Spectrum Brands' loans and bonds dropped after the company announced that its third quarter and full year 2006 earnings will be substantially lower than its previous estimates. Spectrum Brands' 8 1/2% '13 bonds dropped four points to 79, while its 7 3/8% '15 notes dropped three-and-a-half points to 75 1/2. Its term loan "B" dipped to the 99 5/8-99 7/8 context. The paper had been trading at par before the announcement. Bank of America andCitigroup lead the bank debt.
Spectrum Brands said its disappointing third quarter performance is to blame for lower-than-expected sales volumes, particularly in its European consumer battery business. Inventory reductions in its lawn and garden business were also cited for the drop in sales. A spokesman declined to comment on how much lower its results will be, noting an earnings call is planned for August 3. On May 2, it forecast net sales of $2.6 billion and pro forma fully diluted earnings per share of between 90 cents and $1.00 for fiscal 2006.
Spectrum said it will be in compliance with its senior credit facility debt covenants for the third quarter based on its estimates. It has hired Goldman Sachs to advise it on selling assets to reduce its leverage and the spokesman said this is in the early stages and it does not know which assets it would sell. Spectrum will use the proceeds to reduce its bank debt, he added.
It is the second time this year Spectrum has warned earnings would be below expectations. In April its 7 3/8% '15 bonds dropped six points to 81 1/4 after it said 2006 second quarter results would be below expectations (CIN, 4/10).