What Happened?
Shares of household products company Spectrum Brands (NYSE: SPB) jumped 11.6% in the afternoon session after the company reported third-quarter results that showed a significant earnings beat, which overshadowed a miss on revenue.
Investors focused on the company's profitability, as its adjusted earnings per share came in at $2.61, crushing analyst estimates of $0.91. The strong performance was largely driven by a one-time tax benefit. While net sales fell 5.2% year-on-year to $733.5 million, missing expectations, the company delivered strong cash flow. Free cash flow was $157.9 million for the quarter, a significant increase from the same period last year, demonstrating improved efficiency.
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What Is The Market Telling Us
Spectrum Brands’s shares are not very volatile and have only had 9 moves greater than 5% over the last year. Moves this big are rare for Spectrum Brands and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 6 months ago when the stock dropped 5.4% after the major indices fell further in the afternoon (Nasdaq -1.3%, S&P 500 - 1.4%) as Treasury yields rose, reflecting market anxiety over a draft federal budget that could worsen the already wide US fiscal deficit.
A poor auction for 20-year U.S. Treasury bonds further raised concerns, as weak demand implies investors are becoming more cautious about holding long-dated U.S. debt. As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates (yields), investors can apply higher valuations to their stocks; when yields rise, that math works in reverse.
Adding to the cautious mood were earnings results from retail giants Target and Lowe's, both of which reported weak earnings that missed expectations, pointing to a potential slowdown in consumer spending and further weighing on sentiment. Lastly, some influential voices such as Jamie Dimon (JPMorgan) and Steve Cohen (Point72) have made cautious comments about market, which can sometimes become self-fulfilling prophecies as investors increase their cautiousness and skittishness.
Spectrum Brands is down 29.7% since the beginning of the year, and at $58.74 per share, it is trading 38.7% below its 52-week high of $95.89 from December 2024. Investors who bought $1,000 worth of Spectrum Brands’s shares 5 years ago would now be looking at an investment worth $895.84.
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