SPB Sales Drop 10%

Spectrum Brands (SPB 7.43%), the global consumer products company known for brands across pet care, home and garden, and appliances, reported its earnings for the third quarter of fiscal 2025 on August 7, 2025. The big headline: sudden U.S. tariff hikes on China-sourced goods forced the company to halt most China purchases, disrupt supply chains, and renegotiate with major retailers, resulting in revenue (GAAP) and profit (non-GAAP EPS) misses relative to analyst expectations. Revenue (GAAP) was $699.6 million, falling short of the $738.7 million GAAP consensus and down 10.2% year-over-year. Non-GAAP earnings per share were $1.24 for Q3 FY2025, missing the $1.27 non-GAAP EPS estimate, though up from $1.13 in adjusted EPS from continuing operations for Q3 FY2024. Adjusted EBITDA dropped sharply as margins compressed, while management signaled rapid supply shift progress and cost controls. Overall, this was a difficult period with short-term disruptions but signs of swift action that may set the stage for stabilization next year.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q2 2025 earnings report.

About the Business: Portfolio, Priorities, and Key Success Factors

Spectrum Brands operates three main segments: Global Pet Care, Home & Garden, and Home & Personal Care. Its brands include names such as Good'n'Fun dog treats, Tetra aquatics products, Spectracide outdoor controls, and Black+Decker and Remington appliances. The company’s reach stretches globally, with products sold through big retailers, e-commerce partners, and distributors in North America, Europe, Latin America, and Asia-Pacific.

Recent business focus has centered on maintaining strong brand recognition, supporting premium pricing, and leveraging a broad global distribution network. The company relies on key retail partners like Walmart and Amazon, which account for a significant portion of segment sales, including approximately 33.8% of Global Pet Care segment sales and 41.5% of Home and Personal Care segment sales for FY2024. Managing supply chain risk, especially with much sourcing formerly from China, has been another critical area, along with ongoing cost control and product innovation.

Key Developments: Tariff Disruption and Company Response

The third quarter was marked by an abrupt and extreme escalation in U.S. tariffs on Chinese imports. Tariffs increased to about 145% early in the quarter, leading Spectrum Brands to immediately stop nearly all purchases from China. This drastic move interrupted supply for several categories, forced the company into lengthier pricing negotiations with major retailers, and paused shipments during these talks. These disruptions drove a 10.2% drop in total revenue (GAAP) compared to the prior year, with organic net sales down 11.1%.

All major reporting segments posted year-over-year GAAP net sales declines. Global Pet Care, which sells chews, treats, aquatics, and wellness products for companion animals, saw GAAP net sales drop 9.6%. Supply chain pauses, soft demand, and retailer destocking played roles. However, the segment did gain new distribution points for chews and had positive trends for brands like Good and Tasty and Meowie! cat treats. Home & Garden, the division known for products like Spectracide pest controls and Hot Shot insect traps, faced a 10.3% GAAP sales decline, mostly from weather delays that impacted spring product replenishment, though July showed signs of retailer demand picking up. Home & Personal Care, covering appliances and grooming tools, was severely affected by the tariff shock, with a 10.8% decline in total segment net sales due to its dependence on China sourcing. However, Organic net sales in Latin America grew low double digits with strong growth from distribution wins and new product launches.

Profitability compressed across the business. Adjusted EBITDA margin fell from 13.6% to 10.9%, with adjusted EBITDA dropped 27.9%. Supply disruptions, stalled retailer negotiations, and weaker demand outweighed over $50 million in cost reductions delivered during the year. Notably, management paused some advertising spending, especially in Home & Personal Care, to buffer profitability during supply interruptions. Nevertheless, net income from continuing operations (GAAP) rose 7.3% as lower interest, taxes, and a reduced share count helped offset lower operating income.

Spectrum Brands also made large strides in supply chain diversification. By quarter’s end, the company reported almost all major tariff pricing in place with customers and had effectively eliminated ongoing tariff exposure for the majority of its sourcing. It expects that nearly 100% of Home & Garden and most of Global Pet Care U.S. supply will be sourced outside China by fiscal year-end, with appliances progressing slower due to their complexity. The CEO commented, “Supply is turned back on, we are diversifying our supply base, and we have our initial pricing in place.”

The company continued buybacks, repurchasing 0.9 million shares for $54.4 million during the quarter and reducing shares outstanding to 24.2 million. Capital management remains focused on preserving liquidity and keeping net leverage well below target levels.

Looking Ahead: Guidance, Focus Areas, and Investor Watchpoints

Management did not provide a full-year earnings guidance, citing continued tariff volatility and uncertain global demand. It did reaffirm an expectation of approximately $160 million in free cash flow, maintaining its priority on cash generation and balance sheet strength. No forward EPS or revenue ranges were offered.

Spectrum Brands leaders stated ongoing supply chain transitions and retail order patterns are expected to normalize in the fourth quarter, especially as supplier and pricing shifts are now in place. The company is targeting an incremental $20 to $25 million in future supplier concessions and pricing to fully offset the latest round of tariff costs for FY2026. Looking forward, potential merger and acquisition activity is most likely in the pet and home & garden segments, taking advantage of lower asset prices. Investors will want to track the progress of supply chain moves, retailer order patterns, consumer demand in key categories, and any signs of additional trade disruptions or further supply interruptions.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.