Q4 2019 Earnings Call
I will be your conference operator today.
At this time I would like to welcome everyone to be spectrum brands fiscal 2019 fourth quarter earnings Conference call.
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After the speakers prepared remarks, there will be a question and answer period.
If he would like to ask a question during that time, It's complete press Star then the number one on or telephone keypad.
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As a reminder, ladies and gentlemen, this conference is being recorded today Wednesday November 13th.
Thank you I would now like to introduce Mr., Kevin Kim with spectrum brands.
Sure Kim you May begin your conference.
Thank you the tiny and welcome to spectrum brands Holdings fiscal 2019, Q4 earnings conference call and webcast I'm, Kevin Kim Divisional VP of Investor Relations and moderator for today's call to help you follow our comments, we've placed a slide presentation on the events calendar and Investor Relations section of our website Www <unk>.
Spectrum brands Dot com.
Document will remain there following our call starting with slide to the presentation. Our coal we led by David Moore, Chairman and Chief Executive Officer, Doug Martin Chief Financial Officer, and rainy Lewis Chief operating officer.
After the opening remarks, we will conduct the QNX session.
Turning to slide three and more.
It's today include forward looking statements, including our outlook for fiscal 2020 and beyond.
Payments are based upon managements current expectations projections and assumptions and are by nature uncertain actual results may differ materially due to that risk spectrum brands encourages you to review the risk factors and cautionary statement outlined in our press release stated today November 13, 2019 and or.
Most recent SEC filings and spectrum brands Holdings, most recent and Q and 10-K, we assume no obligation to update any forward looking statement also please note we will discuss certain non-GAAP financial measures in the call reconciliations on a GAAP basis for these measures are included in today's.
<unk> press release, and 8-K filing which are both available on our website.
I'll now turn the call over to David Moore.
Hey, Thanks, very much Kevin.
Thanks, everybody, who is joining us on the phones today.
Look good morning, Oh, I'm extremely pleased to out to update everyone. Today on our progress as we stated 12 months ago. The goal is to stabilize our company and 29.
This unit for growth in 2020.
Today.
We are we're confirming that we have stabilized or business 2019, and we're returning to profitable growth and only 20.
We ended fiscal 2019 on a very strong.
The fourth quarter, and Frac, reflecting the best quarterly top and bottom line year over year growth of the entire year, given a significant momentum as we enter 2020.
We also have a significantly stronger balance sheet, we have tremendous amount of liquidity and we delivered on our full year adjusted EBITDA expectations.
Our management team is focused on delivering stability, we focused on delivering stability in 19, and we emphasized the importance of execution in draftsman entered the resetting of our home and personal care appliance business.
Despite the challenges in 2019 of terror.
The difficult selling season for home and garden business or teams rose to the challenge and overcame all the external headwinds that were presented to us and 29 team.
But had a fantastic year, posting both healthy top and bottom one girl.
Ian Gordon benefited from shelf space gains and while HHR is revenues were somewhat below expectation. The team at HHR was able to deliver on their profitability goals for the full year in fact, expanding EBITDA margin by 20 basis points.
Additionally, the team works through the divestiture of our battery and global auto care businesses, and very importantly kicked off a multi year global productivity improvement plan, which we now expect to generate over $100 million a run rate savings in the next tier.
Team to 24 months.
The vast majority of these savings will be redirected to reinvest in our base business.
To further foster future growth.
And to offset additional tariff cost pressures, we enter fiscal 2020.
We believe with the actions taken over the past 18 months, we have shut the new foundation of spectrum brands, which will enable us to deliver significant long term value creation and produce sustainable growth going forward.
I would be completely were mess not the pause and take an opportunity to think all 13000 or more employees globally.
The spectrum brands associates around the world not only helped me in the senior team with the divestitures that Weve previously mentioned.
But also implemented our global productivity improvement plan.
And maintain their passion and commitment to helping build the faster smarter stronger spectrum brands of the future.
We would have not been able to complete over 3 billion, an asset sale divestitures deliver on our commitments under the T. assays to energizer payoff over how far debt and just the past 10 months, while at the same time investing behind all our business units to execute on our phenomenal turnaround plan and restore the stability of our.
Operating businesses without a relentless focus from everyone on the team I'm very very proud and honored to be associated with each one of you and for all the our partners employee partners that are dialed in I want to thank you sincerely from the bottom my heart. Thank you so much for all your efforts in might be.
If I could turn your attention to slide seven.
2019 accomplishments plans going forward are as follows first of all we delivered $567 million of adjusted EBITDA in fiscal 19, and we overcome headwind we overcame headwinds from tariffs softer you as housing market challenging weather NFX.
Secondly, we materially improved our capital structure, our net debt declined from over 5.2 times to 3.1 times as we sit here today.
At the end of 2019.
Our total dollars our net debt to EBITDA was 3.1 time, which which hit our target and this was accomplished the divestiture of two business units, which allowed for debt reduction of $2.4 billion.
Third we decreased our average borrowing rates, we most recently extended the duration of our liabilities by tendering for the majority of our six and five H. notes and issuing $300 million of new tenure paper at 5%.
Sending duration and lowering our cost of capital.
Fourth we returned $350 million to our stakeholders through share repurchases of 269 million and dividends of $86 million.
Board of directors and I currently believe our shares are materially undervalued relative to our intrinsic worth.
As such we are announcing this morning plans to repurchase up to an additional $250 million of our shares.
We will continue to maintain prudent leverage as we expect to generate approximately 250 million of free cash flow in the current fiscal year as we entered the new year hour drive for vision clarity in focus remains firm.
Our passion to simplify our business model and to run our company like true owners with much greater efficiency and higher returns has only increased.
We plan to grow both organic sales and EBITDA in 2020 and beyond.
After stabilizing the company in 29 team I am very pleased to report to you all that we expect all four of our business units ROE in 2020.
Yes.
Our spectrum 2020 guiding principles remain vision, where we're taking the company clarity, what we prioritize and focus how we execute.
This is our pathway to consumer driven mindset, we will accept nothing but outstanding quality and service, while increasing innovation and marketing investments behind our brands.
These actions are driving a culture of greater accountability, much quicker decision, making and with an experienced an energized leadership team refreshed with new talent and focused on operational excellence, we're positioning our company for improved sales earnings and sustainable free cash flow growth.
Now you'll hear more from Doug on the financials and Randy will give you an update on the business units over to you Doug.
Thanks, David and good morning, everyone turning to slide nine and a review Q4 results from continuing operations beginning with net sales net sales increased 1.9%.
Excluding the impact of $12.5 million of unfavorable foreign exchange organic net sales grew 3.2%.
Within global Pet care H.I. in HPC being partially offset by a decline in home.
Gross profit fell 3.5% gross margin of 33.7% decreased 190 basis points as higher input costs tariffs and accelerated depreciation relating to a decision at the end of the year to close a certain Latin America plants.
Were partially offset by positive pricing and productivity.
As DNA expense of $232 million decreased 7%, 23.4% of net sales this year compared to 25.8%.
A year ago, driven by lower HRG merger related costs and other cost control efforts.
Operating loss was.
Was driven by the impairment of home and personal care goodwill and other intangible assets of about $151 million higher input costs, and tariffs higher depreciation and amortization and higher restructuring charges related to the global productivity improvements.
Net loss and diluted loss per share were given by the operating loss, partially offset by an income tax benefit the unrealized gain in our energizer common stock lower interest expense and a smaller loss from discontinued operations.
Adjusted diluted EPS of $1.13 increased 10.8% to the lower interest expense and lower adjusted average shares outstanding.
Turning to slide 10.
Q4 interest expense from continuing operations of $37 million decreased $20.7 million driven by lower debt levels cash taxes. During the fiscal year were approximately $53.9 million comparable to last year.
Depreciation amortization and share based compensation from continuing operations of $55.7 million increased from $33.6 million last year, primarily due to higher share based compensation and the impact of HPC depreciation and amortization. This year as a result, the moving the unit back into viewing effort.
Okay.
Cash payments per transaction and restructuring and related charges for Q4 were 9.5 million and $6.7 million, respectively versus 21.1 million and $36.8 million, respectively last year.
Hi can spend last year was driven primarily by the age I'd see consolidations and divestiture activity.
Moving to the balance sheet Slide 11, we completed Q4 to strong liquidity position, including $779 million available on our 800 million dollar cash flow rate lower and the cash balance of $627 million debt outstanding was $2.4 billion down 50% last year and as.
A reminder, over the course of 2020, we plan to replace repaid previously disclosed $200 million to energizer in connection with the divestiture as a part of business and we will complete the redemption of the remaining $117 million of 65 eight bonds. This week.
Capital expenditures were $18 million in the quarter versus 19.3 last year.
Turning to slide 12 in our 2020 guidance.
Spectrum brands expects low single digit reported net sales growth with foreign exchange expected to have a slightly negative impact based on current rates.
Adjusted EBITDA is expected to be between 570 in $590 million.
And this guidance includes global productivity improvement plan benefits and the impact of tariffs that are currently in place.
From a phasing perspective, we expect Q1 to be negatively impacted by the annualization of tariffs and stranded costs related to the divestitures, we expect growth and the remaining three quarters of the year.
Fiscal 2020, adjusted free cash flow from continuing operations is expected to be between 240 and $260 million.
And in amortization is expected to be between 200, and $210 million, including stock based compensation of between 55 and $60 million versus $54 million in 2019.
Full year interest expense is expected to be between 140 and $150 million, including approximately $10 million of noncash items.
Restructuring and trends transaction related spending is expected to be between 90 and $100 million and capital expenditures are also expected to be between 90 and $100 million, including.
Activity planned improvements enabling capability investments.
Cash taxes are expected to be between 45 and $55 million and we do not anticipate being a significant us federal taxpayer during fiscal 2020, as we continue to use net operating loss carryovers.
We ended the year with approximately $800 million of usable federal and a wells.
And just as a reminder, for adjusted EPS, we use a tax rate of 25% including state taxes.
Now I'll turn it over to Randy for a more detailed look at the business unit performance.
Thanks, Doug Good morning, everyone. Thank you all for joining us today.
I want to open by rate Iterating David's comments, we're very proud of our combined accomplishments during the fiscal 2019 year interface and material headwinds.
Excited about the future outlook of the platform has been if its start to deliver from a global productivity improvement program execution.
Now, let's walk through the results of each of the business units turning to slide 14, and hardware and home improvement the fourth quarter reported net sales and organic sales increased 1.11, 0.3%, respectively. While adjusted EBITDA improved three in after.
Despite the softer us housing market and slowing remodel activity residential security sales benefited from new product innovations in both electronics as well as mechanical products offering features from our smart key technology.
In the quarter, we were very pleased with the successful launch of our new cloud platform, the new mobile App.
This proprietary system will be crucial to future projects in the connected security market, making it easier for the consumer have real time accessing neutral lockset anywhere they had internet connectivity.
Recent launch of Aura, our new Bluetooth enabled block under the industry, leading quickset brand is just one of several examples of products that will sit within this new ecosystem.
Looking forward, we're very excited about the outlook on electronic deadbolt and smart locks in 2020, given the relatively low faster drilling us residential adoption rates more importantly, we are excited about our electronics product roadmap and the new innovations that we will add to our ecosystem in 2020 and beyond.
Similar to this year going forward, we expect more moderate new build activity, but nonetheless, we are confident in our ability to grow with our market leading brands excellent service levels product quality and both the new construction and repair and remodel markets.
Not to home and personal care, which is slide 15.
Fourth quarter reported net sales increased 1% organic net sales grew a solid 4.2% well adjusted EBITDA declined 17.2%.
Sales growth reflected sequential improvements from the mid single digit declines to the first three quarters of the that had been driven by prior year hair care distribution losses in the U.S. we.
We previously communicated 2019 to be a year of resetting this business.
Divisions, New leadership team installed in February of this year has an excellent job as rebalancing cost structure and with the objective is accelerating profitable growth has undergone a comprehensive review of its guiding strategy.
In short our way forward can be summarized as a renewed commitment to support our trusted brands of Remington Blackened Decker Russell Hobbs and George Foreman in a global sense by being a cost effective producer of compelling and innovative products that benefit consumers everyday lives.
Additionally, our biggest ever investment, which established Remington as the official global styling partner, Manchester United is already enhancing the brand in markets around the world.
And our insights driven innovation pipeline gives us great confidence, we have a product roadmap that will drive accelerated sales growth going forward. For example, the teams investing internationally drive awareness of the innovative Remington pearland straight hair styling that features unique twisted plates, enabling consumers to straight or coral with ones.
Also the team is building excitement around our new market, leading George Foreman Indoor Grill series as an example, we have a much anticipated new product, which is launching in the back half of fiscal 2020.
Already received committed wide scale distribution will be supported by dedicated new advertise thanks.
There's so much more to come we believe this renewed focus new leadership on supporting our brands and investing behind fewer bigger better products will lead to growth in 2020 and beyond.
Moving to global Pet care, which is slide 16.
Fourth quarter reported net sales increased 7.9% and adjusted EBITDA increased by 30.3 pillars.
Excluding currency impact sales grew 9.2% in the quarter, we saw strong growth in our top regions on a full year basis, all five global regions delivered solid growth driven by the continued globalization of the business teams processes and strategies.
In fiscal 19, our strongest growth came across the portfolio with our strategic core brands collectively growing 16% on a year on year basis.
Our dog Chews business continues to perform well, we're taking share across the globe.
In the US which is our largest market we picked up two share points as our choose brands experienced double digit Pos growth and tracked channels, which was twice as strong as the overall category.
Across that we continue to work to optimize global manufacturing reduced the supply chain cost and optimize brands and skews to improve our market margin structure.
Our pet team is committed to shedding unproductive assets and focusing activities to invest more time and resources into our top growth brands. This will position, our pet care business, well, given the future category growth projections due to increasing participation rates and the passion of pet owners and care given the base everywhere.
Turning to home and garden, which is slide 17.
Fourth quarter reported net sales decreased 4.3% and adjusted EBITDA decreased 1%, primarily due to weather that was less conducive to insecticide sales.
Despite these results full year sales improved 1.6% and we grew our share again in the category largely due to strategic alignment with customers and strong growth in herbicides and repellent categories.
In 2020, our targeted growth will be driven by new products and by marketing support that will converts consumers newly entering the category. We continue to believe strong at the barriers to entry remain high in this business our value proposition to consumers with strong brand equities in increasing investments in product development and marketing will accelerate home and garden growth rates and continue our mark.
Sure.
Turning to slide 18, we also wanted to provide an update on our global productivity improvement plan.
This program continues to be our most important strategic initiative at this point.
Through its efforts, we're changing our operating model to allow quicker more globally in line decision, making within each of our businesses driving more focused and relevant product innovation with enhanced consumer analytics in R&D processes.
We're also centralizing and standardizing the functions that support those commercial operations with a very strong focus on process efficiency and technology enablement.
Savings from these changes along with significant benefits from New center led sourcing processes are creating funding that we will reinvest in higher levels of marketing and further technology enhanced.
Since our last call we have completed wave one of our strategic sourcing work stream.
Over $35 million of run rate savings to phase in during fiscal 2020.
And we've initiated wave two that is expected to deliver even more savings in the.
Additionally, we have begun executing changes in our international commercial structures and we're improving gross margin rates in our global pet care business through the closure of Latin American manufacturing plants.
We now expect the gross annualized savings from sourcing and other global productivity improvement program cost improvements to be at least $100 million and at these savings will be at full run rate within the next 18 to 24 months.
In the short term. These benefits will also be use to help offset the estimated 80 to 85 million of incremental tariff headwinds in fiscal 2002.
We look forward to continue to provide more details on the Jeep have benefits on our future calls.
Now back to David.
Yes, Thanks, Randy Thanks, Doug look before going to Q and a I've got to take a moment, but hey, thanks, Doug Martin Doug has served us for five years and.
Without his.
Steady hand in execution this year.
I wouldn't have been able to have got the divestitures done the Trc is implemented.
Doug is.
It's been a great team player or a great business partner and I just want to thank Doug publicly for is five years of spectrum brands and wish him the very very best and his next endeavors.
So Dave purchase being with us for about nine years and he is also retiring in December .
And we want to thank Dave Pritchard for all his many contributions shared spectrum brands also want to welcome on Board, Jeremy Smeltser, who is already hit the ground running and is.
Knee deep in Galileo and sorry global productivity improvement.
Programs and I, just really are welcome welcome Jeremy to the team who joined US October one.
The transition was exceedingly smooth so again thats a big thank you to both dogging Jeremy.
So Dave dog, Jeremy from all of US at spectrum brands. Thank you and.
I'll turn it over to Kevin for follow up questions.
Great Catania, let's dive right into Q1 day.
As a reminder, if you would like to ask a question at this time. Please press star one on your telephone. Your first question comes from the line of Bob Labick CJS Securities.
Good morning, and congratulations on a nice fiscal 19, and also to Doug and Dave on there.
Ending.
Tyrants and next.
Ventures.
Thanks, Bob.
So I wanted to start with.
The cheap hip and maybe you could just expand a little bit obviously, you are progressing very well and you have some very big.
Expectations for savings can you talk about how to how you plan to balance the reinvestment back into the company in incremental marketing versus R&D versus other things where is this where the savings going and how.
Well, they ultimately drive future growth.
Look all layout, the big strokes, and then I'll turn it over to run for for more details look our initial caught it. This was I wanted to get about $100 million of productivity flowing through the PNM now and we initially wanted to drop about half of that to our shareholders and reinvest the balance into R&D innovation new product the goal.
In marketing so.
I've been saying anything that's been 18 months since I took on this new endeavor.
I really want to focus the company towards more of a sales and marketing organization and really drive organic growth and get to to better places and so it's really a mindset shift.
It's really a new way of doing business, but you know the next couple of waves that we're going to go through quite frankly, Bob are going to be about automation really bringing ITD enablement.
Jeremy Smeltser actually got a fantastic background he's done this for.
And so just the ability to get data.
Lastly, slice the data analyze the data make faster quicker better decisions is going to bring a lot of prosperity to to Austin, all our stakeholders and that's that's kind of where we're going those are the broad strokes I think.
To be blonde, given the turf situation, we'd be less than honest with you. If we didnt tell you look we're unfortunately going to be you bought of the globe productivity improvements in 2020 to just offset these unfortunate tariff headwinds.
Which we view as transitory.
But they are not nonetheless, really affecting our reporting earnings in a negative way and so we're using more of those savings and we'd like temporarily to offset offset those I think that'd be the only commentary I'd give rounded Randy if you want to expand.
Yes, I would just say the key thing for US is that were efficient with this reinvestment. So we're focusing very heavily on capability development within the organization. So that we can ensure that the money that we're choosing to put back into the business is going to have a positive return for all of the so it's kind of broad base. It varies from one business too.
Another based upon where we are in different stages of that process that we are most focused on ensuring that we're chasing the right innovation based upon real data insights from consumers and not from the traditional approaches within CPG companies and then being more efficient at that development and then last being able to.
Effectively engage the consumers and the retailers in the storytelling around that innovation so.
It's going to be a measured pace, we don't expect to beat the full investment run rate until well into the next fiscal year, but.
We're already seeing benefits from the beginning of those reinvestments.
Okay, Great very helpful color and then.
We've talked about this a little bit on previous calls, but can you talk a little bit about the online strategy and penetration and how you're targeting incremental online growth 20 in fiscal 2000 and beyond.
Yeah, Bob that's one of the key Workstreams within the global productivity improvement program is Omnichannel operations, and it's really key that we don't separate out online as being different than bricks and mortar and so the mindset change here is that we talked on the which is having all aspects.
Of opportunities to interface with our consumers engaged in one.
Overall encompassing strategy and so.
We are building very key capabilities with data scientist analytics that are driving us for different behaviors in that space.
But that's one of the areas that will be center led across the four businesses as we go forward into this year.
Okay. Super then last one from me I'll get back in Q.
Obviously, a terrific year on the pet side.
One of those things have also been discussed previously it was some of the operating efficiencies I guess at the European tolling business is any update on.
Proving that those operations in fiscal 2000 or beyond or where that stands.
So across the European business, we've done a substantial amount of work over the course of fiscal 19.
It's it's kind of tied up in the strategy of globalizing our businesses, we talked earlier about in my prepared remarks about streamlining better decision, making within the businesses and that's part of the previous matrix structure that we had.
18 months ago, or so that kept us from being aligned on strategies and so we've driven a substantial amount of costs out of our European business within Pat and seen substantial improvements in the effective rates of that business as a result to that so.
So overall, you're going to we're going to see good really good margin expansion in that business and Thats a main driver of it is the European restructuring.
Great. Thanks very much.
Thanks, Bob.
Your next question comes from the line of Olivia Tong with Bank of America.
Great. Thanks, good morning, and congrats to tuck in Dave.
First question is actually on the.
Savings and the terrorists. So you've got 100 million of savings coming in the next to California have to two years.
80 to 85 million in incremental tariffs to little higher than you had originally anticipated. So as you think about.
The deployment of those savings.
How much is pricing contributing to that.
And to the extent, but you have.
The savings what's your view on what.
If there was a pull and push like are you are they commit equally from reinvestment versus dropping to the bottom line or are you going to make sure you protect the reimbursement.
And maybe less flows to the bottom line just trying to understand your thought process on that thank you.
So let me take the headline Randy will do the details as usual look I am wildly proud of our team.
To do 567 million EBITDA.
In 19 to be steering at a wave of another 80 plus million a tariffs in 2020.
The run rate numbers, we gave you were not there yet.
And by the way, we're going to step up investment in marketing spend by another 22 million Bucks run rate probably half of that at least to hit.
The balance of what's left to 2020, we're not backing away from doing what is right for the company long term in other words, let me stated another way.
We can manufacture 600 million dollar EBITDA number in 2020.
If that's all we wanted to do is impressive street, we want to run this business like owners and we want to continue to invest for the long haul and so we will continue to prioritize reinvestment in R&D innovation and marketing until we get the topline results that this company is capable of.
I'll stop there and I'll, let Randy cleanup any mistakes limit.
Morning, Olivia.
So I would tell you to think of pricing varying by business unit based upon side of the channels the competition in the strengths and positioning in the brands, but overall the offsets on pricing.
Our are the largest portion of offsets that we have.
To the tariff headwinds and so when we look at the remaining savings coming out of the global productivity program, you're exactly right. We have a strong biased to protect those reinvestments.
We obviously have to balance had across all of our stake holders but.
As David said, we are highly committed to the messaging that we've been getting over the last 18 months, which is we're changing the focus and we want to be much more concerned about where we're going to be in two and three years and we're going to be in the next quarter.
That makes sense. Thanks appreciate that.
And then on cash flow.
Yes.
It was nice to see that have stabilized a bit and to see the improvement that you are expecting for next year, but it is it was a little bit low relative to our expectations.
So first.
What didn't go quite as you anticipated for fiscal 19, particularly relative to last quarter's commentary and then what are the big drivers of the improvement in fiscal 20 beyond that the savings program should we and should we expect more improvement in first half versus second half given the comps or will it still be primarily second half loaded.
All I was just clarify that cash flow you mean free cash flow EBITDA would be talking about free cash flow.
Free cash flow Olivia in 2019, as you know was kind of difficult to to see Luke to given the divestitures in the discontinued operations and allocation of interest expense across the two it actually came in pretty much where we expected it to overall.
Do you think about the working capital impact in disguise, which I know you don't have visibility too but that's.
That's really where.
That's really where we expected to come in because we had so much cash in the balance sheet at the end of the year, though did not.
And we had done this early on and we dial back on some factoring programs, which are really cost effective some.
Capital structure management perspective, but weren't necessarily when we were sitting on on cash. So theres any one thing that was different than our expectations. It would have been.
It would have been that.
I also look I think what we know from my seat right. We're just we're trying to generate $100 million and productivity savings, we're spending $100 million a cash restructuring to get it thats not a bad payback right up to 100 minus savings in perpetuity in you paid for it pays for itself and listen.
Months, that's probably a good allocation of capital organically.
I mean, that's an understatement, obviously I think thats really good allocation of capital but.
Clearly those cash restructuring charges that are embedded in our midpoint of 250 or free cash flow.
They are going to roll off and so obviously as you get into 2021.
Have a pretty nice free cash flow lift so I'm pretty bullish on not only the free cash flow for 2020, but the free cash flow growth going forward if that helps.
Okay.
Yes. Thank you.
Your next question comes from the line of scam read with Wells Fargo.
Awesome. Thanks, so much guys for taking my questions and let me add Mike Congrats to Doug and Dave as well.
Quick question here on on global Ted again, this quarter wanted to get a sense as to how this growth compares to the underlying category, especially in the U.S. because it really does seems strong given this somewhat mature nature under lying product segment and then along those same lines could you walk us through any shelf space gains you might be getting there as well.
Thanks.
Look I think our pet business as you know as mismanaged for a number years.
I think our pet business was just a collection of me doing acquisitions I think over the last two to three years under under well actually last year under JP.
John's taken over that business has got an.
Team, that's got incredible vision and passion for innovation.
I think I've spoken to you publicly I was early I think term.
Most of.
Most of the past 18 months I was talking about hope it was going to turn and it took a little longer the turn but I would just tell you. We've got a team that's that's really walking.
Walking the talk when it comes to real R&D real new product development I mean.
I was at the time Expo show down in Orlando I think I mentioned this in a previous public call and I mean, we had three years, where the new product offering a real product roadmap with really innovative stuff. So look we are absolutely outperforming the category.
And we're going to continue to outperform the category because we have what the customer wants we're bringing news and excitement in innovation and we're just getting started so congrats to John and the entire division. We are extremely proud of them and are looking forward to the best yet to come out of cut.
Randy can.
Details.
I think you said it well David and sand, we are growing above the category. We would look at the U.S. category, where we compete and expect.
Cagar there in the 2.5% to 3% range, obviously, our last quarter to quarter. Its has been well ahead of that and that's indicative of the all the efforts and David just talked about in we have a very clear strategy that we're trying to get to there we're starting to deliver on that.
Awesome. Thanks, so much guys for that color. It's really helpful wanted to maybe sneak another one and just quickly on HHR.
Just kind of how much of the growth during the quarter was reflective of pricing specifically and.
And how how is that pricing maybe impacting your volumes in this segment as you as you take that thanks, so much.
I think we want to be careful on pricing because we have competitors it listened in and all the rough that's fun stuff and we're public.
Look we did take pricing in that division right. We're number one market share position were dominant brands.
We are the clear leader.
I will tell you that you know.
This is not an inelastic place to play.
And so you've got to be really careful with that.
Clearly we have a very interest rate sensitive housing market as you guys remember I think it was at this time a year ago, I think I spooked, everybody on housing, saying I was seeing slowdown, which which we did experience.
I think we're working much better with our retail partners I want to thank our retail partners.
We have recently seen some Pos uplift.
Due to some of our pricing programs and.
We are very excited about some of the new digital locked offer offerings, we're coming out with and we launched our own cloud, which is basically allowing us to have a ubiquitous offering I think one of the things want to focus on going forward and HIV is bringing clarity of point of sale.
Digital locks are really just where the growth is where the we're the leader there we want to continue to be the leader, we want to put more chips on the table.
But it's still confusing for DIY wire to go there and know whether they need zigbee as Z wave for home kit, Google Apple why five Bluetooth and so we need to continue to bring clarity, there and and help the customer.
Ill.
But we expect another solid year on AG dziwisz.
Housing was a little bit better we see it.
As opposed to last year, we kind of see multifamily slowing down we think kind of the single family space is doing okay, clearly with full employment in interest rates really our that's very supportive of household formation.
But we remain number one there and we're going to create invest behind that business.
Awesome. Thanks, so much I really appreciate it.
Your next question comes from the line of Ian Zaffino with Oppenheimer.
Hi, great. Thank you very much.
Thank you Pat on the yen on your comments of stocking undervalued.
Is there a target you have out there for the buybacks or maybe just broadly speaking what sort of the pace of the buybacks and what should we sort of expect.
Going forward.
Hello.
Well the lower the price the more we'll borrow the higher the price less robust.
No look I have of we have the board nine overview on what our intrinsic value is.
You know I've been in this space for about 20 years I've never seen the discrepancy between where people go value stocks in growth stocks.
And the consumer broadest space the delta between.
What somebody calls growth that two or 3% in value that a lot of companies reporting negative 2%.
I mean, it's 10 20 times EBITDA deltas it's.
Ridiculous in my mind.
And so I look at our business I look at our free cash flow or look at our brands. So look at the portfolio of assets, we have and we think that shrinking the float makes sense at these levels.
I think anybody that would look at where we trade on a multiple of EBITDA or free cash flow yield.
Hopefully, they're HP 12 see works as good as Mark.
Okay.
Thanks, and then also just touching on.
Yes, some of the hair care distribution losses experienced last year.
Are there new products out there.
That you're going to be launching to maybe backfill some of those losses or maybe recoup some of those launches.
How do we kind of thinking about just that.
No no hub minor ups.
Absolutely.
We just one back category captain it a fantastic retail partner, we Didnt love kind of the shelf space, we had even after that we're having those conversations Randy can tell you about I mean, we have a plethora of new product launches that we're excited that are coming out we didnt just.
Enter into an agreement with Manchester United for Europe .
We've got a lot of new exciting Remington brunt Remington is one of our best known brands and our entire portfolio and the growth we've experienced with women here with women's hair care has been explosive and.
It's just our European teams have just been doing a much better job to be completely brutally honest with consumer insights, but now we've got a brand new team running the United States. Since I think February April it's almost a 100% new leadership team and that's where we're putting our money consumer insights and marketing and youre going to see are complete.
Relaunch of George Foreman.
In a couple of mall.
Yes. This is Randy I would say to follow up David's comments.
We feel that we've had a very strong capability in product development for quite awhile, but we weren't necessarily pointing that capability in the right direction with regards to either what the consumer was wanting or how to ensure that we were managing our portfolio across our retail customers very well.
I'm extremely proud of the new team and what they've been able to do to not only figure out how to get the right insights to point our capabilities very strategically, but also digging in having tough conversations with our fantastic partners and we've not then in the current position with regards to partnership with key retail.
Others in my history with the company.
Very strong and still very difficult conversations in today's world, but we're now playing in the space as far as that relationship that we havent been quite awhile. So its products. It's also relationships. It's also the data the David talked about as far as bringing to them.
The analytics how to optimize their category. So we're going to do extremely well with that and then just in the Remington business, we talked about the Manchester United partnership and that has been phenomenally successful. So far we've had over 300 activations in 25 different countries to that.
Touching a million consumer engagements were seeing very positive returns with.
Perception incentivize response to that so we're very happy with that.
Alright, Thank you very much.
Your next question comes from the line of high that Ali with Deutsche Bank.
Yes, hi, good morning, and congratulations from me too on.
Doug and dancer, Thailand.
So my question is just if I look at slide 18. It feels like there are a lot of sort of interesting thing going on at spectrum, a lot of change going on and I just wanted to.
You know.
That's an understatement.
Yes, so I wanted to hear from you, Dave and maybe from Randy a little bit How're you.
Good morning that you had a lot of execution issues a couple years ago. So how are you ensuring that.
The old run into those types of problems again.
Look I hate looking in the rear view mirror I would say most of the guys in this room.
Well, let's just look forward.
Look I think I think a lot of those mistakes.
We'll.
Going forward, we're going to make sure we measure twice coat once we're not we're doing this with a fantastic partner within 80 Corning.
We are using.
On any given day 40 to 70 FTD eased from Teekay.
This is a management team that is.
No longer looking to reduce costs by issuing simple what they call reduction in force, we're looking to educate our employees to help them become the best versions of themselves. They can we're looking to put ICTI automation big data in front of them to help them drive decisions to be much more efficient and so it's just a new mine.
That said, it's a new way of doing business, yes, it's a lot of change.
But it's being underwritten exceedingly well and honestly Idaho.
Got a gratitude to Randy and dog in Jeremy in Asian, Zagar, and all the operational leaders for partnering with an outside team did that helps double check dot every across every TV and honestly hold us accountable, it's very hard to audit oneself.
Yes.
It's extremely beneficial to have an outside third party.
In everyday working with you.
Hand to hand locked arms to go achieve a goal and I think that would be the best way I could describe the different approaches its being taken this way as opposed to the missteps that capacity reference.
The five for this is Randy.
I believe you and I spoke about this and maybe a few weeks back in I think it's a great question.
Dave is exactly right. This is completely different company then the two and half years ago. When those previous projects were undertaken and this isn't internally executed transformation, but we're doing it very collaborative way, we're doing it with a fantastic partner, we're doing with a tremendous amount of oversight and.
It's.
It's just a different environment completely highly confident in our ability to execute these.
As initiatives and to do so with net positive results along the way.
We've got new leadership in three of our four businesses, we've got substantial new talent enhancements within the senior leadership of each of the individual businesses.
Got new people, leading our corporate initiatives.
All of this has been done with an eye on creating the right type of environment to foster this change.
Great. Thank you and good luck.
Thank you so much appreciate it.
Your next question comes from the line of William Reuter with Bank of America.
Good morning.
You laid out the two year target for run rate basis for the global productivity improvements do you know what you're going to achieving in.
Fiscal year 20, so what will be in this fiscal year 2000 CNL.
We does for us to know anew to find out at the end of the year.
Okay sounds good.
Good good job and the question.
You.
You guys have talked a lot about the expectations that you're going to continue.
Have better growth of the electronic deadbolt smart locks et cetera, I guess can you talk a little bit about what percentage of your products are in.
In the HHS segment are those products and what type of growth rates you expect maybe either this year over the next couple of years.
Oh, there, it's not big enough the denominator still too small that's where we're trying to grow but.
I don't know friend, who wants to give any detail I don't know, if we're going to break that out or not.
Yes, Bill I would tell you, we don't really break that out but it is clearly the fastest growing segment within that space.
Both of the category and for ourselves and so we're we're really excited about this cloud that I talked about and the technology that and that support set on the backend I think as David mentioned all as the confusion in this space. This gives us an opportunity to really cut through that make it very simple and easy and reliable.
For consumers to make a choice and to be happy with it we've got the new Bluetooth lock or that we launched a few months ago, it's doing extremely well already clipping along at several million dollars.
Revenue rate and just the first couple of months, where we'll be launching another major news lock in that space within the next four to six weeks in that one has even more potential so.
It's our fastest growing segment, our biggest strongest focus.
And then lastly, you did a pretty good job of laying out both your expectations for free cash so this year as well as.
You guys are going to do in terms of share repurchases I guess it it would imply it would imply that more or less your leverage target is around where you are right. Now is that how you guys are thinking about things.
To the extent that.
Tim This is Doug the extent that we do in fact make the energizer payment bag later this year and do execute.
Up to 100 up to $250 million share repurchased and we probably will add about a half a turn of leverage.
Okay. That's all from me thank you.
Your next question comes from the line of Carla Casella with JP Morgan.
Hi, Thanks for taking the questions.
One question on the.
Looking into the holiday quarter any protect impact we should think year over year from just a number of department store closures that have gone on since last holiday.
No no don't worry about us on the department store in a big refine what we want to be very open about is that we do expect to do that.
In our first quarter.
Tariffs are impacting us and theyre going to hurt us mostly on the front end of fiscal 2020.
So we expected divot in Q1, we expect to make it up Q2 Q3 Q4.
So again I'm not a big fan of guidance.
We do want you to understand the pacing of the year tariffs will hurt us a lot more on the front end and then our productivity savings will flow in the back and that's how we'll get through the full year guidance. We gave you.
Okay, great and looking at those Tara.
Can you give us will just a little more color by segment I quit segmental segments will be most impacted and.
Beginning prior year.
Yes, I think right now this stuff coming off the boat, where we're having to pay higher tariffs on is going to be both in our appliance unit and quite frankly HD Josh.
Okay.
Great and then.
The plant closure.
And is that as it complete or could we expect any kind of inventory.
Safety stock or other as we go in to this coming quarter.
These are these are relatively low.
As of the small rawhide plants and we've been in planning this for a while it's been impacted closed and.
Production has been shifted the new supply and we have more inventory issues here, though.
Okay, Great and then just one last one on the.
M&A front you mentioned.
Albertsons assets have you mentioned settings and assets in head on.
What categories are that are on are the most unproductive then.
The timing on an exiting would it be category exit or just Brad certain brands our second products.
Well I think you're probably referring to my prepared comments. This is Randy and what I was alluding to there on unproductive assets where those.
Manufacturing facilities throughout Latin America.
Great. Okay. Thank you for clarifying.
That's all I have thanks.
Yes, Thanks Carl.
Your final question comes from the line of Karru Martinson with Jefferies.
Good morning, just just to be clear the the adjusted EBITDA guidance of 570 to Fiveninety that builds in the 80 to 85 million tariffs that you expect this year.
It does just that does.
Okay and then.
Soon.
Yes, yes lists for B.
I would be above and beyond that.
That's correct.
Okay, and just wanted to get a sense and when we talk about the dividend the first quarter.
How much of these stranded costs remain.
And what's the pace.
Getting those out of the.
The DNL here or is it all yes.
Yes sure through this is Doug.
It's a number that we're not.
Well disclose publicly but it's also not a huge number it's a headwind for us so we've been working against it as we.
As we have exits and TSH with Energizer Energizer indexes stays with us but this is also being addressed by the global productivity improvement program. When we started this work.
Well before the deals will close in the only governor on it is is our.
Timing on the exits across.
Our markets around the world. So it's in their attend the guidance being addressed.
Just thought it was important to mentioned the timing and the impact of the phasing of another quarter.
Okay, and just lastly, when you guys look at home and Garden are you seeing shelf scare shelf.
I can't speak.
So shelf share gains when it comes around up.
So this is Randy we are seeing.
Some gains, especially in home centers with our brands and I think it's more to do with our relationships and the products and the investments that we're putting behind our brands than necessarily anything else, but I can tell you again relationships are strong product innovation pipeline is strengthening and we're working very well.
Those those key customers as long as well as the mass channel and I think thats. The main driver of our gains there.
Okay I just wanted to add my thanks to Doug and Dave here from further service. Thank you.
Thank you.
Thanks Kurt.
Thank you and with that Weve rich.
Go ahead, operator, there no further questions at this time.
Thank you the tanium, so with that Weve reached the top of the hour.
I will conclude our conference call. Thank you to David Doug and Randy and on behalf of spectrum brands. Thank you for participating in our Q4 2019 earnings call.
This concludes today's conference call you may now disconnect.