Q1 2021 Spectrum Brands Holdings Inc Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the first quarter 2021 spectrum brands Holdings incorporated earnings Conference call. At this time all participants are in a listen only mode. Later, we will conduct question and answer session and instruction.
And so will follow at that time, if anyone should require assistance. During the conference. Please press Star then zero on your Touchtone telephone as a reminder, this conference call is being recorded I would now like to turn the conference over to your house and they start Kevin Kim. Thank you. Please go head.
Great. Thank you so much Jerome I'm, Kevin Kim Divisional Vice President of Investor Relations and moderator for today's call to help you follow our comments, we've placed a slide presentation on the event calendar page and the Investor Relations section of our website at Www Dot and spectrum brands Dotcom. This document will remain there.
Following our call starting with slide two of the presentation. Our call will be led by David Maura, Chairman and CEO, Jeremy Smeltzer, Chief Financial Officer, and Randy Lewis, Our Chief operating officer. After their opening remarks, we will conduct the Q&A.
Turning to slides three and four our comments today include forward looking statements, which are based upon management's current expectations and projections and assumptions and are by nature uncertain.
Actual results may differ materially due to that risk spectrum brands and encourage you to review the risk.
Risk factors and cautionary statements outlined in our press release dated February 5th 2021, and our most recent SEC filings and spectrum brands Holdings. Most recent annual report on form 10-K, and quarterly reports on form 10-Q.
We assume no obligation to update any forward looking statements also please note we will discuss certain non-GAAP financial measures on this call reconciliations on GAAP basis for these measures are included in today's press release, and 8-K filing which are both available on our website and the Investor Relations section and now let me.
And I turn the call over to David Moore.
Well, thank you Kevin and.
Good morning, everyone. We appreciate you joining us this morning.
Before I get started the day I wanted to take a moment to speak directly to our employees and our partners around the world.
Thank you.
Thank you for your commitment to our company.
Embraced both our global productivity improvement program and the spirit of our servant leadership culture, you have persevered through a global pandemic to deliver excellent financial performance for our stakeholders.
Those of you and the new spectrum brands is emerging now as a more efficient focused productive and consistent operating company.
We are a company on the move again and it's all because of your hard work that is now beginning to pay off and so again I. Thank you.
We can now turn to slide six our financial results for the first quarter reflected another quarter of exceptional top line growth and operating leverage with adjusted EBITDA doubling to $204 million.
This growth was a combination of delivering on strong demand for our products as a home essentials company and restocking of retailer inventory levels and more importantly, our first quarter performance reflected yet another quarter of operational excellence as we focus on delivery of consistent results for our long term stakeholder.
Yeah.
Additionally, during the quarter, we repurchased 43, I'm, sorry, 40 to 40.
$42 $3 million worth of spectrum brands shares and by the end of January we sold our remaining energizer shares, which further strengthens our balance sheet and adds to our liquidity position.
Our first quarter sales growth of 31% reflected growth across all business units with another quarter of strong Pos and improved supply chain performance as discussed on our prior earnings call all of our businesses continued to benefit from supply chain recovery, particularly.
And our hardware and home improvement business, which was a big contributor to this quarter's results with sales up 37% or $111 million, we achieved double digit growth across all business units and our E. Commerce sales growth was over 54% this quarter.
If I turn your attention to the bottom line Q1, adjusted EBITDA doubled which reflects productivity improvements across all business units from our global productivity improvement program and favorable mix as well as our supply chain and continuing to drive output and improve our service levels.
As we outlined during our last earnings call. Our reinvestment continues to reignite the flywheel of new product launches and improve our top line organic growth rate.
It is expanding our margins and it is driving greater profitability and cash flow generation throughout our company.
And if I could turn your attention now to slide seven.
During the first quarter and now into the second quarter like many CPG companies, we have started to experience transportation and commodity related inflation significantly higher than our original expectations for the year and at this point and time, we estimate the impact of this and approximately 70 to 80 million.
For our full year.
But it's a rapidly changing environment, particularly for ocean freight.
However, despite these headwinds our strong start to the year and continued strong us give us confidence and raising our earnings framework to reflect high single digit net sales and adjusted EBITDA growth.
And as we said at the start of the year, we still expect that growth to be front half weighted.
And if I could move you to slide eight now.
As I said last quarter, we believe we are better positioned today and we've ever been to drive demand as a home essential company with customers needing and desiring our brands and products more than ever our first quarter performance reflects another quarter of wins and we expect to continue winning and the future as before.
Hi wheel of investing and consumer insights innovation marketing propels, our brands and products to New Heights, we will continue to focus on execution of our winning playbook, leveraging our strong manufacturing and distribution footprints.
On slide nine.
Going forward, our capital allocation priorities will continue to focus on one allocating capital internally to our highest return opportunities and this includes strengthening our brands through consumer insights research development, and new innovation, new product launches and advertising and marketing all to drive vitality.
And profitable organic growth two.
We will continue to plan to return cash to our shareholders.
Both dividends and opportunistic share repurchases and third we will remain disciplined on the M&A front with tuck in strategic acquisitions that are both synergistic and helped drive significant value creation.
This includes our focus on our target leverage ratio and the three to four times range.
Youre going to hear more now from Jeremy on the financials and Randy will give you more in depth update on the additional business unit insights. So let me turn the call over to Jeremy at this time.
Thanks, David Good morning, everyone turning to slide 11 for a review of Q1 results from continuing operations beginning with net sales.
Net sales increased 31, 4% excluding.
Excluding the impact of $11 3 million of favorable foreign exchange and acquisition sales of $23 million.
Organic net sales increased 27, 8% with growth across all four business units.
Gross profit increased $153 2 million and gross margin of 36, 9% increased 600 basis points, driven by higher volumes and all business units improved productivity from our global productivity improvement program and favorable mix.
SG&A expense of $258 $7 million increased 14, 2% and 22, 6% of net sales with the dollar increase driven by improved volumes as well as higher advertising and marketing investments.
Operating income of $123 $5 million was driven by improved volume and profit margins and lower restructuring spending.
Net income and diluted earnings per share were primarily driven by the operating income growth adjusted.
Diluted EPS improved to $2 13 per.
Driven by favorable volumes improved productivity and positive product mix.
As David said adjusted EBITDA doubled from the prior year driven by growth across all four business units.
Turning now to slide 12.
Non interest interest expenses from continuing operations of $36 $7 million increased $1 9 million.
Cash taxes during the quarter of $8 2 million or $6 3 million and lower than last year.
Depreciation and amortization from continuing operations of $35 $7 million was $6 million lower than the prior year.
Separately share and incentive based compensation decreased from $14 $5 million last year to $8 1 million.
Driven by the change and incentive compensation payout methodology, we discussed last quarter.
Cash payments for transactions were $12 1 million up from $4 6 million last year.
Restructuring and related payments for Q1 were $11 million versus $38 6 million last year.
Moving to the balance sheet, we had a cash balance of $224 5 million and approximately $585 million available on our $600 million cash flow revolver at the end of the quarter.
Total debt outstanding was approximately $2 5 billion consisting of approximately $2 4 billion of senior unsecured notes and approximately $162 million of finance leases and other obligations.
Additionally, net leverage was approximately three four times compared to a net leverage target range of three to four times.
During the quarter, we repurchased 600000 shares of our stock for $42 3 million.
Also we sold one 4 million shares of Energizer stock for proceeds of $65 million and held just under 300000 shares at quarter end.
Since the quarter closed we sold off our remaining energizer shares.
Capital expenditures were $11 8 million and Q1 versus $18 7 million last year.
Turning to slide 13, and our earnings framework for 2021, we now expect high single digit net sales growth and 2021 and with foreign exchange expected to have a slightly positive impact based on current rates.
We continue to expect growth to be first half weighted.
Adjusted EBITDA is also expected to grow high single digits. This includes benefits from our global productivity improvement program. Approximately 11 months of results from the recent arbitrage transaction, which last year generated about $80 million and revenue.
And incremental net tariff headwinds and about $25 million to $30 million driven by the expiration of previously disclosed retrospective tariff exclusions and 2020 and our higher volumes.
In addition, as David mentioned, we have also now factored in and additional $70 million to $80 million and cost inflation.
Fiscal 2021, and adjusted free cash flow from continuing operations and is still expected to be between 250 and $270 million.
And this includes a strategic investment and inventory levels.
Depreciation and amortization is now expected to be between 180 and $190 million, including stock based compensation of approximately 30% to $35 million.
Full year interest expense is expected to be between 140 and $145 million, including approximately $6 million noncash items.
Restructuring and transaction related cash spending is now expected to be between 60 and $70 million.
Capital expenditures are expected to be between 85% and $95 million.
Cash taxes are expected to be between 35 and $40 million and we do not anticipate being a significant U S. Federal cash taxpayer during fiscal 2021, as we continue to use net operating loss carryforwards.
For adjusted EPS, we use and a tax rate of 25% including state taxes.
Regarding our capital allocation strategy, we continue to target net leverage or net leverage range of three to four times adjusted EBITDA.
As it relates to our 2021 earnings framework. Please keep in mind a few additional factors.
First we are planning for incremental advertising investments of approximately $20 million and fiscal 2021, as we continue to raise awareness consideration and purchase intent.
Second recall that Q1 results. This year included the benefit of six additional selling days due to previously outlined changes and our fiscal calendar.
This has a converse impacted Q4 2021 with six less days.
It is important to recognize this modeling nuance results and a natural deceleration of growth and Q2 2021 compared to the prior year.
Third the inflationary pressures, we expect this year, which is higher than our forecast by $70 million to $80 million.
And force adjusted EBITDA is also.
Expected to be negatively impacted by the absence of energizer and dividend income.
Now I'll turn it over to Randy for a more detailed look at our operations.
Thanks, Jeremy and thank you all for joining us today I'm, obviously very excited to provide my comments today and I'll focus on a review of each business unit to provide detail on the underlying performance drivers I'll also update you on the current overall cost environment and touch on our global productivity improvement program.
So overall, we continue to see significant benefits from our operating model transformation as well as the addition of significant new talent in key strategic roles.
Additionally, in Q1, all four businesses saw improved supply chain performance and resulting higher service levels. These.
These factors helped drive double digit sales growth and each business and our productivity gains and operating leverage led to record growth and adjusted EBITDA.
Now, let's dive into the specifics for each business.
Starting with hardware and home improvement on Slide 15 first quarter reported net sales increased 37, 3% and organic net sales increased 36, 8%. The sequential improvement was driven by continued strength and Pos and improve supply, which allowed us to fulfill the majority of our previously disclosed.
And back orders and net sales grew substantially across security plumbing and builders' hardware categories and.
Adjusted EBITDA increased 129, 4%, primarily driven by the positive volumes productivity improvements and favorable mix, partially offset by COVID-19 related costs and higher marketing investments.
This represented another strong quarter of sales growth, resulting from our manufacturing and supply chain teams elevating production well above the pre COVID-19 rates.
While retailer inventory and open orders returned to more normal levels, we expect sales in Q2 and beyond to moderate from the large and 19% and 37% growth rates over the most recent quarters to something more in line with regular Pos levels. We also expect a natural moderation of margins from a more normal.
<unk> product mix going forward as well as increasing cost pressures.
Additionally, recall the significant tariff exclusion benefit in Q2 of last year, which represents a net headwind in Q2 of this year.
Going forward, we continue to expect demand in 2021 to benefit from our new product introductions incremental advertising investments and enhanced promotional activities.
This includes the continued benefit from incremental plumbing and security orders from Clayton homes, and a top builder of manufactured modular and site built homes and the us.
Fundamentals across both the repair and remodel and new build channels continues strong and our incremental advertising dollars for a quick set and pfister brands are continuing to add to Pos gains.
Our storyline focuses on micro bonds, which incorporates anti microbial technology into product coatings and.
Smart key technology, which allows users to rekey their own locks to any quick set key and about 15 seconds and we remain very excited about our halo touch product, a biometric and Wi Fi enabled smart lock with voice assistant capability through Alexa and Google Assistant.
Net of home and personal care, which is slide 16.
Q1 financial performance seasonally the most important quarter of the year for <unk> reflected a strong holiday season reported and organic net sales increased 17, 5% and 15, 8%, respectively. Adjusted EBITDA increased 39, 8% to $50 9 million.
<unk> net sales was driven by strong growth and both small appliances and personal care as well as growth across all regions. This includes the return to growth of our Latin American region, which was particularly hard hit by COVID-19.
From a subcategory perspective growth was driven by continued strength from home cooking products.
As well as the return to growth and hair care products.
EBIT was driven by higher volumes productivity improvements favorable pricing programs and mix.
We offset by increased marketing investments.
Q1 represented the sixth consecutive quarter of year over year top line growth exceeding last year's strong holiday selling season.
Strong sales momentum has continued from that holiday season into the second quarter with growing demand for our home of central products. Additionally, we believe incremental demand and the U S is also benefiting from recent stimulus spending.
And I'll fill rates have improved our supply chain teams remained focused on service levels given the heightened demand.
New product introductions and this category from the Remington brand with wet to style and the Americas and hydro <unk> in Europe are driving hair appliance category growth again and teams continue to seize growth opportunities across cooking food prep and breakfast preparation and see strong growth from air Fryer Toaster ovens from the black and Decker brands.
And our investments and the George Foreman smokeless grill continue to pay strong dividends.
Our focus in 2021 will remember will remain on consumer led insights driven products and continuing to incrementally invest and our brands and hilo ranges across more markets than ever before.
Moving to global Pet care, which is slide 17, Q1 represented another strong quarter of financial performance with reported net and organic sales growth of 33, 9% and 21, 9%, respectively and adjusted EBITDA grew 72%.
Topline growth was driven by both the Aquatics and companion animal categories as well as growth in all regions.
Higher EBITDA was driven by volume growth and productivity improvements, partially offset by higher advertisement and marketing investments.
Q1 was also the ninth consecutive quarter of year over year growth on the topline and seventh consecutive quarter of Bottomline growth.
In addition to this consistent performance our global Pet care team continues to build its worldwide market leadership position in the core categories of Aquatics dog, Chews, pet grooming and pet stain and odor.
Recall that we added arbitrage pet care to our portfolio a few months ago and this acquisition is creating an excellent platform for continued international expansion of our fast growing chews business as arbitrage is well established and the U K grocery channel and offers an attractive assortment of not only dog, but also cat chews and treats and toys.
Our global Pet care team remains confident that 2021 and beyond will benefit from the continued execution of our global growth strategies, coupled with the strong category growth fundamentals, particularly the sustained demand for consumables given all the new pet parents and companion animal and all the new hobbyists, who recently entered the aquatic.
<unk> and reptile categories.
These are long term commitments and bode well for the future demand of our products.
And finally home and Garden, which is slide 18 first quarter reported net sales increased 79, 3% and adjusted EBITDA increased $13 $7 million from a loss from the prior year.
Top line grew across controls household insecticides, and repellents driven by strong Pos as well as early orders across mass distributor and online channel stocking up for the spring season.
EBIT increase was driven by significant volume growth favorable mix and productivity improvements despite headwinds from COVID-19 related costs.
The second quarter should also benefit from strong retail orders heading into the prime selling season.
While weather and Pos performance and our peak season and remain unknown, we are positioned very well to maximize results given our increased production capabilities and our customers early inventory build.
We will also further increase our investment and advertising and consumer engagement and this business as well as launch meaningful consumer led innovation and in the second quarter. We plan to continue to invest more advertising dollars to tell our story around the brands of sector side cutter Hot shot and Equallogic, along with incremental research dollars to deliver even more new and <unk>.
<unk> products. We believe these actions will further enhance our vision to be the recognized leader and providing consumers the best solutions to conquer nature challenges and enjoy life.
This is only possible with the continued focus on our distinctive combination of brands plus formulations and registrations and supported by efficient manufacturing and strong customer relations.
The fundamentals and this business remains strong with solid profitability and high barriers to entry. We are confident that our strong brand equities and increased investments and product development and marketing and will accelerate our long term growth rates.
Now, let's turn to our internal growth and efficiency efforts with our global productivity improvement program turning to slide 19.
We continue to be laser focused on execution as Q1 delivered productivity improvements across all business units. We also remain resolute and using these savings to reinvest back into the business to deliver long term sustainable organic growth.
This program continues to be our most important strategic initiative as we transform into the new spectrum brands.
Also wanted to address the recent changes in input costs and overall inflation at.
At this point these pressures are expected to be higher than we originally planned for the year by about $70 million to $80 million, driven primarily by freight and other material cost inflation.
We are addressing these headwinds with the coordinated and consistent strategy based upon our initiatives developed through our GPS program we have.
And are working in concert with our supplier partners to offset this inflation and have many additional mitigation actions that are being executed and each of the businesses.
Pricing will be included and these actions should the degree and required and we believe our leadership position and recent brand divestments or positive backdrops to those conversations.
As Jeremy alluded to earlier. These headwinds are currently included in our earnings framework for the year and we will remain diligent in our operating discipline to minimize the impacts.
This quarter also E commerce grew by more than 54% and represented more than 16% of overall net sales. Additionally, our digital teams continue to leverage data for the early identification of consumer trends and new product and sales opportunities and create promotional content that appeals to those consumers.
In summary in my section I want to acknowledge a sensational quarter of progress on our operating culture and strategic initiatives across SPV and to thank our 12000 plus employees for all day are doing to make us a better faster and stronger spectrum brands.
This includes all that they are doing to deal with the pandemic conditions, which we greatly appreciate it.
Now back to David.
Thanks, Randy Jeremy and thank you everyone for joining us today.
Given that we've covered quite a lot on the call, let's conclude with the key takeaways on slide 21.
First our Q1 financial results reflected exceptional top line growth and operating leverage adjusted EBITDA doubled to $204 million and our performance demonstrated another quarter of consistent execution for our long term stakeholders.
Second we continue to prioritize and strong balance sheet and strong liquidity and we're targeting net leverage continue to target net leverage and the range of three to four times and we've maintained over $800 million of total quiddity.
Third our year to date performance and the businesses give us the confidence to raise our net sales and EBIT earnings framework to high single digit growth compared to fiscal 2020.
We believe we are well positioned financially and operationally to continue to grow we will continue to be laser focused on our employees our consumers our retail partners and our shareholders. It is extremely gratifying to me and the team to be able to deliver these exceptional results given all.
And the hard work to transform our operating model and to invest for future growth.
Spectrum brands is back.
And I am extremely proud of our team and I'm excited about our future I.
I want to again, thank all of our employees from our frontline workers and the factories and distribution centers to the many other teams around the globe that have been working from home our maternal and grateful for all the sacrifices you've made to navigate our company successfully through these challenging times of the past 12 months.
Thank you for your time. Thank you for your continued support and I'd like to turn the call back over to Kevin. So we can take any questions you may have.
Great. Thank you, David Jerome, let's jump right into Q&A.
Ladies and gentlemen, if you have a question at this time. Please press Star then the number one key on your Touchtone telephone. If your question has been and sort of or do you wish to remove yourself from the queue. Please press the pound key.
Your first question comes from the line of Olivia Paul.
From.
Bank of America, you May now ask your question.
Great. Thanks, Good morning, Congrats on a great quarter.
Wanted to get a little bit more color on the key driver or something else whether it's.
And it probably changes depending on the division, but how much is from better underlying category growth versus the initiatives that you've made to gain market share or.
Not needing as much promotion and mainly the innovation and getting better than you had expected.
And catch up taking non taking as long as you would expect and just maybe just walk through some of those things.
We can think about how customer reviews and change in your categories and for your brands and that would be helpful. Thank you.
Hey, Olivia thanks, so much good morning to appreciate the question.
Look first and foremost I think this is this quarter is really just the culmination of a lot of hard work that's been done behind the scenes over the last two going on three years.
We have really.
Repositioning the operating model of this company to listen very carefully to consumers.
We have <unk>.
<unk> rearranged the innovation.
R&D functions to be consumer insight driven.
We are launching products that our customers and our and consumers want.
Every business unit is taking market share now.
And so we are outperforming category growth.
And we are marketing, we are telling our story to the consumer.
And are demonstrating to them that not only we are homeless central company not only are we making it.
Better and more fun and deliberate your life and and around your home and and your yard and with your patent et cetera.
But we're creating products that consumers now desire and the company has moved from a push model to a pull model.
And.
Just.
Extraordinarily.
April for all the efforts of all our employees to make this happen.
That's what I'll say about and I'll flip it over to Randy if he wants to give you any additional color, but we're doing things and a very sustainable manner I would tell you.
We really are reinvesting.
We're not even now with additional cost inflation and the temptation is to.
And do we really want to continue to make these additional dollars and advertising and marketing and I can tell you affirmatively.
We will lean into that.
We are a company on the move again, and we are very much interested and having long term sustainable growth organically. So.
And I hope that addresses and lease some of your questions.
Morning, Olivia Hey, it's Randy.
Just a little bit additional color on that we would say maybe a third of the.
The increase was catch up across the business unit and so on the supply chain performance and that was more heavily weighted in our <unk>.
<unk> business, where we think we're pretty healthy with regards to the current backlog there is a little bit of additional catch up opportunity and Q2, but for the most part we're there.
But then outside of that there was also a little bit of benefit and home and garden from the standpoint of just the <unk>.
Optimism around the potential category for the year and a lot of retailers are leaning and ahead of time, but the balance of the growth was spread across all the businesses and as David said, we believe that we're in.
And in a good share growing position in most all of our categories and all of our businesses and so we're seeing it's it's category by category as you heard in my comments and we've seen and returned to growth and Latin America and HBC. We've seen returned to growth for hair care products, which has been really hard hit for most.
Of the pandemic and so the strength of the category is solid across almost all our businesses.
Great that's super helpful.
And you sound and Super optimistic about a couple of different areas within your portfolio. So just wanted to get your and your view on your current portfolio and how all the pieces go together.
And obviously not at one point and timing and plan to part ways with a portion of your portfolio and then shelved that plan and so if you could just talk through.
The portfolio makeup and how youre thinking about that.
Yes.
Well I mean.
The beauty Olivia the new operating model that we've transformed over the last 24 months is that we've got a front and that supports really well most consumer products.
EBIT durables and consumables and so the model works well and so we were able to evaluate the assets based upon their growth potentials and across the board I mean, it's different factors, but we saw substantial growth in housing starts and December four.
Are exceeding what we were expecting and so that housing market continues to be strong repair and remodel categories that followed that kantar.
Continued to be very strong and so we like the fundamentals in that business.
We think theres a lot of opportunity for us to grow our plumbing business as we shift and focus more on wholesale and we're seeing great results from the many new lines and new aesthetics, we're bringing into that category.
In appliances, and it's been a long turnaround, but it's it's really there right now and so that team is just hitting on all cylinders and really starting to leverage from the globalization of the strategy.
We're seeing all of those brands perform extremely well.
And we've got great relationships and our retail spaces that we didn't necessarily have 24 months ago and so that once again very comfortable pet is just it's been the Darling force for many couple of years, many quarters now, but there's still runway there as an example.
Nature's Miracle brands and our top choose brands in the U S are just now starting to launch into the European Theater, and we're using the <unk> acquisition as leverage to accelerate that so theres a lot of runway remaining and the most amazing thing and Pat from me for the last.
Three quarters has been the growth and Aquatics and this is a growth not only and consumables, but these are large tanks.
Our manufacturing facility has been going all out on $55 60, and 75 gallon tanks since early summer.
And so people are making substantial commitments to this space, which lead into long term <unk>.
<unk> revenue streams for Us and then home and garden. The transformation there is a little <unk>.
Longer and timeline because of the product registration process and so many of the things that we're really excited about their own products are still ahead of us.
But the transformation just as far as the attitude and the leadership are taking hold and our retailers are really starting to see us differently and that space. So I'm really happy with the portfolio right now that's my view.
Got it are there are there areas, where you think it might make sense and quickly get bigger and like via an acquisition and and.
And on the flipside are there areas, where you might consider divesting.
Simple portfolio and on growth and.
Okay.
Hi, Neil.
Look I think I think right now right I mean, we have.
And have achieved escape velocity.
From operating improvement metric standpoint.
I think all businesses are performing very well and I think our outlook is confident.
Look we've been buying back shares with ball lot of shares this quarter.
Despite our share is starting to recognize the hard work that's been done.
Under the Hood.
I think our stock price is still cheap and has a lot of upside to it.
And so we are thrilled we've got some new investors and the shares we are exceedingly.
Feeding the grateful too.
Some of our larger stakeholders like fidelity for for giving US the time to turn the business around and no demonstrate.
<unk> improved earnings profile.
Look I think we are continue to be laser focused on.
Deleveraging the balance sheet getting the topline sales growing faster and and.
And obviously expanding margin now as we get operating leverage throughout the businesses.
Look were things makes sense strategically.
And some opportunity to create a ton of value for stakeholders. We're open to that I consider this team to be.
Pretty self aware and.
And what we've worked really hard and made a lot of sacrifices to get to where we are today and.
I think right now it's continue to execute continue to deliver consistent results continue to pay down debt continue to get organic growth faster than the competition take market share.
And.
If something comes up and it creates a lot of value for our stakeholders we're wide open.
And that's how we look at the world.
Your next question comes from the line of Nik Modi from RBC capital markets. You May now ask your question.
Yes. Thank you good morning, everyone.
So just I wanted to just quickly clarify what may be said.
Did I hear it right that you guys are now caught up at retail.
And it seems like this is a moving target because demand for the category and so.
So I just wanted to make sure I got that right and then.
And so on.
So look.
We caught up a lot and the last quarter.
We're still chasing demand, okay, let's be clear about it we're still working our tails off to get our service levels up.
POS remains exceedingly strong across the businesses.
And we believe we are now taking share and all four business units.
And again that's the.
And that's the bedrock that gives us the confidence to tell you that we're comfortable with our framework being raised to high single digit growth. Despite.
A number of.
External.
Externalities, mainly freight inflation so.
Yes, let's be clear, we worked really really hard on the supply chain side.
That's why you're hearing me complementing our employee base repeatedly today it is unbelievable.
The challenges that they have met and exceeded time and time again.
And so grateful to to everybody.
And our logistics our sourcing network.
<unk> facilities, but no we haven't we haven't filled at all and we're continuing to restock, even and this quarter from some additional inventory service levels and working very hard to.
And be laser focused on servicing our customers with excellence and getting those fill rates even higher so still work to do and still chasing demand I cut you off you had more to your questions.
Yes, it was.
And just kind of a bigger picture question was on M&A. David is there any perspective, you can give us in terms of what youre seeing and the marketplace.
And valuations look better today than they did a year and half.
Just wanted to get your sense of the landscape.
Yes.
Manuel and I spent my first 10 years and spectrum.
Really that was my main focus was kind of M&A.
We built the CPG powerhouse.
But and I was I was very gratified with it all the way through 2017.
Obviously.
No.
And I took it personally.
Disappointment that the company faced in 2018.
And I've made it.
The number one goal in mind professionally.
One was to change the culture of the company.
Vision and direction and purpose and clarity.
And and.
Really get the volume from.
Essentially a new team and see some.
Essentially.
Yes.
And really empower all the different operating companies.
And then.
Look we built this and a shout out to Tim golf.
And we've built out this.
<unk> group, which is a really collaborative across all the four business functions and.
And just doing a tremendous job with us trying to listen.
To our customers and use those insights to <unk>.
Drive the vitality of our product launches and.
That's the greatest single thing, we'd gone axis has transformed the culture of the company and now the numbers are starting to follow suit in terms of the M&A market.
Look I think that.
While our operating performance is now.
Starting to really show through I think.
Compared to private sector multiples public company multiples I think are companies remains undervalued.
I think were very attractive for investors to enter EBIT now.
I think our share so have a lot of room to run.
I think that there is still a tremendous amount of liquidity and the world price.
But equity is sitting on a ton of fresh powder.
The stock market has exploded and.
So theres just a lot of people chasing assets. So I would tell you that from my old M&A days I kind of see the world a lot of liquidity.
But short assets and they need operating assets to perform.
And Phil the investment demands out there and and that's that.
That continues to solidify and my view that spectrum remains a very attractive equity too.
Taking ownership position and our company because I think we have a lot of upside.
On the M&A front, I think big strategic stuff remains and my book expenses.
But where we can do tuck in acquisitions that are highly accretive and strategic in nature and build our franchise and think we're wide open there.
I'm sure people and the call want to ask me about rumors in the marketplace, where we're just not going to comment on them, but.
And if there's opportunities to create greater value.
And with other things down the road again.
We're a software team that want to create ton and value for stakeholders. So we'll see what the future holds and I hope that is enough color.
Your next question comes from the line of Bob Lovick from CJS Securities You May now ask your question.
Thank you and good morning, congratulations on really fine results, particularly the record and pump.
Margins great stuff.
I just wanted to clarify your guidance because obviously.
And the implications for the EBITDA declines from the balance of the year, you talked about the incremental $70 million to $80 million.
Inflationary headwinds and I'm, assuming that since mid November and the question is does.
That.
Reflect any mitigation on your part.
Is that a net number or is that the total number and then you expect to mitigated somewhat.
Leaving that to be upside from the guidance I'm trying to.
Wrap my head around those.
And so.
I would say and it really kind of mid December we started to see the signs, particularly on the on the inbound ocean freight side.
Side of things really accelerated in January obviously, theres been lots of articles documenting this well.
And the 70 to 80 is really kind of a growth inflation that we see as compared to our original expectations for the year, we are a little bit and mitigation built into the updated earnings framework.
But admittedly we've been somewhat cautious on that because a lot of that work is still ahead of us.
And obviously, we're using spot rates for the most part current spot rates on inbound which is a big spend for US. Obviously, there is some level of potential variability and that as well, but we're just trying to be really transparent with what we've put in the numbers.
Okay, Great. That's helpful. And then kind of my bigger picture question is.
Obviously with Covid and supply chain and everything else that the growth rates are moving around and you gave us some good color to understand it a little bit, but I was hoping you could take a step back and just.
Give us a sense of your thoughts around the underlying growth characteristics by segments.
And once volatility subsides, what we should be thinking about over the next three to five years again forgetting the short term volatility around it.
And with such a good question and I'm going to give it to revenue.
Good morning, Bob.
Good morning.
Think it varies a lot by business unit and.
Also.
By the category and our region, but again I think.
We anticipate in the appliance segment.
Kind of normalization and attenuation.
With some level of overall increase as lifestyle change.
And the hardware area just to general people investing in homes and driving the technology. We still continue to feel like that is going to be a good grower for us and.
And that's probably the one that again as I mentioned Theres a lot of activity through this COVID-19 pandemic that has long term implications on the consumables portion of that business.
And then in.
Home and garden and from a category perspective, we continue to see it as a great place to be.
More moderate growth, but we expect a lot of.
New entrants into the category Theres been an awful lot of people moving not only out of the cities and into the suburbs, but also moving from the north to the south So we are seeing.
And with people moving into our more targeted areas as far as product and region and.
And so we would anticipate that to continue to grow faster than what it has over the last several years.
Good point.
So if that helps Bob.
Got it no that's great I appreciate it I'll get back in queue. Thank you.
Your next question comes from the line of Chris Carey.
From Wells Fargo Securities You May ask your question.
Hi, good morning.
And we were good.
Can you just comment maybe on what you're seeing.
So far and the calendar year to date and housing data looks good garden and trends I know in the seasonally slower period, but we are starting to get to a period, where retailers are going to be stocking up inventory as you noted.
Pet ownership increased during the pandemic.
The tracked channel data looks good I appreciate it smaller for spectrum, but certainly there is some momentum there and.
No.
I'm trying to frame that trends seem pretty good.
This quarter to date as well and maybe just get a feel for how you're seeing things and.
And specifically that means that the back half remains the swing factor here and I Wonder if.
Over the past couple of months your visibility and to what you can do and the back half of the year is approved obviously you've raised the guidance today, but.
So it's really just this concept of what youre seeing year to date and whether you've got any improved visibility.
And to the back half trends.
You sound like me and our weekly calls I'm always asking all the different teams and business units that question and.
And I'm always asked and I'm going to do you see a pullback yet are things subsiding.
Demand reverting to the mean and.
To be honest, we're still chasing demand across the board.
I think.
There is times, where I've thought about the vaccine and gets rolled out and everybody's wants to go back to life as normal and so travel should boom and everyone's going to leave their home and go to the south of France, and and have a good time, but.
Look I think I think the more we.
We experienced the journey, we're on and we see.
Whats going on in terms of <unk>.
<unk> day to day lives.
I think there is real permanence to.
Wanting to live and more renovated better home I think.
And.
And I'm not trying to be negative, but I mean this is this is one pandemic with that will there be one and the future and other one I mean I think people are just valuing.
Home and home based activities and I don't think everyone's going to go back to work all of a sudden and I think.
I think commercial real estate is probably a tough place to be for a long time.
I don't think everyone's going to go back to the office, even when you can go back to the office and cities like New York et cetera. So.
I think this whole enjoy your yard.
Cook at home.
Get your house, and <unk> achieved with remodel work yourself or.
Randy is talking about.
I.
It was a very good comment I mean, you see a lot of a lot of movement and <unk>.
Household formation around this country, it's really beneficial to us.
And remodeling and renovator and.
Playing with your pets and it's.
And look.
We will tell you when we see it but right now.
And things look things look good on the demand from.
Randy you want to Jeremy.
Yes.
And we certainly got more confidence and the back half of the year than we had 90 days ago based on Pos.
And is continuing.
The first part of your question strong here, so far and the calendar year. So all of that said I think it still makes sense for us to have some caution.
And the back half because to David's point, we don't know exactly how things are going to moderate I think it's interesting as we kind of watch each and every CPG company report and and talk about the level of uncertainty that they have but I think it is.
Not an inconsequential range to our net sales and our earnings framework from 3% to 5% of the high single digits I think that's appropriate for now and we'll see how things progress over the next 90 days.
Okay very helpful. And then just the follow up here.
I think the 70 to 80 that was a growth number for the incremental transportation and commodity inflation cost.
But you also said I believe that there were potential mitigation actions you could take whether that is pricing.
Potentially there and some other incremental cost saves that you could unlock and the business.
Realize it's still early days because this really accelerated in December but.
Can you just give us a flavor of other.
And the sorts of actions that you might be able to take and potentially brands. The amount of this income.
Incremental inflation that you might be able to offset a successful. Thanks.
Yeah look I appreciate what you said there because it is fast and sudden and recent and so.
No.
We're still getting our head around it because mid December and now are not theres not a lot of non.
A lot of time in between there and I think look we've said pretty clearly we're working with our suppliers to mitigate this.
We don't.
Raising prices is kind of a loss and we want to do but I think it will probably be necessary.
Given given given what we're seeing.
And again, we just we don't want we don't want to get over our skis and we don't want you to get over your skis with the outlook. So I think we want to we want to deal with what we're seeing in front of US we want to be very transparent with you our investment community.
But at the same time the top line looks really good we're getting a lot of operating leverage and the business.
Pass it to Randy if you give us any further color you wanted to give you.
Yes, Chris I was just going to say.
I don't think we're going to start talking about the numbers of the mitigation and the offsets.
And there are lots of activities that are ongoing all the time as force cost improvement programs and <unk>.
Continuation of R. R G Pip benefits, but it is.
And as a material amount of cost that are coming at us and.
And we're just kind of have to wait and see as David said, how successful we can be.
And mitigating some of that.
Okay. Thanks very much.
Thanks, Curt Thank you thanks, Chris.
Your next question comes from the line and things all week with.
Deutsche Bank, and we don't ask a question.
Yes, hi, good morning, and congratulations from me too.
And really good quarter.
So I just wanted to dig a little bit deeper on <unk> and the first question was I was wondering if you could talk about how Pos has trended and that quarter was just given the volatility and and.
The quarterly results and we don't really have access to a lot of the Pos data from I know you've talked about strong Pos but im wondering if you could either directionally quantify it or talk about the trends that you've been seeing over the last.
Call it a year or so.
Good morning, guys.
Randy I would say.
Over the last year, it's been just a crazy rollercoaster and so what we're trying to do is to look at the last 90 to 120 days when supply has become.
More consistent and predictable and what we've seen is a.
A very nice correlation to pass continuing to grow as inventories at retail continue to get healthier.
And some of our strongest Pos in that business unit has occurred just and in this calendar year and the last five weeks and so.
It's really hard for us to get a read on the underlying details of what's causing everything but again, we've had substantial new product launches we've had new resets in two of our top retail.
Partners, we're getting much better.
And in those sets mixes and again, we're supporting it with more advertising and promotion and promotional spends with some of our best retail partners and so.
And it's all of those things combined that's driving Pos gain and just to give you some sense.
For security.
And and.
Plumbing both up.
Very nicely and in January and into the mid twenties.
Okay. That's super helpful. And then just on the on the G pad and the Terra assets.
I was wondering if you could.
Talk about like where.
And you are on the I know you've talked about $150 million run rate savings on the GPO program. I don't think you mentioned little where you are at this point and time and sort of how much is left and then similar thing on tariffs, where you talked about I think it was $25 million to $30 million.
And of incremental tariffs and I think theres, a <unk> <unk> headwind. So could you talk about how much how much is left just to help us model the rest of the U R.
Yes, so on the on the tariffs where we have most of that is still ahead of us for the year given the comp issue for us.
The majority of that is going to happen and it will start happening in Q2, but majority and.
Q2 Q3.
And with regards to the cheap Pip program I think we've said will be.
Pretty close to run rate by the end of the year, but we haven't been given midyear updates, but it's.
It's not too far off of a linear program for this year.
Got it perfect. Thank you so much clarifies it.
And your next question comes from the line of Ian Zaffino.
Zaffino.
From Oppenheimer you May now ask your question.
Great. Thank you very much.
Hate to see E commerce growing super fast here can.
Can you maybe give us some.
And Ikea.
Where are you seeing that growth is it more and the specialty channel is it more on the just the general E retailing level.
And then as you look forward what sort of mix should we expect E commerce to become as part of the.
Company's overall sales thanks.
Yes, and I think and E com, specifically, we're seeing the growth across all E. Comm channel. So not just dedicated E com, but also as brick and mortars go on online as well so the good news there is that.
We're a little bit.
Agnostic to which particular channel that goes to as you know over the past couple of years, and particularly we've gotten away from having.
Specialized search channel so that's been good for us.
I think last year for the full calendar year, we were about 16% I think total sales were E com realm.
Relatively consistent here and the first quarter. It actually grew as the year progressed last year total percentage I think.
Difficult to tell but I think.
Business like ours, we can certainly see moving to.
Across the portfolio to a quarter over the coming couple of years, but it's a little bit different by business.
Home and Garden for example, while it's growing there.
And that's the type of product a lot of people want immediate gratification and I'll go to the store and buy it and use it same day, so a little bit different by business, but we're performing well and all four of money E com.
Okay and then just.
And when you talked about tuck ins and acquisitions.
And what type of dollar amount and we thinking here.
Top on what you would actually investing in.
And a tuck in.
Just kind of ballpark and I know you don't have a crystal ball, but.
Any kind of color you could give would be great. Thanks.
Yes look I think.
And again.
We're striving very very hard here too.
To really excel and the operations across all four lines of our business and our company and.
That is the number one allocation of capital is two and total returns.
We also believe that like I said earlier the share price remains a great opportunity for new investors to come and even at today's levels based on where I see valuations elsewhere.
And so we've heard from our Investor base, and we're listening that leverages important to them it's important to us.
March of 2020, independent MC and the financial market reaction does still fresh in our minds and so strong balance sheet strong liquidity is still of paramount importance to us.
And if there's if there's great tuck in acquisitions.
And I definitely like to do something and home and garden.
We've been looking pretty hard and the hardware side the pet space, obviously, we have been successful there.
The continuation of that.
Sure.
You got to do the same amount of diligence, whether it is a $2 million EBITDA business or a $50 million EBITDA business.
Yes, I wouldn't I wouldn't want to give a range on the size of the deal. It's just.
The valuations right.
Tuck it in and.
Effectively.
The EBITDA and the first 24 months and it really bring down the purchase multiple and then strength in the franchise from a strategic standpoint, we're wide open to deploying that capital.
But again I think we want to continue to just.
Deliver consistent.
Excellent operating performance for our stakeholders and and to continue to reward our shareholders right now with a lot of organic growth. So that's our focus.
Alright, perfect, Thanks and color.
Thank you Sir.
Thank you and that concludes our question and answer period I would now like to turn the conference back to the company for any closing remarks.
Thanks, everybody for joining us today, we appreciate it Kevin and I will be available today, and Monday as well to answer any further questions have a great day.
Thanks, everyone.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may all disconnect.
Okay.
Yeah.
Okay.
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And.
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