Q4 2021 Spectrum Brands Holdings Inc Earnings Call

November 12, 2021

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2021 Spectrum Brands Holdings, Inc. Earnings Conference call. At this time, all participants are in a listen only mode. After the speaker presentation, there'll be a question and answer session. To ask a question during the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance please press star then zero. I would now like to turn the conference over to your speaker today, Jeremy Smeltser. Please go ahead.

Star Zero I would now like turn the conference over to your Speaker today, Jeremy smelter. Please go ahead.

Thank you, Josh. Good morning, everyone. Welcome to Spectrum brands Holdings, Q4, and full year 2021 earnings conference call and webcast. I'm Jeremy Smeltser, Chief Financial Officer of Spectrum Brands.

I'm, Jeremy smelter Chief financial Officer of spectrum brands.

As many of you know Kevin Kim left Spectrum for another opportunity at the end of Q4. So I will moderate today's call. To help you follow our comments, we have placed a slide presentation on the event calendar page in the Investor Relations section of our website at spectrumbrands.com.

To help you follow our comments, we have placed a slide presentation on the event.

calendar page in the Investor Relations section of our website at spectrumbrands.com.

This document will remain there following our call. Starting with slide two of the presentation, our call will be led by David Maura, our chairman and Chief Executive Officer myself, and Randy Lewis, our Chief operating officer. After their opening remarks, we will conduct the Q&A.

Starting with slide two of the presentation, our call will be led by David Maura, Our chairman and Chief Executive Officer myself, 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 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 statements outlined in our press release dated November 12, 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.

Due to that risk spectrum brands encourages you to review the risk factors and cautionary statements outlined in our press release dated November 12, 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 statement. Also, please note we will discuss certain non-GAAP financial measures in this call.

Also please note we will discuss certain non-GAAP financial measures in this call.

Reconciliations on a GAAP basis for these measures are included in today's press release and 8-K filing which are both available on our website in the Investor Relations section.

Finally, we encourage you to listen to our remarks today alongside with reading Spectrum Brands press release and 8-K issued today and our annual report on Form 10-K once it is filed with the SEC. Now I'll turn the call over to David.

Now I'll turn the call over to David.

Good morning. Thanks, Jeremy. Good morning, everyone. I appreciate everybody joining us today.

On behalf of all of those subscription brands, I'm particularly pleased to report that full-year fiscal '21 total company sales were $4.614 billion. An increase of $650 million over the period a year ago. Adjusted EBITDA was $689.2 million, increasing a $109 million over the period a year ago. And our adjusted diluted EPS was $6.53.

An increase of $650 million over the period a year ago. Adjusted EBITDA was $689.2 million, increasing a $109 million over the period a year ago. And our adjusted diluted EPS was $6.53.

<unk> EBITDA was $689 2 million, increasing a $109 million over the period, a year ago and our adjusted diluted EPS was $6 53.

I'd like to start by thanking our 12000 plus employee-partners and the management team who have delivered for us yet another successful year of top and bottom-line growth. If you are part of Spectrum Brands and you were listening to this call you should be very proud of what we've accomplished together.

You are part of spectrum brands and you were listening to this call you should be very proud of what we've accomplished together.

We have faced significant tariff costs, we've worked through a global pandemic, we have experienced unprecedented global supply chain challenges and inflation, and yet we still succeeded in executing on our strategic playbook and delivering on all our financial goals.

Looking back at fiscal '21, we have a lot to be proud of. As we have continued to leverage our developing centers of excellence to allow our business units to focus their efforts on truly knowing our consumer.

The focus is on efficiently using data to understand the needs of our end-users in each category. Meeting those needs through increased investment in new product innovation, and telling that story to our consumers through enhanced brand messaging and product promotions.

Meeting those needs through increased investment in new product innovation, and telling that story to our consumers through enhanced brand messaging and product promotions.

Our fiscal '21 and fourth-quarter financial results reflect our continuing trend of delivering on commitments quarter after quarter while navigating the challenging supply chain environment we all face.

All face.

We are confident in our ability to face these inflationary pressures and supply chain disruption headwinds with the same focus and discipline as we look forward to another successful year in fiscal 2022.

Fiscal '21 has also been a transformative year for our company as we have completed a number of strategic transactions. In addition to the tuck-in acquisitions in our global Petcare unit, and our Home and Garden business.

As we've previously disclosed, we have entered into an agreement to sell our HHI business for $4.3 billion. The transaction is subject to the customary regulatory approvals in the US and abroad, all of which are advancing nicely.

The transaction is subject to the customary regulatory approvals in the U S and abroad, all of which are advancing nicely.

Also from a capital allocation perspective, we did repurchase 1.6 million shares of our common stock for approximately $125.8 million.

Turning to slide six. Here, we have an overview of the pro forma results total Spectrum Brands, including HHI on a comparable basis to last year consistent with our earnings framework.

Here, we have an overview of the pro forma results total spectrum brands, including HHR on a comparable basis to last year consistent with our earnings framework.

Total pro forma Spectrum Brands' results were in line with our earnings framework of mid-teens top-line growth with revenue actually accelerating 16.4% and we delivered adjusted EBITDA growth in the high teens at 18.8% growth.

We also delivered adjusted free cash flow of $273 million as compared to our earnings framework of 260 to 280. We are extremely pleased to report that we grew revenue by $650 million this fiscal year and we grew our adjusted EBITDA by $109 million. Delivering on the earnings framework we communicated to our shareholders in a very challenging operating environment. And we're extremely proud of our global team for making this happen.

We are extremely pleased to report that we grew revenue by $650 million. This fiscal year and we grew our adjusted EBITDA by $109 million <unk>.

Delivering on the earnings framework, we communicated to our shareholders in a very challenging operating environment and we're extremely proud of our global team for making this happen.

We've maintained our strategy of investing in insights, innovation and advertising at an elevated level across each of our businesses despite significant inflation headwinds within the quarter.

We experienced accelerated inflation levels in line with our expectations and we currently foresee these headwinds continuing throughout our fiscal 2022.

The team has done an exceptional job of managing our profitability, while continuing to invest in our future growth despite the challenges faced during the quarter. We remain committed to maintaining our focus on long term sustainable growth and we will continue to invest in the business.

We remain committed to maintaining our focus on long term sustainable growth and we will continue to invest in the business.

Before we get further into this presentation, I'd like to remind everyone that beginning in the fourth quarter of fiscal '21 we are now classifying HHI results as discontinued operations due to the sale. Moving on to slide seven.

Moving on to slide seven.

We again delivered top and bottom-line growth this quarter, including the impact of acquisitions. Organic sales, excluding the impact of FX and acquisitions, actually decreased 3.4% in the quarter as we comparative results of the fourth quarter of fiscal 2020, which was an exceptionally high sales quarter due to recovery from COVID-driven supply disruptions in the third quarter of fiscal '20.

Quarter due to recovery from Covid, driven supply disruptions in the third quarter of fiscal 'twenty.

As a reminder, we did have six fewer shipping days in the fourth quarter versus the same period a year ago. The decrease in shipping days as well as the ongoing pandemic related global supply chain disruptions adversely impacted our sales this quarter.

However, compared to the more normal operating environment of our fourth quarter of fiscal of 2019. These results actually represent double-digit organic sales growth.

Turning now to the bottom line. Fourth-quarter net income from continuing operations was $6.1 million compared to a loss of $9.6 million during the fourth quarter of last year. Adjusted EBITDA for the quarter was $79 million, resulting from volume growth pricing actions, our global productivity improvement program savings and favorable comparisons to last year's variable compensation change from stock to cash payouts.

Fourth quarter net income from continuing operations was $6 1 million compared to a loss of $9 6 million during the fourth quarter of last year adjusted EBITDA for the quarter was $79 million, resulting from volume growth pricing actions, our global productivity improvement program savings and favorable comparisons to last year's.

Variable compensation change from stock to cash payouts.

This was partially offset by pressure from inflation and incremental investments. We remain committed to maintaining our focus on long term sustainable growth and we will continue to invest in our businesses going forward.

If I could get you to turn to slide eight. Our balance sheet remains strong. We ended the year with net leverage of about 3.5 times. We have over $760 million in total liquidity. We were also able to fund $490 million worth of acquisitions during the past year without substantially increasing our leverage ratio.

Our balance sheet remains strong.

We ended the year with net leverage of about three five times, we have over $760 million in total liquidity.

We were also able to fund $490 million worth of acquisitions during the past year without substantially increasing our leverage ratio.

Also from a capital allocation perspective, we did repurchase 1.6 million shares of our common stock for approximately $125.8 million. As we discussed on our HHI transaction announcement call in September, we expect to deleverage our balance sheet to approximately 2.5 times gross leverage upon the closure of the HHI sale.

As we discussed on our HHR transaction announcement call in September we expect to deleverage our balance sheet to approximately two five times gross leverage upon the closure of the HHR sale.

We have subsequently adjusted our long term net leverage range to a more conservative 2 to 2.5 times net levered. Our capital allocation priorities continue to focus, first, on allocating capital internally to our highest return opportunities. This includes strengthening our brands through consumer insights, innovation, advertising and marketing to drive vitality and profitable organic growth.

Our capital allocation priorities continue to focus first on allocating capital internally to our highest return opportunities. This includes strengthening our brands through consumer insights innovation advertising and marketing to drive vitality and profitable organic growth.

Secondly, we plan to return cash to shareholders via dividends and opportunistic share repurchases. Third, we will continue with disciplined strategic M&A transactions that are synergistic and help drive long term value creation.

Third we will continue with disciplined strategic M&A transactions that are synergistic and help drive long term value creation.

We believe this strategy will further enhanced structure is positioned as a home essentials company focused on meeting consumer demand through our greatest brands and innovative product offerings.

Moving now to slide nine. And our high level fiscal 2022 earnings framework. We will continue to focus on executing our winning playbook and we expect to grow the top line in the mid to high single digits.

And our high level fiscal 2022 earnings framework.

We will continue to focus on executing our winning playbook and we expect to grow the top line in the mid to high single digits.

Adjusted EBITDA, we plan to grow in the low single digits. This is after absorbing an expected additional level of inflation of around $230 million to $250 million.

We expect the current step up and inflationary pressures to continue throughout fiscal 2022 and that the year over year impact will be more acute in our first half reporting of the year.

We have implemented price increases in fiscal '21. And we have put in place further price actions in the first half of this year to counter these headwinds.

Our goal is to achieve approximately 70% to 80% price coverage for inflation by the end of fiscal '22. But we do expect our first half margins to be pressured due to the timing of these price increases.

But we do expect our first half margins to be pressured due to the timing of these price increases.

One of our key focus areas during fiscal '22 will be improving product availability to meet the continued elevated demand across our business units as we expect the global supply chain constraints to remain in place.

Now you'll hear more from Jeremy on the financials, and then Randy will come and provide you with an update on additional business unit insights. So at this point, I'll turn the call back over to you, Jeremy.

Thanks, David. Let's turn to slide 11 with a review of Q4 results from continuing operations, beginning with net sales. Net sales increased two 8%. Excluding the impact of $5.1 million of favorable foreign exchange and acquisition sales of $41.2 million.

Beginning with net sales net sales increased two 8% excluding.

Excluding the impact of $5 1 million unfavorable foreign exchange and acquisition sales of $41 2 million.

Organic net sales decreased 3.4% as fourth quarter of fiscal '20 was an exceptionally high sales quarter for both Global Pet Care and Home and Garden is due to recovery after COVID-19 driven supply disruptions in Q3 fiscal '20.

HBC registered another quarter of growth. Results were also negatively impacted by the six fewer shipping days in the current quarter versus fourth quarter last year, as David mentioned.

Gross profit increased $4 million in gross margins of 34.1% decreased 40 basis points, driven by commodity and freight inflation, partially offset by a favorable pricing, mix and improved productivity from the companys global productivity improvement program.

Decreased 40 basis points, driven by commodity and freight inflation, partially offset by a favorable pricing mix and improved productivity from the Companys global productivity improvement program.

Overall, given the inflationary pressures, we are pleased with the gross margin performance in the quarter. SG&A expense of $21.2 million increased 8.8% at 28.8% of net sales with the dollar increase driven by acquisitions higher marketing investments and inflation.

SG&A expense of $218 2 million increased eight 8% at 28, 8% of net sales with the dollar increase driven by acquisitions higher marketing investments and inflation.

Operating income declined from $35 million to a loss of $4 million driven by higher restructuring and transaction-related expenses. Net income and diluted earnings per share increase due to a tax benefit driven primarily by the release of certain valuation allowances.

Net income and diluted earnings per share increase due to a tax benefit driven primarily by the release of certain valuation allowances.

Adjusted diluted EPS decreased 2.6% due to the decline in operating income from higher SG&A. Adjusted EBITDA increased 8.5%, primarily driven by volume growth through acquisitions.

Adjusted EBITDA increased eight 5%, primarily driven by volume growth through acquisitions as.

As well as productivity improvements and positive pricing, partially offsetting margin pressure from commodity and freight inflation. Recall that we had a change in our incentive compensation payout methodology during Q4 of last year.

Recall that we had a change in our incentive compensation payout methodology during Q4 of last year.

Resulted in a reduction of stock-based compensation expense and consolidated adjusted EBITDA of $12.7 million during the fourth quarter of fiscal '20.

Turning to slide 12, Q4 interest expense from continuing operations of $20.1 million decreased $4.2 million. Cash taxes during the quarter of $6.3 million or $1.1 million lower than last year. Depreciation and amortization from continuing operations of $29.6 million was $2.9 million higher than the prior year.

Cash taxes during the quarter of $6 $3 million or $1 $1 million lower than last year.

Depreciation and amortization from continuing operations of $29 $6 million.

It was $2 9 million higher than the prior year.

Separately share in incentive-based compensation increased by $8.2 million from last year to $7.5 million driven by a change to incentive compensation payout methodology in last year's fourth quarter, which resulted in a reduction in stock-based comp expense for Q4, and the full year in fiscal '20.

Cash payments for transactions were $6 million down from $6.2 million last year. Restructuring and related payments in the fourth quarter were $13.6 million versus $10.3 million last year.

Restructuring and related payments in the fourth quarter were $13 6 million versus $10 3 million last year.

Moving to the balance sheet, the company had a cash balance of $188 million and approximately $575 million available on its $600 million cash flow revolver. Debt outstanding was approximately $2.5 billion consisting of approximately 2 billion of senior unsecured notes, nearly $400 million in term loans and just over $100 million of finance leases and other obligations.

<unk> $575 million available on its $600 million cash flow revolver.

Debt outstanding was approximately $2 5 billion consisting of approximately 2 billion of senior unsecured notes nearly $400 million in term loans and just over $100 million of finance leases and other obligations.

Additionally, net leverage was 3.5 times at the end of the fiscal 2021. Capital expenditures were $23.2 million in the quarter versus $16.5 million last year.

Capital expenditures were $23 2 million in the quarter versus $16 5 million last year.

Let's turn now to slide 13. Here we have an overview of full-year continuing operations results. Net sales increased 14.3%. Excluding the impact of $49.5 million of favorable foreign exchange and acquisition sales of $122.7 million.

Here, we have an overview of full year continuing operations results net sales increased 14, 3%.

Excluding the impact of $49 5 million of favorable foreign exchange and acquisition sales of $122 7 million.

Organic net sales increased 7.8% as we experienced growth across all businesses with double-digit organic growth in our home and personal care business.

The sales performance was driven by strong consumer demand in the first half of fiscal '21 and favorable comparisons to COVID-19 related closures across most regions in fiscal '20.

Gross profit increased $157 million and gross margins of 34.5% increased 100 basis points, driven by favorable pricing, mix and improved productivity from the company's GPIP program. Partially offset by commodity and freight inflation.

Partially offset by commodity and freight inflation.

We are very pleased with the gross margin performance despite the inflationary headwinds. Adjusted EBITDA increased 21%, primarily driven by volume growth, including acquisitions as well as productivity improvements and positive pricing, partially offset by margin pressure from commodity and freight inflation.

Adjusted EBITDA increased 21%, primarily driven by volume growth, including acquisitions as well as productivity improvements and positive pricing, partially offset by margin pressure from commodity and freight inflation.

Turning now to slide 14, and our expectations for fiscal 2022. We currently expect mid to high single-digit reported net sales growth in 2022 with foreign exchange expected to have a slightly positive impact based upon current rates.

We currently expect mid to high single digit reported net sales growth in 2022 with foreign exchange expected to have a slightly positive impact based upon current rates.

Adjusted EBITDA is expected to grow low single digits. This includes continued benefits from our GPIP program and approximately eight months of results from the recent rejuvenate transaction, which last fiscal year generated about $66 million in full-year revenue.

EBITDA is expected to grow despite incremental inflation headwinds of $230 million to $250 million, which are mostly offset by annualization of current pricing actions and planned further price increases as well as additional productivity actions.

From a phasing perspective, we expect the first half and specifically the first quarter to be most negatively impacted by inflation pressures on a net basis. Depreciation and amortization is expected to be between 120 and $130 million, including stock-based comp of approximately $25 million to $30 million.

Depreciation and amortization is expected to be between 120, 120, and $130 million, including stock based comp of approximately $25 million to $30 million.

Full-year interest expense is expected to be between $80 million to $90 million, including approximately $5 million of non-cash items. Structuring and transaction-related cash spending is expected to be between $55 and $60 million. Capital expenditures are expected to be between $95 and $105 million.

Structuring and transaction related cash spending is expected to be between 55 and $60 million.

Capital expenditures are expected to be between 95 and $105 million.

We ended fiscal '21 with approximately $725 million of usable federal Nols and expect to use substantially all of them to offset the gain on the sale of HHI.

We are projecting to be a US taxpayer in fiscal '22. Cash taxes are expected to be between 20% and $30 million. For adjusted EPS, we use a tax rate of 25% including state taxes. Regarding our capital allocation strategy, after the closure of the HHI sale, we're targeting a near term gross leverage target with total approximately 2.5 times.

Cash taxes are expected to be between 20% and $30 million.

For adjusted EPS, we use a tax rate of 25% including state taxes.

Regarding our capital allocation strategy after the closure of the <unk> sale, we're targeting a near term gross leverage target with total approximately two five times.

After full deployment of the HHI proceeds, we are targeting 2 to 2.5 times net leverage for our long term target. And lastly, we plan to continue to invest behind our brands at the higher rates to support the execution of our strategy.

And lastly, we plan to continue to invest behind our brands at the higher rates to support the execution of our strategy.

Moving to slide 15. To spend a few moments discussing some modeling considerations for fiscal '22 to assist in navigating the complexity of discontinued operations for HII, as comparing to our continuing operations presentation of financial results in our earnings framework and as the year progresses.

To spend a few moments discussing some modeling considerations for fiscal 'twenty two to assist in navigating the complexity of discontinued operations for HII as comparing to our continuing operations presentation of financial results in our earnings framework and as the year progresses.

First, GAAP accounting for discontinued operations will allow us to allocate about 40% to $45 million of interest to discontinued operations for the full-year fiscal '22.

Our actual expected interest expense reduction is about $20 million higher than that on an annual basis after planned debt reductions. Continuing operations will carry about $20 million higher interest expense that we would expect in fiscal '23 all else being equal.

Continuing operations will carry about $20 million higher interest expense that we would expect in fiscal 'twenty three all else being equal.

Second, as compared to our historical allocation approach to HHI, technical GAAP accounting will not allow us to allocate approximately $20 million of center led cost to discontinued operations in our GAAP financials.

We will adjust for this our adjusted EBITDA presentation for continuing operations. After the sale closes, we would expect to be reimbursed for these costs under TSA and our contractual agreements with the buyer For periods, ranging from 6 to 24 months, depending on the enabling function and region of the world. Post those TSA as we will address any remaining stranded costs consistent with our approach and our past material asset sales.

After the sale closes we would expect to be reimbursed for these costs under TSA and our contractual agreements with the buyer for.

For periods, ranging from 6% to 24 months, depending on the enabling function and region of the world.

Post those TSA as we will address any remaining stranded costs consistent with our approach and our past material asset sales.

Next, our year over year results are expected to be stronger in the second half of fiscal '22 as compared to the first half essentially opposite of our quarterly results and fiscal '21. Due to the timing of the impact of inflation hitting our cost lines and the continued increasing pricing actions taking effect as the year progresses.

Due to the timing of the impact of inflation hitting our cost lines and the continued increasing pricing actions taking effect as the year progresses.

And finally, from a cash flow and working capital perspective, a few notable items to point out. First, HHI free cash flow will not be presented in continuing operations for any period reported. Second, continuing operations free cash flow will be reduced by the $20 million of interest that I mentioned earlier.

First HHS free cash flow will not be presented in continuing operations for any period reported.

Second continuing operations free cash flow will be reduced by the $20 million of interest that I mentioned earlier.

Third, we expect heavier than normal investments in capital expenditures, primarily due to our investments in our new S4 Hana SAP upgrade program of about $30 million to $40 million. As well as heavier cash spend in restructuring and acquisition and integration costs due to the sale of HHI, [S4 HANA] program as well as the completion of the global Pet Care DC transition in the US.

As well as heavier cash spend in restructuring and acquisition and integration costs due to the sale of <unk>.

400 program as well as the completion of the global Pet care DC transition in the U S.

And finally, inventory levels are very difficult to predict this early in the year, given the global supply chain challenges and consumer demand. We will maintain a bias towards fill rates as needed to support our retail customers and thus the timing of potential inventory reductions after last year's investments in inventory is uncertain. Now I'll turn it to Randy for a more detailed look at our operations.

We will maintain a bias towards fill rates as needed to support our retail customers and thus the timing of potential inventory reductions after last year's investments in inventory is uncertain.

Now I'll turn it to Randy for a more detailed look at our operations.

Thanks, Jeremy and thank you all for joining us this morning. My comments today will focus on a review of each business unit to provide details on the underlying performance drivers of our operating results.

I will also update you on the current overall supply chain and cost environment as well as the progress on our global productivity improvement program. Overall, we continued to utilize our operating model to navigate the headwinds in the current business environment.

Overall, we continued to utilize our operating model to navigate the headwinds in the current business environment.

Our results remain volatile from quarter to quarter due to the impact of COVID-19, we believe the fundamentals of our product categories remained very strong. Consumer demand in our categories continues to be positive and our brands continued to perform very well in their spaces.

Consumer demand in our categories continues to be positive and our brands continued to perform very well in their spaces.

Now, let's dive into the specifics of each business. Starting with home and personal care, which is slide 17. Reported and organic net sales increased 2.3% 1.1% respectively. Adjusted EBITDA decreased 36.1% to $14.5 million.

With home and personal care, which is slide 17 reported and organic net sales increased two 3% one 1% respectively.

Adjusted EBITDA decreased 36, 1% to $14 $5 million.

Net sales were driven by continued recovery in the hearing garment care offsetting a slight decline in kitchen appliances, primarily due to global supply chain delays as well as an expected slowing of consumer demand in that category.

The US markets were most acutely impacted by transportation delays, but this was offset by strong growth in EMEA and Latin America. Lower EBITDA was driven by increased freight expense continued investments in marketing and advertising as well as input cost inflation. This was partially offset by pricing actions higher volumes and productivity improvements.

Lower EBITDA was driven by increased freight expense continued investments in marketing and advertising as well as input cost inflation.

This was partially offset by pricing actions higher volumes and productivity improvements.

Q4 represented the ninth consecutive quarter of the year on year top-line growth for this business performance was driven by double-digit growth in garment care products and moderate growth in hair appliances despite the significant transportation delays.

Our consistent commercial wins over the last two years and continued investments give us confidence in our plans to continue growing share and shelf space with our key retailers. As we outlined in our previous calls, inflationary headwinds as well as continued marketing investments in HPC in Q4 is only partially offset by our pricing and supplier partner initiatives.

<unk> and supplier partner initiatives.

This will put pressure on margins. However, we continue to work to mitigate the inflation impact as we enter fiscal '22. The timing of additional pricing action to address these increasing inflation pressures and supply challenges will further pressure margins in Q1.

The timing of additional pricing action to address these increasing inflation pressures and supply challenges will further pressure margins in Q1.

Although our long term focus in 2022 will remain on a consumer-led insights-driven new product platform with incremental sales opportunities in the upcoming holiday season, our immediate focus is on improving supply availability as we continue to face capacity and transportation challenges.

Platform with incremental sales opportunities in the upcoming holiday season, our immediate focus is on improving supply availability as we continue to face capacity and transportation challenges.

Moving to Global Pet Care, which is slide 18. Reported net sales grew 9.1% while organic net sales declined just under 1% due to six fewer shipping days in Q4 of fiscal '21 versus fiscal '20 as well as impacts from supply chain constraints.

As well as impacts from supply chain constraints.

Adjusted EBIT grew 7.4% driven primarily by the impacts of acquisitions. Profits were pressured by higher freight and input cost inflation, partially offset by productivity improvements and pricing actions.

Profits were pressured by higher freight and input cost inflation, partially offset by productivity improvements and pricing actions.

We were able to overcome the third quarter fulfillment challenges from transitioning new three PL provider at one of our US distribution centers. At DC output level steadily improved throughout the quarter and finished above last year and at target rates by the end of the quarter.

Q4 represented a record 12th consecutive quarter of revenue growth for this business. All top categories grew and sales to all top channels grew as well. With the continued resurgence in the pet specialty brick and mortar channel as consumers have returned to in-store shopping. This is a great sign for the pet industry in general as it's indicative of the strong consumer engagement that exists and the outlook for the category.

All top categories grew and sales to all top channels grew as well.

With the continued resurgence in the pet specialty brick and mortar channel as consumers have returned to in store shopping. This is a great sign for the industry. In general is it's indicative of the strong consumer engagement that exists and the outlook for the category.

EBITA was driven by the topline growth, including the impact of acquisitions. Profits were pressured by higher freight and input cost inflation, partially offset by productivity improvements and pricing actions.

We remain confident that 2022 and beyond will benefit from the continued execution of our strategy. Which is centered around introducing unique innovation in order to drive demand for our portfolio of leading brands. The team is particularly excited to see the continued strong demand for the consumables products in this portfolio.

Which is centered around introducing unique innovation in order to drive demand for our portfolio of leading brands.

<unk> is particularly excited to see the continued strong demand for the consumables products in this portfolio.

As we've discussed before, we have seen an influx of new pet parents into companion animal categories, and new obvious into the aquatics and reptile categories. This bodes well for all the repeatedly purchased items in our portfolio like dog and cat chews and treats, grooming tools and AIDS, bird and small animal foods, pet stain and odour removers and aquatic food filtration and water care products. These products typically carry strong margins and represent a significant portion of our overall portfolio. This is just another reason why we remain bullish about the continued growth of this business.

pet stain and odour removers and aquatic food filtration and water care products. These products typically carry strong margins and represent a significant portion of our overall portfolio. This is just another reason why we remain bullish about the continued growth of this business.

And finally, Home and Garden, which is slide 19. Fourth-quarter reported net sales decreased 7.3% and adjusted EBITDA decreased 19.4%. However, the full-year reported net sales increased over 10% and the adjusted EBITDA increased 10.6% closing a very successful year for this business.

Fourth-quarter net sales showed a decline across controls household insecticides and repellents as last year's quarterly revenue was historically high, driven by the recovery of COVID-related supply disruptions in Q3 of fiscal '20. The. The impact was compounded by six fewer shipping days in Q4 of fiscal '21.

The impact was compounded by six fewer shipping days in Q4 of fiscal 'twenty one.

The sales were also lower due to strategic exits of low margin contract manufacturing business and non-strategic low-velocity SKUs. Fourth-quarter sales were 28% ahead of a more normal Q4 fiscal '19, driven by organic growth from strong consumer demand and continued market share gains.

Fourth quarter sales were 28% ahead of a more normal Q4 fiscal 19, driven by organic growth from strong consumer demand and continued market share gains.

Our market data indicates that during Q4, we had double-digit Pos growth and in the 2021 season, we increased our overall leading market share position by an estimated 50 basis points.

We're also very excited about our new rejuvenate cleaning business, which continues to perform in line with expectations as we fully integrate it into our operations.

The EBITDA decrease was driven by lower volumes and higher manufacturing and distribution costs, partially offset by pricing and productivity improvements.

The business continues to see higher product costs from raw materials and freight. The business has announced another round of price increases that go into effect in this quarter to offset that cost pressure. We are also targeting further pricing action in the first half to offset additional expected inflation.

We remain committed to our strategy to invest more resources to deliver truly innovative consumer solutions and tell our story around the brands of Spectracide, Cutter, Hot Shot, Equallogic and now Rejuvenate. We believe our continued strategic investments will further enhance our mission to be the recognized market leader in providing consumers the best solutions for concrete nature as challenges and enjoying life.

We believe our continued strategic investments will further enhance our mission to be the recognized market leader in providing consumers the best solutions for concrete nature as challenges and enjoying life.

Now, let's turn to our internal growth and efficiency efforts with our global productivity improvement program on slide 20. We remain focused on continued success execution of this program as we complete our global operating model transformation. We are committed to our strategy of reinvesting these savings back into the business to drive long term sustainable organic growth.

We remain focused on continued success.

Execution of this program as we complete our global operating model transformation, we are committed to our strategy of reinvesting these savings back into the business to drive long term sustainable organic growth.

We are reaffirming our gross savings target of $200 million of savings by the end of fiscal 2022. Our teams have already captured over $175 million of gross savings since the program inception, and this has helped us offset some of the adverse impacts of tariffs and inflation.

Our teams have already captured over $175 million of gross savings since the program inception, and this has helped us offset some of the adverse impacts of tariffs and inflation.

These amounts include the HHI business and adjusting for continuing operations only the savings or about $150 million in total with approximately $135 million achieved through the end of fiscal 2021.

As we had anticipated, inflationary pressure further accelerated in this quarter and impacted our results in a meaningful way. Although these inflationary trends were broad-based with an industry-wide impact our quarterly results reflect the various actions we have undertaken to offset these cost pressures.

We are leveraging the mini advantages of our new global operating model and utilizing the enhanced tools developed through our GPIP program to launch a coordinated response to these market forces. The GPIP program is driving further productivity improvements in our processes and helping us partner with our suppliers to offset some of the inflation.

<unk> program is driving further productivity improvements in our processes and helping us partner with our suppliers to offset some of the inflation.

With the current constrained global supply chain environment, we expect these inflationary pressures to accelerate further in the current quarter. We have also implemented further pricing increases with our retail partners in Q4 and are actively engaged in taking additional price in the first half of FY22 to offset further incremental inflation.

We have also implemented further pricing increases with our retail partners in Q4 and are actively engaged in taking additional price in the first half of FY 'twenty two to offset further incremental inflation.

While we will continue to make incremental investments to grow in two growth initiatives, such as consumer insights R&D and marketing across each of the businesses. We believe supply chain improvement and resiliency must continue to be an area of focus for us in fiscal '22 as we work to improve product availability, while simultaneously finding ways to mitigate the cost pressures coming through the global supply chain.

To mitigate the cost pressures coming through the global supply chain.

To end my section, I want to acknowledge another quarter of fantastic progress on our operating culture, and our strategic initiatives and sincerely. And sincerely thank our 12000 plus employees for all that they're doing to make us a better faster and stronger Spectrum Brands. Now back to David.

David.

Great. Thank you very much, Randy. Thanks, Jeremy and for all of you on the call. Thanks for joining us today. I'd like to take just a few minutes here to recap the key takeaways here on slide 22.

I'd like to take just a few minutes here to recap the key takeaways here on slide 22.

First, our fourth-quarter financial results conclude a very successful fiscal '21 for us where we saw 14% growth in sales at 21% growth in adjusted EBITDA from continuing operations. The progress from our structural families to improve our business is nothing short of remarkable with once again delivered strong results in the face of globally constrained supply chains at an accelerating inflation backdrop by continuing to invest in our long term growth and find ways to offset the inflationary pressures through both price and productivity.

<unk> in the face of globally constrained supply chains at an accelerating inflation backdrop, but continuing to invest in our long term growth and find ways to offset the inflationary pressures through both price and productivity.

We've demonstrated great discipline in our capital allocation process. As well as business operations, our global productivity improvement program is delivering the savings we've committed to and we continue to reinvest those savings into the long term growth of the company.

As well as business operations, our global productivity improvement program is delivering the savings we've committed to and we continue to reinvest those savings into the long term growth of the company.

Secondly, we are driving a strategic shift restructuring brands with the sale of our HHI business for $4.3 billion. As mentioned earlier, the processes process is progressing well and it's going through the customary regulatory review.

As mentioned earlier the processes the process is progressing well and it's going through the customary regulatory review.

We expect to deleverage the balance sheet to approximately 2.5 times gross leverage upon the closure of the HHI sale. And we have adjusted our long term average leverage target range through a more conservative 2 to 2.5 times net leverage.

In addition, we expect to have approximately $2 billion of capital to deploy and to maintain this target leverage range. Third, the momentum in our operating businesses remains positive despite inflationary pressures and global supply constraints.

Third the momentum in our operating businesses remains positive despite inflationary pressures and global supply constraints.

We expect inflation to accelerate in fiscal 2022. We've already launched a coordinated response to this through pricing actions and productivity programs. As referenced earlier in this call, we are targeting mid to high single-digit net sales growth and low single-digit EBITDA growth for fiscal 2022.

As referenced earlier in this call we are targeting mid to high single digit net sales growth and low single digit EBITDA growth for fiscal 2022.

I am personally very optimistic about the future of our businesses and I'm proud of the way the team has come together to face many challenges during fiscal '21. As I mentioned earlier, the company's culture has shifted to focus more than ever on the long term growth and profitability of our businesses.

As I mentioned earlier, the company's culture has shifted to focus more than ever on the long term growth and profitability of our businesses.

Although we continue to face the challenge of the global supply chain. This management team has demonstrated the discipline to operate efficiently and maintain profitability, while continuing to invest in the future.

On the demand side of the equation, we have experienced a sustained demand shift to a higher level of consumption and our Global Pet Care and Home and Garden businesses. We expect to continue this strong growth momentum in fiscal 2022.

The macroeconomic environment remains favorable as we enter the peak holiday season, which bodes well for our home and personal care businesses. Overall, we are a more efficient company today. And we are reinvesting much of the savings from our global productivity improvement program back into driving the growth of our three businesses.

And we are reinvesting much of the savings from our global productivity improvement program back into driving the growth of our three businesses.

In summary, we maintain a favorable outlook for fiscal '22 and beyond despite the various challenges over the next couple of quarters. The continued energy of our teams and the investments we're making in insights, innovation and advertising leave me enthusiastic about our new product development pipeline and our expected new launches in fiscal '22 and fiscal 2023. The future of Spectrum Brands is genuinely bright as we continue to make living better at home.

Watches in fiscal 'twenty, two and fiscal 2023.

The future of spectrum brands is genuinely bright as we continue to make living better at home.

I want to again thank all of our employees from our frontline workers in the factories to the distribution centers, to the many other teams around the world that have been working diligently from home.

I also want to give a special thanks to our supply chain team. You have done an amazing job securing materials products and containers, allowing us to bring products to market as we continue to win new business across our platforms. I am extremely grateful for all of the sacrifices our Spectrum Brands employees have made to navigate our company successfully through these challenging times.

<unk> successfully through these challenging times.

Thank you for your time. Thank you for your hard work. Thank you for your continuing support. I would like to now turn the call back over to Jeremy for any questions you may have.

Thanks, David. Hey, Josh, can you kick off the Q&A for us, please. Thank you as a reminder to ask a question you will need to press star one on your telephone. To withdraw your question press the pound key. Please standby, while we compile the Q&A roster. Our first question comes from Bob <unk> with CJS Securities. You may proceed with your question.

Thank you as a reminder to ask a question you will need to press star one on your telephone.

Your question press the pound key please standby, while we compile the Q&A roster.

Our first question comes from Bob <unk> with CJS Securities. You May proceed with your question.

Good morning, congratulations on great execution in obviously, a tough environment. Good morning, Bob. Thank you. Thanks, Bob sure. Yes, I wanted to ask one kind of capital allocation question to start and then get into more operating questions, but the number one question we're getting from clients right now is about reinvestment opportunities.

Good morning, Bob. Thank you. Thanks, Bob sure, Yes, I wanted to ask.

Kind of.

Capital allocation question to start and then get into more operating questions, but the number one question, we're getting from clients right now is about reinvestment opportunities and.

Once you get the cash in, quote, will it burn a hole in our pockets how patient will management be. And then kind of related might there be additional portfolio restructuring as well? So could you just kind of, I know we've talked about this in the past, but just maybe remind people how you feel about burning a hole in your pocket with cash and all that kind of stuff, please?

Will it burn a hole in our pockets how patient will management be.

And then kind.

Kind of related might there be additional portfolio restructuring as well. So could you just kind of I know we've talked about this in the past, but just maybe remind people how you.

<unk> about burning a hole in your pocket with cash and all that kind of stuff. Please.

Well, we are definitely not going to burn any holes in our pockets with cash. We've worked too hard over the last three years to really fix the operation of this company to really fix the culture to really create a serving leadership environment, where we inspire and empower and encourage our employees. Look, I think as I am one of the largest individual shareholders of the company.

Serving leadership environment, where we inspire and empower and encourage our employees.

Look I think as I am.

One of the largest individual shareholders of the company.

I am personally gratified with the last 36 months worth of work. And I think if you are an outside investor who are new to the story, I apologize that with the sale of HHI there is some noise in the numbers. I think the story should become a lot clearer.

And I think if you are an outside investor who are new to the story.

I apologize that.

With the sale of HHR there is some noise in the numbers I think.

The story should become a lot clearer.

Just one of our business units has been crystallized for $4.3 billion in value, which was more than our market cap at the time of that announcement. We'll completely defease our balance sheet with HHI. I think everyone knows we only have about $2.5 billion in gross debt. And when that deal closes, we can either pay all of that debt down or we can leave some cash in the checking account. But I mean, given the current valuation of the business. We still feel like our shares are materially undervalued, given the underlying growth rates, particularly in our patent home and garden businesses.

More than our market cap at the time of that announcement.

We'll completely defease, our balance sheet with Hai.

I think everyone knows we only have about $2 5 billion in gross debt.

And.

When that deal closes.

We can either pay all of that debt down or we can leave some cash in the checking account, but I mean, given the current valuation of the business. We still feel like our shares are materially undervalued, given the underlying growth rates, particularly in our patent home and garden businesses.

So if we were to close the deal tomorrow, we would probably continue to buy in shares as you'd see us doing so currently. And listen, I think you're not wrong I mean, eventually we will execute growth M&A, we really want to build a material business in pet, home and garden. We believe that we understand those businesses. We believe we have very attractive platforms, very strong brands. And highly incentivized employees that are excited about taking market share and launching new products and really building amazing businesses. And so that's where I see kind of things going.

And listen I think youre not wrong I mean, eventually we will execute growth M&A, we really want to build.

Material business in pet home and garden, we believe that we understand those businesses. We believe we have.

Very attractive platforms very strong brands.

And highly incentivized employees that are that are excited about taking market share and launching new products and really building amazing businesses and so.

That's where I see kind of things going.

Clearly, in the next couple of months, we will work from closing HHI, but again I think the underlying businesses, particularly pet home and garden are great growth assets with good margin structures. And I think shareholders should be able to start to see the value there. And I think that would hopefully lead to what I have been working so hard for with the team to get it and expand multiple on our stock, our currency it remains undervalued in my opinion.

The next couple of months, we will work from closing HHR, but again I think the underlying businesses, particularly pet home and garden are great growth assets with good margin structures and I think.

Shareholders should be able to start to.

See the value there and I think that would hopefully lead to what I have been working so hard for with the team to get it and expanded multiple.

On our on our stock our currency it remains undervalued in my opinion.

I'll continue to look for solutions as possible opportunities to create value with our home and personal care business. As many of you know, I got involved in that business personally back in '05, it's near and dear to my heart. We want to continue investing there. We've seen some great market share wins across the globe. We've got a very dedicated team there and I'm looking forward to seeing where we can go with that so.

As many of you know I got involved in that business personally Bakken O'five, it's near and Dear to my heart and.

We want to continue investing there.

We've seen some great market share wins across the globe.

Got a very dedicated team there and I'm looking forward to seeing where we can go with that so.

I think that hits most of your question if not please. Please let me know what I failed to answer. That's great that's very helpful and I hit everything I was looking for so. Shifting to kind of operations.

Please let me know what I failed to answer.

That's great that's very helpful and I hit everything I was looking for so.

Shifting to kind of operations.

Likely varies by category, but given the supply chain issues widely talked about.

Can you discuss your ability to satisfy demand our sales constrained in any way by the.

The supply chain.

I'll, let Randy and Jeremy add further color, but theres no question that we could be driving a whole lot more sales.

If we had all the inventory we needed and we continue doesn't everyday model.

We do get our fill rates up and we've materially invested heavily in inventory and the rest of it but yes. The demand side of the equation remains exceedingly robust.

But.

These inflationary and supply chain challenges are.

I've never seen stuff like this.

Over the last 20 years. It is an exceedingly volatile environment and Thats why I have so much pride in the team for navigating it but Randy you want to add some color yes.

Yes, good morning, Bob.

As David said, it's an omni present issue for us.

And I would say, it's pretty consistent across each of the businesses and each of the categories within the business. So to answer your question I mean, we're not quantifying a number for you.

At this point, but I can tell you that we believe that we were.

Materially suppressed on the topline in the last couple of quarters.

For sure just based upon supply and.

We expect that that's going to continue probably through the midpoint of the fiscal year to some degree so.

Yes, it's a daily battle.

Okay got it thanks, and then last one for me and I'll get back in queue, but it's related to that question.

Some companies are holding back on advertising and promotion to avoid over stimulating demand that they cant meet.

Part of the question is where do you fit in terms of that also just talk about your advertising personal budget and reinvestment and brands in general because I know, it's been a multiyear process of.

Increasing the reinvestment for the to build brand equity and build the brands over time. So maybe if you can tie those two questions. If they made sense together.

Great.

I'll take the headline and then Randy.

We will give you the real answer, but we've worked way too hard over the last three years to build a culture that leans in that investor thinks in three to five year terms instead of 90 day terms.

We have made so many sacrifices to create productivity dollars to reinvest in our brand equities to innovate and launch new product.

Yes look I think for most companies right now that is probably the greatest temptation. If you look at the volatility in the supply chains and the massive amount of Felicia Thats coming at you. Those are the levers that people are going to be tempted to pull back on we're not going to do that.

We've come way too for we've made way too much progress we are investing to win long term.

That's all I got Randy over to you.

No Bob I completely agree with that statement, we had our first litmus test on our commitment and conviction to this new strategy back in the spring of 2020.

We're faced with a global pandemic and the possibility of at that point complete meltdown and maybe massive liquidity issues facing companies like ours, and our board and our CEO.

<unk> made a decision to say not only are we going to stay to our committed investment strategy, we're going to we're going to double it we're going to double down and we bought an incremental $10 million in that.

Next couple of quarters and we.

Plan to stick to that strategy, we believe it's a strengthen our new operating model and that we can pick up a lot.

Lot of ground on competitors during this timeframe such that once these.

Eventually transitory issues are gone we are in a better stronger platform to grow from there.

Super Thank you so much.

Thanks, Bob Thanks, Bob.

Thank you. Our next question comes from Nik Modi with RBC capital markets. You May proceed with your question.

Yeah. Thanks, good morning, everyone.

Just a question.

Supplied to hey.

We've got a lot of work on RBC on just looking at port congestion and it looks like it could be.

Congested by mid to late 2022.

I was curious if you guys have a viewpoint on when you think that will happen Thats just kind of a quick question.

Got a question just on the organic growth for fiscal 2022, if you could just provide some context kind of what youre thinking.

What you think the categories are going to grow any perspective around market share developments.

Any color on that would be really helpful.

So Nick good morning. This is Randy I'll take the first part of the question and see if Jeremy wants to jump in but.

We thought you guys did an excellent job on the quantitative assessment of how long it will take two to decongest, especially the west coast ports, and I would say that our opinion from talking with our suppliers and our global partners is not materially different in that we would see some time mid fiscal year for us.

Being kind of the.

A good situation and we think it could continue into summer and early fall.

One thing that we know is that pretty much every prediction on supply chain performance over the last 12 months has been wrong. Three months. Later, so we are focusing on maintaining flexibility and speed to be able to react to the situation.

No.

Sure.

We don't have a crystal ball, but if we kind of aligned with you on that.

Yes.

Everything Randy said on fiscal 'twenty, two kind of categories, but I would tell you is that.

The inflation that we talked about in the pricing we need to strategically get to offset that the majority of that pricing is in place and has been received in the marketplace and goes into effect continue in Q1 into Q2.

We're a bit cautious on not just really our pricing increase needs, but really overall inflationary impacts on consumers about what that means for demand in fiscal 'twenty, two and beyond and so I would tell you that the.

The majority of the organic net sales built into our forecast for F. 'twenty. Two really is price. There is some volume in there I think we've been conservative on that if consumer demand continues at the current rates that we see today, but it is something I think we should all be thinking about as it relates to the overall pocketbook of consumers.

Great. Thank you Darren.

Yes.

Let me add to that Mike Mike.

Mike Houston, you look like.

Where we are today and we're trying to telegraph pretty clearly.

The phasing of this year will actually be reversed to fiscal 2021, we're going to spend Q1, Q2 really figuring out.

Where does that demand unit versus dollar is and so.

Unfortunately, we have to take price, we don't have a choice the inflation has been that.

Aggressive.

Anywhere we can get productivity, we will and we've got a lot of plans to go do that but.

But yes look I think we expect to be very good full fiscal year when it all comes together.

Very much back half weighted.

But at the same time I would think you should expect higher growth out of our pet.

Home and garden businesses, and a little less growth out of HBC youre modeling the year.

Great. Thanks.

Thanks, Nick Thank you Nick.

Thank you. Our next question comes from Peter Grom with UBS. You May proceed with your question.

Hey, good morning, everyone and congrats on a great quarter. So maybe just to start David I know you mentioned the deal continues to progress nicely and the release and maybe I missed this but I don't think there was an update on timing in your remarks. So could you maybe provide some more a more concrete update on the process, particularly.

This team is committed to this calendar Q4 closed and then I have a follow up.

No you're right I didn't mentioned timing because I don't want to.

I can't control, the United States government, but it is proceeding well and I expect it to close and hopefully it closes sooner rather than later Thats really all I can tell you.

Okay, and then Jeremy I was hoping we could unpack the low to mid single digit adjusted EBITDA guidance for fiscal 'twenty, two which is very impressive I guess what are the key components bridging to that number, particularly as you think about this 230 is that $250 million of inflation.

Almost two actually you mentioned last quarter, even with HHS and moving out of the business. So maybe can you help us understand what's driving the low to mid single digit growth.

The <unk> synergies are given a pricing and then lastly, and maybe more importantly, you've done a tremendous job of building credibility in the past few years by delivering and in most cases over delivering on your targets.

No. It's a very dynamic environment, but would you would it be fair to say that this guidance range embeds, some cushion should things either.

Our go against you from a cost perspective.

Perspective thanks.

Yeah.

Yes, I mean, the first part of your question look the most important thing no doubt about it as inflation and price. It doesn't most material items that every company like US is facing right now as you face into whether it's fiscal or calendar year 'twenty. Two obviously, we're one of the first to go out since we're a 930 year end.

But yes, it's been dynamic I mean on a continuing operations basis, our inflation in fiscal 'twenty, one was about $83 million to $85 million in the same buckets of the $2 30 to $2 50 that we expect and in F. 'twenty two so youre looking at $325 million give or take on a.

$3 billion top line business continuing operation. So that is that is significant but I've never seen anything like that in particular as quickly as it's come on us.

And as you've seen in Q.

Q3, and particularly our Q4 results were behind it a bit from a cost perspective versus price and as David just mentioned that's going to be similar story for Q1, we would expect to ramp that up as we get into Q2, and certainly Q3, and Q4 and hopefully if things remain stable, which Randy made the point. The one thing we know about assumptions on inflation.

Right now if you've lived the last year in businesses like ours, and certainly you Peter analyzing businesses like ours is we're wrong because things are going to change.

The very good news and I think our shareholders should take solace in as I said the majority of the pricing we need based on the inflation that we see as of today and projected for the year is actually in place communicated et cetera coming online so.

That's an important thing I think.

The rest will come from just overall volume as I mentioned earlier, we've been I think conservative on volume a little more price in the organic volume could be better could support incremental inflation.

Should drive higher EBITDA frankly, we'll just have to see how the year progresses I think beyond that rejuvenate acquisition is important I said in my prepared remarks, it was $66 million of.

Of fiscal full year revenue for F. 'twenty, one, but we only owned it about four months. So that means we've got eight months coming and as you and I have discussed that with all as we've all discussed the margins on that business are higher than the home and garden business in total so thats a nice.

<unk> for us as we head into fiscal 'twenty. Two honestly those are the biggest material items. So I won't I won't go any deeper than that right now just in the interest of time, because we're coming up on the hour here.

Got it thank you so much.

Thanks Peter.

Thank you and our next question comes from Chris Carey with Wells Fargo Securities. You May proceed with your question.

Hey, good morning, I, just wanted to follow up on the pricing.

Comment so I think it was EBIT.

David.

80%.

Of inflation should be covered by year end.

So number one is that so I guess I'm just trying to confirm what exactly that means.

$230 million to $250 million of incremental inflation are you, saying that you expect pricing.

To cover about $180 million of that over the course of the fiscal year are you, saying that you expect pricing by the time you get to Q4 to be caught up can you just help me dimensionalize that comment.

Yes, I'm going to let Randy take it but I mean look it's a very fluid and dynamic situation out here at the moment and.

We are confident in 2021 2022, and we're in we're giving you guidance.

But look it's.

You can't just raised price without <unk>.

Looking at consumer demand right now is a very favorable macroeconomic backdrop.

The consumers got two two and a half a trillion dollars of excess liquidity and.

In the consumer so far continues to spend.

Despite price increases that's just the reality of the current environment.

We are long term thinkers, we want to build brands, we want to take market share and we want to be the winner number one player three years to five years from now and so.

We want to spend these next quarter.

Quarter.

Making sure we get the right balance right because there is dollars in these units and.

We know there is obviously lag effects.

You can get hit with an input cost inflation and it takes you time to get a price increase and NEC and Dana your margins.

But if you take products too fast or you take it to forehead.

We just don't want a degradation that demand factors and it needs to do and so we're working on that on that equilibrium, if you will but let.

Let me, let me let Randy.

Better details.

Yes, Chris I think youre generally thinking of things correctly, we have a lot of.

Moving pieces across various businesses regions and.

In categories some of them.

A little less price sensitive than others some of them brands playing in different competitive environments, and so we're working very well with our.

Our retail partners in all of the businesses to try and make sure that we're doing the right thing for them and for us as well as for our consumers again as David said with a long term focus so.

I think that the headline is that we're saying we will not we do not anticipate being able to price for all of the inflation. We will have to do other things in areas of productivity and other partnerships innovation et cetera to address that over the long term.

Okay. Thanks, a lot just conscious of time I'll jump back in thank you. Thanks, Brett Chris.

Thank you and our next question comes from Ian Zaffino with Oppenheimer. You May proceed with your question.

Great I.

I guess, we're going to be a dead horse here, but the 78% pricing inflation is that pretty much price recovery, sorry is that spread out pretty pro rata across.

Your categories are there any categories, where it might be higher than that.

Vertical that are lower than that.

So from a subcategory coring perspective, there are definitely some wide fluctuations from a business unit perspective, the variations are smaller, but I think it's been mentioned here, we feel that overall.

Our pricing power with consumers is probably strongest in global pet care, followed by home and garden.

And then followed by HBC, but all three businesses have done an excellent job in our mind of communicating well with our retail customers. Good partnerships. It's all about strategizing together to figure out what the right way is to handle these macro issues coming at us in all three businesses are getting price that I think we're pleased with thus far.

Alright, Thank you very much.

Thanks, Ian I think Josh we have time for one more question.

And our last question comes from Carla Casella with Jpmorgan you May proceed with your question.

Hi, great.

Two.

$250 million of costs cost increases on can you just talk about that.

Materials that are driving most of that and if.

<unk>.

This quarter that we just passed the peak of the cost increases.

There are some there are still increasing track.

Yes, let me start and then Randy will give you some details on our materials. So I would tell you that.

From an experience perspective, Q4 was the largest we've experienced in the marketplace, but given the long lead times, we are experiencing right now a lot of that actual dollar inflation was in inventory on the Q4 balance sheet and we will actually hit the P&L in Q1, which is why we've said so often today that Q1 will be challenged.

Opposite of last year materials overall are the highest.

A component of the inflation with ocean freight being second last year as you'll recall ocean freight was the highest with materials being second so on the overall material breakdown can give some color on what hits us most ill, let randy walked through that.

Yes.

Carla I would say as Jeremy said think of the materials being.

More than half, 60%, two thirds or so of that total transportation being the remaining pieces of it and then what's driving it.

Our top commodities would include kind of the normal things you would expect for a consumer packaged goods company such as ours, its crude oil and natural gas.

Steel linerboard plastics, HDD et cetera, so it's pretty much all of the main drivers that you would anticipate.

Okay, great. Thank you so much for that additional color.

Okay. Thanks, Carla and thanks, everybody for joining us we appreciate your attention today.

Available today as well as next week for follow up calls and hope you all have a great Friday and a great weekend take care.

Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.

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Q4 2021 Spectrum Brands Holdings Inc Earnings Call

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