holdings, Inc. (NYSE:SPB) is set to report first-quarter fiscal 2019 results on Feb 7, before market open.

In the last reported quarter, the company delivered a negative earnings surprise of 30.1%. The Zacks Consensus Estimate for first-quarter earnings is pegged at 40 cents, which was revised downward over the past 30 days. Meanwhile, the consensus mark for quarterly sales stands at $920.7 million for the to-be-reported quarter.

In the past six months, shares of Spectrum Brands have lost 35.7%, wider than the industry’s 14.5% decline.

Let's see how things are shaping up for this announcement.

Factors at Play

Increased input and distribution costs along with operating inefficiencies have been hurting the company’s EBITDA. Moreover, lower volumes, adverse manufacturing variances associated with volumes and unfavorable mix remain deterrents. Rise in freight costs is an added headwind. Apparently, the company’s overall EBITDA plunged 23.1% in fourth-quarter fiscal 2018, with adjusted EBITDA margin contraction of 520 basis points.

Furthermore, Spectrum Brands remains prone to unfavorable currency fluctuations, which have been hurting results. In the last reported quarter, adverse foreign currency reduced sales by $3.1 million. Additionally, currency headwinds considerably impacted sales in most of the company’s segments. Going ahead, management expects the impacts from foreign currency translations on sales to be modestly negative, based on the current rates.

These factors might prove detrimental to the company’s top- and bottom-line performance in the to-be-reported quarter.

Nevertheless, Spectrum Brands’ strategic efforts to manage business portfolio via mergers, acquisitions and divestitures remain encouraging. Recently, the company closed the sale of its Global Auto Care business to Energizer Holdings. Moreover, it offloaded its Global Battery and Lighting Business to Energizer for $2 billion in cash.

Management plans to redirect the capital invested in these businesses toward the development of its core business units including Hardware & Home Improvement, Home & Garden, Pet, and Appliances. Further, Spectrum Brands will use the divestiture proceeds for debt reduction, reinvestment in buyouts and share buybacks. Now, it remains to be seen whether these efforts will aid the company’s performance in the upcoming quarter.

Zacks Model

Our proven model does not conclusively show that Spectrum Brands is likely to beat earnings estimates in first-quarter fiscal 2019. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. Meanwhile, stocks with a Zacks Rank #4 (Sell) or 5 (Strong Sell) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Spectrum Brands has an Earnings ESP of -22.79% and a Zacks Rank #5, which makes surprise prediction unlikely.

Stocks Poised to Beat Earnings Estimates

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Planet Fitness, Inc. (NYSE:PLNT) has an Earnings ESP of +5.65% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Roku, Inc. (NASDAQ:ROKU) has an Earnings ESP of +16.67% and a Zacks Rank of 3.

Zynga Inc. (NASDAQ:ZNGA) has an Earnings ESP of +2.86% and a Zacks Rank #3.

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