Spectrum Battery Biz Drops, N.A. Sales Off 22%

By Jeff Malester -- TWICE, 11/21/2005

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Federal Prosecutors Investigating Spectrum

Atlanta— A decline in Rayovac battery sales, combined with a 6 percent reduction in selling days during its fiscal fourth quarter, helped reduce sales in North America about 22 percent at Spectrum Brands (formerly Rayovac), down to $133.4 million from a year-ago $169.4 million.

North American segment profit dropped by more than half, down to $18.4 million, from $45.1 million in the same three months in 2004.

Battery sales in the company's fiscal year, ended Sept. 30, as well as gross margin, were negatively impacted by the transition from Rayovac's “50% More” battery marketing campaign to a new performance-based marketing strategy, and by high retail battery inventory levels during the fourth quarter.

At the retail level, Rayovac-brand alkaline battery market share was unchanged, while the category declined by about 6 percent, said Spectrum.

For the 12 months, North American sales decreased to $610.8 million from a year-on-year $654 million, due primarily to a decline in battery sales during the fourth quarter.

North American segment profitability slipped to $113.2 million in the fiscal year, down from the $130.7 million reported last year, due primarily to the impact of the marketing transition in the battery business and increased raw materials and fuel and transportation costs.

Although consolidated fourth quarter sales at Spectrum jumped 60 percent to $603.7 million, from $377 million the previous year — the sales results include acquisitions of United Industries and Tetra Holding — the company reported a net loss of $2.9 million, compared with net income of $18.2 million the previous year. Gross profit in the quarter was $219.3 million vs. $155.5 million year-over-year. Pro forma operating income was $47.7 million, compared with $51.4 million the prior year.

Consolidated sales for the 12 months hit $2.4 billion, up from $1.4 billion, with gross profit reaching $883.9 million, up from $606.1 million last year. Net income was $46.8 million, down from $55.8 million a year earlier.

 

Federal Prosecutors Investigating Spectrum

Atlanta — Spectrum Brands, formerly named Rayovac, said it has been told that the U.S. Attorney's Office for the Northern District of Georgia is investigating recent company disclosures regarding financial results for its third fiscal quarter, ended July 3, as well as the company's revised lower guidance issued on Sept. 7 for its fourth quarter and fiscal year, ended Sept. 30.

Spectrum, which supplies Rayovac-brand batteries, said it intends to cooperate fully with the investigation.

At the same time, an expanded class-action complaint has been filed against Spectrum on behalf of those who purchased the company's stock between last Jan. 4 through Nov. 11.

Among the charges in the complaint are that Spectrum misrepresented that it was growing through acquisitions and diversifying revenues, while maintaining sales of existing products and leveraging existing brands, and that the company was achieving “record” sales during the class period, with double-digit increases in battery sales.

Announcement of the investigation followed by four days the company's fourth-quarter loss posting, and the lowering of its 2006 outlook for a second time in a bit over two months.

In its fiscal fourth quarter, Spectrum said sales in North America dropped 22 percent year-on-year, with profit off by more than half. Retail battery sales declined about 6 percent in the fourth quarter.

The company blamed lower battery sales on transition results from a change in marketing campaigns and increased raw materials and fuel and transportation costs.

Spectrum had changed its name earlier this year when it grew its operation beyond batteries to include a number of company acquisitions.