Q1 2022 Spectrum Brands Holdings Inc Earnings Call

February 4, 2022

Today's conference scheduled to begin shortly please continue to standby and thank you for your patience.

[music].

Good day and thank you for standing by welcome to the Q1 2020 to spectrum Brands Holdings, Inc Earnings Conference call.

At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone. Please be advised that today's conference is being recorded.

Okay.

Since joining the call. Please press star zero.

I would now like to hand, the conference over to your Speaker today, Mr. Germany, Smeltzer, Executive Vice President and Chief Financial Officer.

Sir the floor is yours.

Thanks, Chris Good morning, everyone.

Welcome to spectrum brands Holdings, Q1, 2022 earnings conference call and webcast I'm, Jeremy Smelser, CFO spectrum brands and 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 Www Dot spectrum brands Dot com.

This document will remain there following our call.

Turning to 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 the opening remarks, we will conduct a 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 February four 2022, 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 on 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 I will now turn the call over to David Maura.

Thanks, Jeremy Good morning, everyone and welcome to our first quarter 2022 earnings update thanks.

Thanks, everybody for joining us this morning look I'm going to kick the call off with an overview of the company's performance and our capital allocation priorities. After that Jeremy is going to provide a more detailed financial update and then Randy will come on and give an operational update including all the different business unit results, if I could turn everyone's attention to <unk>.

Slide six.

These are these are very exciting times for spectrum brands. We've now begun our evolution into a faster growing higher margin pure play global pet and home and Garden company.

We believe we can create meaningful shareholder value with this transformation.

Our first quarter went largely as expected with continued topline growth while margins contracted as input cost inflation exceeded price increases we have additional pricing actions in place and more targeted to offset the unprecedented inflation. We are currently experiencing we.

<unk> to expect to achieve our earnings framework for the full year of mid to high single digit net sales growth and low single digit adjusted EBITDA growth consumer demand and retailer interest in our products and categories remain positive.

We also continue to work towards the closing of the sale of our hardware and home improvement segment as a boy for $4 3 billion. We remain confident that this transaction will close this year and we are pleased to say that strong demand persists and <unk> end markets.

Moving to slide seven.

The Tri Starr acquisition, which we announced this morning will be transformational for our home and personal care segment.

The ability to leverage the studio content creation, Dr TV and direct to consumer business model of Tri Starr as talented team should enhance some of our legacy brands and help US drive continued market share gains with our combined slate of new product offerings, the increased scale and <unk>.

The ability of the combined HBC and Tri Starr business will now enable us to create an independent global appliances company poised for faster growth and expanding margins and it creates a platform for further acquisitions in this space, we firmly believe that this value creation opportunity.

We will create tremendous value to our shareholders and we look forward to updating our investors on the progress of the separation of this business from our holding company as this year progresses.

Yeah.

Slide eight our capital allocation priorities will continue to focus on allocating capital internally through our highest return opportunities. We believe this strategy has been paying off for us as we continue to drive growth through product vitality across all our businesses.

Secondly, we plan to continue to return cash to shareholders via dividends and opportunistic share repurchases during the quarter, we repurchased approximately one 1 million shares of our common stock for $110 million more recently, we concluded the prior quarters $150 million buyback.

<unk> is approved by the board of directors.

At our recent board meeting this week, we have authorized the repurchase of another $150 million of our common stock as we plan to continue to opportunistically repurchase our shares.

As we get closer to the closure of the <unk> transaction, we may accelerate our share repurchase activity.

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

Today's announcement of the Tri Starr acquisition accelerates our plans to create an independent appliance company. We believe this separation and the resulting pure play pet global pet and home and Garden company should lead to a re rating of the multiple of spectrum brands common stock and create tremendous shareholder value.

As we have discussed on previous calls we expect to deleverage our balance sheet to approximately two five times gross leverage upon the closure of the <unk> sale.

Additionally, we have adjusted our long term net leverage ratio to a more conservative two to two five times net leverage.

Before I turn the call over to Jeremy I would like to acknowledge the contributions of our global teams, whose efforts have helped to minimize the impact of these supply chain headwinds to our consumers retail partners and the business overall, our supply chain team enabled by our center led globalized operating model is found Craig.

Give ways to deliver our products to our customers.

Like to thank all of our global employee partners and the management teams for their tireless efforts in the face of many challenges that this company has overcome over the last several years. This team's success continues to demonstrate our winning culture and the successful adoption of our operating model and honestly.

<unk> me every day.

Now Youll hear more from Jeremy on the financials over to you Jeremy.

Thanks, David turning to slide 10, and a review of Q1 results from continuing operations beginning with net sales net sales increased two 9%.

Adding the impact of $7 3 million of unfavorable foreign exchange and acquisition sales of $16 5 million.

Organic net sales increased one 6%, despite COVID-19 related supply disruptions and overall supply chain constraints.

Gross profit decreased $33 5 million and gross margin of 29% declined 500 basis points from a year ago due to accelerated freight and input cost inflation pacing ahead of price increases timing.

Partially offset by productivity improvements.

SG&A expense of $203 5 million increased five 7% at 27% of net sales with the dollar increase driven by higher distribution and transportation costs and higher advertising and marketing investments.

The operating loss of $23 $8 million were driven by the gross margin decrease and higher SG&A I mentioned.

The declines in GAAP net income and diluted earnings per share were primarily driven by the operating loss and prior year gains from our previous investments in Energizer common stock.

Adjusted diluted EPS declined to a loss of <unk> <unk> in the quarter driven by lower operating income from the gross margin decline from inflation and higher SG&A.

Adjusted EBITDA was $49 $3 million declining due to accelerated freight and input costs pacing ahead of pricing adjustments and higher distribution costs, partially offset by improved productivity.

Turning to slide 11.

Q1 interest expense from continuing operations of $21 8 million.

Decreased $1 3 million due to our lower cost of debt.

Cash taxes during the quarter of $6 6 million were $400000 higher than last year.

Depreciation and amortization from continuing operations of $25 4 million was $1 $7 million lower than the prior year.

And separately share in incentive based compensation decrease from $6 $9 million last year to $5 6 million this year.

Cash payments for transactions were $17 9 million up from $12 $1 million last year.

Restructuring and related payments were $12 3 million versus $10 9 million last year.

Moving to the balance sheet. The company had a quarter end cash balance of $205 million and $116 million available on our $600 million cash flow revolver.

Total debt outstanding was approximately $3 billion, consisting of $2 billion of senior unsecured notes.

$862 million of term loans, and revolver draws and $100 million of finance leases and other obligations.

Net leverage was four eight times compared to three five times at the end of the previous quarter as the trailing 12 month EBITDA declined and we had an increased outstanding balance on our revolver facility to support working capital requirements from continued supply disruptions as well as share repurchases.

During the quarter as David mentioned, the company repurchased approximately $1 1 million shares for $110 million.

This accumulates to a total repurchase of $125 $9 million of the $150 million <unk>, one share repurchase contract through the end of the first quarter and we have since completed the purchase of the remaining shares under that contract.

Capital expenditures were $14 1 million in Q1 versus $7 $6 million last year, mainly due to higher investments in our SAP implementation.

Turning to slide 12, now and our expectations for fiscal 'twenty two.

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

We expect $310 million to $330 million of total inflation during the year up from our previous range of $230 million to $250 million and intend to offset the higher inflation through additional pricing and cost management actions as needed.

Despite the additional inflation, we are maintaining our adjusted EBITDA framework of low single digit growth.

This includes continued benefits from our GPS program impact of annualized nation of current pricing actions and planned further price increases.

Productivity actions in approximately eight months of results from the recent rejuvenate transaction, which last year generated about $66 million in full year revenue.

From a phasing perspective.

We continue to expect the first half 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.

Full year interest expense is expected to be between $80 million to $90 million, including approximately $5 million of noncash items.

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

And capex are expected to be between 95 and $105 million.

We ended 2021 with approximately $725 million of usable federal Nols.

And expect to use substantially all of them to offset a portion of the gain on the sale of <unk>.

We are projecting to be U S taxpayer in fiscal 'twenty two.

Cash taxes are expected to be between 25% to $35 million.

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

Regarding our capital allocation strategy after the closure of the Hai sale, we are targeting a near term gross leverage target of two five times and after a full deployment of the <unk> proceeds we are targeting two to two five times net leverage for our long term target.

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

Moving to slide 13, I'd like to remind everyone of some of the modeling considerations for fiscal 'twenty two to assist them navigating the complexity of discontinuing operations for HII as compared to our continuing operations presentation of financial results in our earnings framework.

First our continuing operations will carry about $20 million higher interest expense in our fiscal 'twenty two than we would expect in fiscal 'twenty three all else being equal as GAAP accounting for discontinued operations will only allow us to allocate about $40 to $45 million of interest to discontinued operations for the full year, while our actual.

Interest expense reduction is about $20 million higher than that on an annual basis. After our planned debt reductions.

Next our year over year results are expected to be stronger in the second half of the year as compared to the first half essentially opposite of our quarterly results and fiscal 'twenty, one due to the timing of the impact of inflation in our 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.

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

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

And we do still expect heavier than normal investments in capex, primarily due to our investments in our new S 400 program about $30 million to $40 million.

And finally, working capital levels remain very difficult to predict given the global supply chain challenges and consumer demand.

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

Thanks, Jeremy and thank you all for joining US. This morning, I will review, our first quarter operations results and business unit performance before I do that I would like to spend a few minutes to summarize some of the macroeconomic factors at play and provide an update on the cost environment that we're operating in.

Going to slide 15, as David mentioned earlier in the presentation. The overall supply chain and cost environment remained very challenging in the first quarter inflation.

Inflation remained high per our expectation, but the supply chain issues were more severe than we anticipated.

Some of our Asian suppliers experienced stricter COVID-19 related shutdowns that cost product availability issues. This negatively impacted shipments in the quarter, especially in our global pet care business.

Second <unk>.

Covid surges in some U S communities caused labor disruptions, resulting in inefficiencies that drove our distribution cost higher.

And third the labor issues are also impacting our customers and that led to material shipping delays in the quarter related to the customer's ability to receive annual pickup shipments that were ordered based on real demand.

The overall global supply chain also remain strained with consumer demand outpacing global shipments capacity, especially in the high traffic holiday months.

The longer lead times and in turn required us to make inventory investments to ensure continuity of supply for our customers.

In light of these continued ocean shipment capacity issues, we expect to freight rates to remain higher for a longer period in fiscal 'twenty two.

This expectation of higher for longer freight cost is also the leading contributor to our increased inflationary outlook for fiscal 'twenty two.

Moving to slide 16 I'd like.

To highlight the various countermeasures, we are putting in place to succeed in these very challenging times first and foremost our focus remains on executing our pricing actions in the marketplaces.

The good news is that over 80% of the price increases required to cover projected inflation for our earnings framework have already been either fully implemented with or communicated to our customers with the remaining amounts in various stages of final litigation.

Another important factor.

As improving product availability. This includes enhancing our supply chain resiliency by finding alternative sources of supply to ensure continuity in cases of further supply facility shutdowns.

As well as contract extensions with critical suppliers to avoid future disruptions.

We are simultaneously focusing on reducing the impact of ocean freight inflation by optimizing our shipping lanes to minimize exposure to volatile spot rates.

And finally, we continue to focus on our customer collaboration and operational execution to ensure we can react quickly to changing customer dynamics.

All of these actions are enabled by leveraging our operating model transformation towards one global supply chain with collaboration across our business units and regions.

As David outlined earlier.

Our business is demonstrating its durability and our operating strategy is proving effective in helping us actively manage through today's headwinds as we enjoy continued strong consumer demand for our product categories.

First quarter reflected another period of organic sales growth for the total company as we continue to work to improve our delivery performance and provide more consistent service levels, which is earning this positive feedback with our customers.

These efforts in addition to a combined commitment to long term commercial strategies and operational investments helped drive another quarter of top line growth.

Now, let's dive into specifics for each business.

I will start with home and personal care, which is slide 17.

Reported and organic net sales increased 0.3, and one 7% respectively.

Adjusted EBIT decreased to $27 4 million.

Revenue growth in the quarter was driven by the Latin American region with strong holiday season sales performance and expanded distribution.

And this was tempered by product availability issues and comparison to prior year COVID-19 related demand increases in other regions.

Lower adjusted EBITDA margins were driven by accelerated freight.

And input cost inflation.

Head of incremental pricing actions, and partially offset by productivity improvements and continued investments in marketing and new product development initiatives.

The first quarter represented the 10th consecutive quarter of year over year top line growth.

Our appliance Division performance was driven by the continued post COVID-19 recovery of garment care products, which posted double digit growth and growth in small kitchen appliances.

The launch of our new breakfast collection referred to as Astra and attentive under the Russell Hobbs brand in the international markets is helping us achieve growth in the important breakfast category.

The recent launch of our new two in one iron steamer is driving growth in the government segment, which is perfectly timed for the rebound of that category.

Consumer demand remains strong throughout the holiday season, the product availability was impacted due to delayed shipments early in the quarter.

Product availability improved later in the quarter and helped cap a strong holiday season overall.

Our consistent commercial wins over the last two years in strategic investments gives us confidence in our plan is to continue to grow share and shelf space in our key markets.

As we outlined on previous calls inflationary headwinds were only partially offset by earlier waves of pricing in the first quarter.

Net input cost inflation for appliances was actually slightly better than expected in the first quarter as we were able to delay certain supplier cost increases.

Pricing actions that were planned to ramp up in the second quarter to avoid disruption of our peak sales quarter have now been increased accordingly.

The timing of these additional pricing actions to address increased inflation and supply challenges will pressure margins through the first half of the fiscal year.

Our immediate focus in 2022 continues to be improving supply availability, while offsetting the input cost inflation impacts through strategic pricing and supplier partnerships.

Moving to global Pet care, which is slide 18.

Our pet care business had a good quarter for revenue performance with reported and organic net sales growth of nine 7% and seven 3% respectively.

Our net sales was attributable to double digit growth in Aquatics and continued strong growth in companion animal.

The business had growth in all regions and in all product categories as the fundamentals of this business remain very strong.

This quarter represented record 13th consecutive quarter for revenue growth for the business as the consumer demand stayed strong.

U S and Canada sales increase from growth in brick and mortar channels as consumers continue to return to in store shopping.

Latin American region grew double digits, as we improved product availability for the region and double digit organic growth in Asia was aided by our recently secured import license to begin selling our tetra brand efficiency products in China.

We've largely completed the <unk> integration into the global Pet care business and we are now fully leveraging our global expertise in the category to accelerate <unk> growth.

A great example of this is that our good boy brand now holds the number one position in the dog <unk> cat in the U K.

The growth was achieved despite operating in a very challenging supply environment first the business day supply disruptions with a key product supplier in Asia due to temporary government enforced COVID-19 related shutdowns, which had a material impact on our first quarter revenue.

We've found additional sources of supply for these products and have shifted significant volumes to these new sources. This change as well as other supply chain resiliency activities have now increased our available capacity for this product line by over 30% as compared to before the shutdown.

These actions have begun to resolve the product availability issues and we anticipate complete resolution by late next quarter.

Secondly, global supply chain challenges continued in the first quarter as freight capacity remain limited and lead times remain longer than normal.

Lastly, a competitive labor market led to higher turnover and labor inefficiency, which reduced shipping capacity for the business. Some of these challenges are expected to persist.

Persist for the near future.

Adjusted EBIT declined to $38 $7 million lower EBITDA in the quarter was driven by increased freight and input cost inflation pacing ahead of timing of incremental pricing actions labor inflation labor turnover and associated inefficiencies drove incremental operating costs in the quarter, while we maintained our strategy of investing.

<unk> in marketing and new product initiatives.

This was partially offset by operational productivity improvements.

Pricing is expected to ramp up in the second half and price coverage should improve in the third quarter as we put in place additional pricing actions to offset the incremental costs.

In spite of the short term challenges, we remain confident that 2022 and beyond we will benefit from the influx of new pet parents into the companion animal categories, and the new hobbyists into the aquatic and reptile category that we've seen over the past years.

Our long term focus remains on continued execution of our strategy, 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 consumables products within our portfolio. These tend to carry strong margins and they now represent over 80% of our total revenue.

These category dynamics, and our strategic focus to capitalize on the trends across our full product portfolio. That's why we remain very bullish about the continued growth of this business.

And finally home and garden, which is slide 19.

Our home and garden business actually executed very well this quarter.

As you know is predominantly focused on preparation and staging for the highly seasonal home and garden business, which starts to ramp up in the second fiscal quarter.

In preparation for what we expect to be a record year. The team did a great job during the quarter of securing necessary chemicals active ingredients and critical packaging components, which have been in short global supply.

Reported net sales decreased eight 5% organic net sales declined 18% in the first quarter sales were impacted by supply chain and customer related transportation challenges that shifted some product deliveries past the quarter end.

First quarter organic net sales showed a decline across all product categories. As last year's revenue was historically high driven by low year end retailer inventories at the end of fiscal 'twenty and an early inventory build by customers in the first quarter of fiscal 'twenty one.

Our first quarter organic net sales this year actually increased 47% compared to a more normal first quarter of fiscal 'twenty.

This increase was driven by organic growth from strong consumer demand and increased distribution over the time period with double digit growth across controls household insecticides and repellent category.

While the first quarter represents a very small portion of the annual consumer activity in this business consumer demand was strong as we continued to experience double digit Pos growth in each product category.

Adjusted EBITDA was a loss of $7 $3 million driven by lower volume freight and input cost Inflations continued marketing and product development investments and shipment timing of lower margin spring displays. This was partially offset by pricing actions and productivity improvements.

We continue to see higher product costs for raw materials labor and freight.

Offsetting this additional pressure we're implementing another round of price increases in this business that will go into effect this quarter.

The integration of the rejuvenate business is progressing well and we have achieved a milestone with systems integration in the first quarter distribution integration and our marketing refresh will be completed in the second quarter and we are confident we are setting up the rejuvenate business for long term success as part of spectrum brands. We are excited about the distribution gains we've already secured it.

Existing and new customer accounts.

We continue to invest in delivering through innovative consumer solutions, and our home and garden business and to tell our story around the brands of Spectre side Hot shot cutter Equallogic and rejuvenation. We are confident that our continued strategic investments will further enhance our mission to be a recognized market leader in providing consumers the best solution.

To conquer natures challenges enjoy life.

Our product development driven by consumer insights continues to drive our new product portfolio. This year, we are particularly excited about our new grassy weed killer products, we've introduced new ready to use skus in our easy to use one hand operated flipping go sprayer and.

And for the consumers who prefer to mixed around spring, we've introduced an easier to use accu measured concentrate products. These.

These innovations have led to significant distribution gains in fiscal year 'twenty two.

Now, let's turn to our internal growth and efficiency efforts.

Global productivity improvement program, which is on slide 20.

The <unk> continues to be on track and we remain focused on executing our plan to complete our global operating model transformation.

As communicated on the call in November the savings targets, excluding HHS is approximately $150 million.

Of which over $140 million has been achieved thus far.

In my section I want to thank all of our global employees and the progress we've made in our operating model cultural advancements and our strategic initiatives and as David said earlier. These are truly exciting times as we make living better at home by creating a better stronger faster spectrum brands now that you did.

Okay. Thank you very much Randy Thanks, Jeremy.

Thank you everyone for joining us on the call today.

Look there was a lot of news in todays announcements and given that we've covered a lot on the call.

Let me conclude with the key takeaways here on slide 22.

First of all we continue to make great progress on our strategic strategic objective of creating a higher margin faster growing spectrum brands, a business focused on pet care and home and garden consumable products the <unk>.

<unk> divestitures progressing well with the teams focused on supporting our friends at also boy with the regulatory reviews with the recent announcement of the Tri Starr acquisition, we're taking a significant step towards our objective of creating a separate pure play global platform with a powerful portfolio of leading brands in the home and personal.

Anil care appliance space.

Secondly, our business fundamentals remain solid with consumer demand continuing to be strong in our product categories. We continue to post sales growth. Despite all of the supply chain challenges as our investments in marketing and new product innovations are translating into success in the marketplace.

Although our first quarter EBITDA reflects the temporary impact of inflation pacing ahead of pricing, we expect our pricing coverage of inflation to improve with each sequential quarter.

Third despite the incremental inflation headwinds, we remain committed to our earnings framework for fiscal 'twenty. Two we are delivering on our global productivity improvement program of efficiency targets and we continue to leverage our operating model to execute our winning playbook that has helped us exceed our commitments over the previous few quarters.

Although we are now projecting higher inflation impact for the full year of $310 million to $330 million, we're putting in additional pricing actions now and other countermeasures to deliver low single digit EBITDA growth for the year, we remain encouraged by our consumer demand of our products and our retail partners and <unk>.

<unk> for the categories brands and the new product launches, we have planned throughout the year.

As I've mentioned on previous calls we are committed to managing the business for the long term success of the company and I am very proud of the way. The team has come together to manage the business through this challenging supply chain environment I remain confident that this management team will continue to execute with tremendous discipline to drive the profitability of our company in fiscal 'twenty.

Two and beyond.

I want to close by saying thanks, once again to our employees who are navigating our company successfully through these unprecedented times. Once you didn't know that the future of the company is bright and we continue to make spectrum brands better.

And we continue to make living better home for our customers around the world I want to turn the call back over to Jeremy now for questions. Thank you.

Thanks, David Hi, Chris Let's go ahead and start the Q&A can you queue that up please.

Thank you Sir.

A reminder to ask a question you will need to press star one telephone to withdraw your question. Please press the pound key standby as we compile the Q&A roster.

And our first question comes from Peter Grom of UBS. Your line is open.

Hey, Hey, good morning, guys.

Peter So maybe just maybe just to start on the <unk> transaction can you maybe provide some more context or background on the deal how does the timing of hei closing impact your decision around spinning HBC ethanol and then I guess more broadly can you just give us some thoughts.

What determines how youre going to structure that deal how you decided on timing and then David David just more broadly like what in your opinion is kind of the right value for the new appliances business.

Yeah.

I appreciate all the questions.

Look we're really focused on creating value for our stakeholders right.

Got two phenomenal businesses and our holding company, our global pet care business and.

In our home and garden business and these tend to be much faster growing much higher margin businesses and when I look at the valuations being trade in the private sector have recently $14 $15 16 times EBITDA for us at similar to this.

I think.

Hooven upon me as a fiduciary to think about how to create value for our stockholders and so look the <unk> business. We bought it in 2012, we were really good stewards of it.

We had to look each other in the eye and say hey can we make.

No real.

Leapfrog or an exponential uplift in earnings from where we've taken it and we decided that our friends at Asa boy are going to be able to take this really to the next level.

Globally, and we think it's a great.

Great partnership for quite frankly, our employees, there and Tim and the team is doing a great job there.

End markets remain robust and they are managing through this inflation cycle.

Better than a lot of people so hats off to HHS.

I've said in the past that once that $4 3 billion comes in the door.

Priority one is deleveraging the balance sheet, but we do want to redeploy that to roll up what we believe is a very fragmented home and garden and global pet supply.

Industry and.

We really believe we can create a lot of value for shareholders. There I think if people really look at our business today.

The holding company today is trading at about seven times EBITDA pro forma the <unk> business.

That's why I have been aggressive in buying back our shares because I do believe once appliances is spun off our multiple can be re rated much more in line with where I believe or home and garden and our pet business of our caliber should trade.

So thats, what im trying to do to create wealth for our stockholders in terms of the appliance business.

For some time and believe that small kitchen electrics needs to consolidate there's too. Many players the margins are too thin and the business needs true innovation and real direct to consumer capability, Keith and the team at Tri Starr, our amazing group of talented people that have <unk>.

Studios film production facilities, they're excellent in making Dr television.

Promotions running infomercials and they have a direct to consumer business is about a third of their revenue.

They are a higher margin business, they built a bunch of brands.

They've grown about 85% over the last three years, we are really looking to unburden them with kind of their back office situations, but frankly learn from them with their front office capabilities and I really believe this marriage is going to.

Excite the growth rates of our legacy assets.

And quite frankly, it gives me now the critical mass pro forma 171 $8 billion business with 140 $150 million EBITDA and then going higher.

It gives you a pathway to either IPO the business out of our holding company merge with another existing public company or in fact spin it off but.

We just got dry on the purchase agreement I'm going to need a couple of months to figure that out with the board of directors, but.

We do hope to move expeditiously and update our investors on what were what path. We will choose later this year I hope that answers most of your questions, obviously I can't get into the valuation of a specific business unit.

Yes totally understand and then maybe just following up on the comment around the proceeds for <unk>.

Last call sounded like buybacks would be big news.

Obviously, the stock has retreated quite a bit here and I know.

Thank you Jeremy mentioned.

Timing or get closer for <unk>, you may accelerate IMAX, but can you maybe help us understand what.

That buyback program May look like.

Well I mean look we just bought 150 million Bucks of stock the other day.

Actually the share price declining is good for us we like when we are buying back stock for the stock to be cheaper. So if you don't believe in our strategy, we're happy to take your shares and shrink that float.

Look clearly as we get closer to $4 $3 billion coming over the transom.

If I happen to believe that our pet and home and garden businesses are worth 14, or 15 times EBITDA and the market wants to continue to value our company around seven times. The greatest single use of wealth creation that I could possibly do is continue to buy stock and so look let's let's get there.

We're in a regulatory review we are very confident the deal will close.

But it's going to take a lot of work we don't have any specific date to give you that.

We can say hey. This is this is the data it's going to close but on the day of closing I want to Delever.

Depending on where our share prices and how the market is valuing us we will then.

Communicate to you what we're doing there on that front, but yes look clearly if the stock is around here and we've got.

Three five.

Plus billion dollars of net cash proceeds or somewhere thereabout, we will we will buy a lot more shares.

Got it thanks, so much and best of luck.

Great. Thank you I appreciate your questions.

Thank you.

Our next question comes from the Bank.

D J as Securities Your line is open.

Good morning, Thanks lots of exciting stuff going on.

Bob Good morning, Bob.

Maybe you could talk about where how and where you decide which products. How do you decide on prices and where you can pass them on how long does it take for the last 20% of the price increases to move through the channel just maybe the staging and then lastly, what's been the competitive response, so far to pricing obviously.

Inflationary impacts are not unique to spectrum, it's a macro event so how how.

Our competitors reacting as well.

Look I'll do the top.

<unk> somewhere and then Randy and Jeremy you the specifics, but we are living through an unprecedented time I mean, let's just face it I mean some of these input costs.

They are in Crump.

We have instances where are afraid is up 10 times from where it used to be in.

We have some input costs are up 45% and so.

Not excited about having to raise prices or are retailers typically don't love it and we don't think inflation at this level is great for the consumer what I would say is the consumer is appears to be flushed with cash still.

Our demand across the board continues to be quite strong.

All kind of still trying to deal with a fragmented and broken supply chain.

It's taking longer than any of us wished to fix.

But look we unfortunately.

<unk> is what we need to do to restore our margin structure thats, our fiduciary duty hell bent on making that happen and we're going to show your margin improvement with every quarter. We've got left to this to this year.

And I'll pass it to Randy and Jeremy for further detail.

Yes, Bob.

You asked about the mechanics, and really it's a item level profitability analysis that has to do with all of the.

The inflow of increased cost as David said price increases in this environment or really kind of the last thing that we want to spend our time on but that's what we have to and so.

We're simply taking the pricing when it's necessary to do the right thing for the business and you're asking about the last 20%.

Want to imply that there is a 20% tail there and it's going to take a long time to get to that is just the timing associated with the new.

Visibility to longer term freight costs et cetera that are going to extend.

<unk> into the fiscal year than what we thought so I don't anticipate there to be any execution increased execution risk with that.

As.

As it relates to competitive response.

As David said this is a brand new playbook and so most of our buyers most of our retail partners in most of our.

Competitors are in the same boat, where we're figuring this out as we go along and we're all trying to do the right thing for the categories and the consumers. So I don't really think theres anything material with regards to.

Competitive response in most of our businesses.

Depending upon our brand positions were either leading or following but there's not big dynamic is impacting our business there.

Okay great.

Very helpful. And then just one more and I'll jump back in queue in terms of the HBC numbers. Obviously, you gave us the combined entity numbers and we know the calendar 'twenty one margins for HBC were impacted by inflation.

What do you see as just kind of remind us theres been a lot of.

What is the normalized margin for the core the core spectrum HBC segment before the Tristar kind of going forward just to try to think about what margins do normalize the earnings power of the new entity.

Listen we used to we used to run this business at 10% margins.

I think the industry should operate at 10% or better.

Our legacy business I think we got our margins a size 12, maybe 14% when everything was going in the right direction.

We are under some pressure right now.

But I don't see any reason why we can't return to a 10% EBITDA margin Jeremy Randy if you want to give more color on that yes, I agree I mean, if you go back for the significant part of inflation starting hit is hitting us last year, Bob I think we had an LTM quarter. We posted that we were $125 million of EBITDA on an LTM basis and that to David's point was.

Getting us into the low double digits, obviously inflation fitness, so youre seeing a couple of quarters to get down into the low to mid single digits, but with the actions we have in place.

Even for this year I think we can get into the higher single digits, and we'll see what happens with inflation and demand next year, but all in through the cycle of ups and downs I feel like it's a low double digit 10% to David's point kind of margin business.

With the current product mix.

Okay that's super.

That's great. Thank you very much I'll get back in queue. Thank you. Thanks, Bob.

Thank you.

Our next question comes from Chris Carey of Wells Fargo Securities. Your line is open.

Hey, good morning.

Sure.

Not too bad.

Happy Friday.

Can we just talk about like leverage.

There is a lot of cash potentially end, but a bit delayed.

Our view.

Obviously for the appliance deal.

It's going to be additional leverage it's a little tough to see just with HHS and disc ops and continuing cash.

Yes.

Maybe just.

They hei doesn't close for another six months.

I don't know if your view on that but.

How does this how does this kind of all come together with your balance sheet on like.

How do you view the pro forma exposure if you will over the next kind of three to six months as some of these things are unfolding.

Unfolding.

Yeah look you're hitting on the correct points at the current time Leverages going higher because we were buying back stock.

And we are in an environment, where the supply chain has been elongated.

Much longer than I would like and it's consumed a lot of working capital on the balance sheet.

I am putting kind of a foot down on that.

We're going to take a lot of action to.

To cure that going forward.

I think a lot of companies in the CPG space have been solely focused on fill rate fill rate fill rate.

Because the supply chain has been so bad, but we also need to pay attention to balance sheets and get those healthier too and so that will be a theme over the next couple of quarters I think the other.

We need to take into consideration as Youre modeling is obviously the EBITDA drop.

We anticipated for Q1, and then much less severe than Q2.

Our earnings on an LTM basis should start to recover.

Between Q2, and Q3, and then quite frankly, we have a pretty pretty large uptick once pricing is in place and we've covered every all the inflation.

We have a very.

We're very confident but we haven't we have a very strong second half and it happens to be as we've said earlier in the call the exact inverse powder.

What happened in the fiscal period a year ago.

You've got two things going on here, you've got the debt ticking up a little bit you've got the earnings under pressure because of inflation.

Look I personally think we hit that inflection point.

Somewhere around June and then I think life gets a lot better to your question look I think it's I think HHR closes have a very high degree of certainty around that but to your point of if it didn't close.

Look it's a great business generates a lot of free cash they would have to pay us a $350 million termination fee, that's almost a turn of leverage.

On the remain co and I believe we will be able to navigate our leverage through earnings uplift and debt pay down to about three five times to exit the year.

That's incredibly helpful. If you'll entertain me.

There's a lot of confidence.

The deal closing.

This organization is not.

Yeah.

There is no stranger to closing deals with spaces with highly consolidated market share.

Can you just maybe.

Give some sense of where in the regulatory review.

Fed regulators, maybe looking is it.

Market shares at retail is in market shares.

Specific channels like commercial growth rate.

Technology.

Mechanical versus electromechanical.

Canticle Lockset.

What is your sense.

Why why the deal. Besides the fact that a lot of deals go through CCAR view might be seeing.

Another.

Another regulatory look and then if I could just connected to that and then I'll stop is.

We gauge on the deal from a gross to net.

It's pretty big.

Given the given the Nols that you have.

Can you maybe just expand on that if you have any additional perspective on why that gap is so big thanks, so much.

So first I'm really happy to entertain you on anything but to answer all your questions around regulatory.

I will not indulging.

In terms of the gap all paths to Jeremy I would just tell you look we are working.

Diligently with also we're working very well with the regulators and we have a high confidence that this deal closes.

<unk> is an amazing partner.

This is not a financial trade for them. This is a strategic move on their part it fills in a lot of gaps forum and we're going to get this done with our partners at Asa Jeremy you want to take the gross to net sure Yeah and I'd just add this timeline as normal course in my eyes from a deal of this size and so there's really not been any surprises.

Front.

The gross to net I mean, you just have to remind everybody that we paid $1 4 billion for the business 10 years ago. So.

Just on that purchase price, you've got a $3 billion.

Gain you've got to deal with so I mean, you do that math pretty quickly and you can get to the leakage when you add in overall fees. So that's that's the challenge there Chris but Fortunately, we do have those Nols to shield some of that huge increase in value that we have achieved over the last decade.

Okay, well, thanks for all that in.

I thought I'd try anyways.

I'll get back thanks very.

Hey, Happy Friday, good try good truck thanks, Chris.

Thank you.

Up next we have Steve powers of Deutsche Bank. Your line is open.

Hey, and good morning. Thanks.

Hey, Jeremy I apologize if I missed this but can you just confirm that the reiterated guidance for fiscal 'twenty. Two remains solely focused on the remain co business as it exists today doesn't contemplate <unk>.

Contribution from Tri Starr.

That's right Steve.

A little bit of uncertainty in the timing of closing of Tri Starr I believe we said within the next 90 days or so so it wouldn't be appropriate to put anything in there, but as time progresses, and we have certainty of closing date.

Add more as the year goes on.

Okay perfect perfect. So then in terms of all the steps you've taken to allow you to maintain that current guidance on the remain co. Despite the inflation and the supply chain pressure.

You talked through pricing a bit earlier, but I guess I'm curious just through a better sense of the balance between incremental pricing over the remainder of the year versus incremental productivity.

Because it seems like.

Given the time lag in getting price to market you have to be leaning on both levers and I think you spoke to that a little bit in the prepared remarks, but just maybe the balance there and to the extent that there is material productivity. We also build in the back half is that can we think about that as a structural productivity that we can extrapolate the 'twenty three and beyond or is that just fiscal 'twenty to belt tightening to get.

Get through the year, and then we kind of reset the base next year.

Randy I'll take that one thank you yeah, great Great question, Steve and I would tell you that.

Most of the adjustment is coming through pricing actions.

The team has been working on that.

Non stop for a long time and so.

It is a material portion of it with regards to the additional productivity.

Again kind of in maybe half and half there. So some structural productivity related to kind of continuing down the work streams that we did.

Developed through our Galileo initiatives, but also doing some stuff is temporary just it's appropriate in response to given where we are in the supply chain product availability et cetera.

Okay. That's helpful.

And Randy maybe while I have you talking just as you think through what your what you are putting in place.

To improve supply chain status improved service levels.

Any sense for how you stack up.

On those fronts relative to competition and whether you see the initiatives that youre, putting in place to improve product availability does that is that is that just help you kind of stated that connect with competition or do you think you can you got some advantages to the extent that this good.

Be an opportunity to actually gain some gain some share gains in distribution. If you can outpaced competition.

Yes, great question, and we're working with a number of external experts and advisers to help us keep a track on that and so.

We operate various businesses in various regions around the world I would tell you that we find ourselves I believe we find ourselves in.

Pretty good position relative to the averages in most situations, but there are some variation up and down.

But.

The supply tightens, the economics of global supplier of becoming more efficient and so there's less opportunity to.

Leverage for out outliers within the current market I think the real move here is on what you are going to be doing to your manufacturing supply chain base to address.

Resiliency and flexibility going forward because the certainty that exists today is that this isn't the last disruption we're going to see in the next five years will be something else that happens.

And the question is how are we setting up our networks to be able to respond to handle that as of yet next unforeseen challenge. So I don't think it's something that I would say.

We feel is a huge advantage for us, but it definitely doesn't feel to be a negative versus our competition.

Okay very good thanks, Joe appreciate it.

Thanks, Steve Hey, Chris I think we have time for one more question before we hit the top of the hour.

Okay. Thank you.

Okay.

Lastly, we have Ian Zaffino.

Your line is open.

Hi, great guys. Thank you.

Okay.

Today.

Wanted to just ask you David maybe longer term and I know you obviously have a lot of stuff going on right now where they can die and now client.

But if we were to kind of pass that.

How do you think about the portfolio going forward are we going to be at two <unk>.

Vertical company that continues to get larger and larger each vertical do you think maybe you could go back to a third vertical.

How are you thinking about that.

And any other type of color you could give us as far as like a longer term strategy.

Thanks.

Yes, I mean look I got to get there first right. So.

A lot of lifting to do here the next.

Nine months or so but.

<unk>.

Yes.

We love the pet space.

We believe that we've got.

Phenomenal portfolio of brands.

We believe we have a very good team that knows how to bring fast innovation to the space.

We believe we are building the portfolio more and more to consumables.

And as an investor I happen to really like.

<unk>, 10% type growth categories that we believe we can outpace.

And then I really like consistency of recurring cash flows.

And.

I believe these assets in today's market are 15 times EBITDA assets.

And it's.

It's my job to create shareholder wealth, that's why I come into work every day so.

Home and garden.

It's very similar 20% plus EBITDA margin business.

We just became the number one pest control brand at retail with spectra side, we've invested very heavily in R&D. We've built out a very very good team that has a lot of innovation.

Still in the pipeline and got to get through EPA, but we think we're going to bring a lot of a lot of innovation in 2023.

So if you can envision where we're trying to take the company.

Youre going to end up with basically debt free pet home and garden business with phenomenal growth rate with really good margin structure excellent free cash flow conversion in industries that are very fragmented.

When you can do tuck ins, where you are buying down multiples because your synergies both on the cost and revenue side of terrific. You can create a lot of shareholder equity value and so that's where we're steering the boat.

Similarly.

And I don't mean to drag the call out but charge star.

<unk> is really a game changer to appliances.

Being able to create content and excite the consumer through Dr television infomercials.

Take that AD spend and show it to brick and mortar retailers and omni channel.

Our retail partners really drives categories news and excitement it's been something I've been trying to accomplish in three years.

Three years, we've been trying to marketing average than we've done I've done a lot and we've done good but I think this is the game.

Game changer for our HBC business and it just happens to be enough critical mass and profitability, where I believe I can IPO it.

Maybe you don't go that without route maybe we spin it maybe we do another merger where the public company, but.

If you think about how that typically happens most ipos your float 20% of a company.

We would be able to build that independently.

Lot of equity at spectrum take our time to take dividends out sell it down over time you can create.

More amount of shareholder wealth doing that and so.

That's where we're going that's the vision of trying to.

Get everyone to focus and look at and I genuinely believe when we land these things.

Our stock price will be materially higher and again, that's what I'm excited about but yes look I want to build a very large pet and home and garden business I have zero intention. After these actions are done to go do some third vertical we've spent three or four years cleaning up the portfolio.

To get our debt down and be a really really healthy company and I think we should stick to our knitting do what we know how to do and create a lot of wealth for our partners.

I saw it in the call. Thanks for the question.

Yes. Thank you for the answer I have a great day.

Thanks, Ian and thanks, everybody for joining us we really appreciate it and thanks, Chris for hosting US I know, we still have a few people in the queue apologies we didn't get to before we ended the call. Please reach out to me directly or Joanne with vessel and we're happy to get something on the schedule with you. Thanks, Happy Friday, who will have a great weekend.

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

Have a pleasant day and enjoy your weekend.

[music].

Okay.

Yes.

[music].

Yes.

<unk>.

[music].

Good day, and thank you for standing by and welcome to the Q1 2020 to spectrum Brands Holdings, Inc. Earnings Conference call. At this time, all participants are in a listen only mode.

After the Speakers' presentation there'll be a question and answer session to ask a question during that session you will need to press star one on your telephone. Please be advised that today's conference is being recorded.

Okay any sense during the call. Please press star zero.

I'd now like to hand, the coffee so I'll, let you speak today with the Jeremy Sparks, our executive Vice President and Chief Financial Officer, Sir the floor is yours.

Thanks, Chris Good morning, everyone.

Welcome to spectrum brands Holdings', Q1, 2022 earnings conference call and webcast I'm, Jeremy Smelters CFO of spectrum brands and 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 Www Dot spectrum brands Dot com.

This document will remain there following our call.

Turning to 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 the opening remarks, we will conduct a 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.

We assume no obligation to update any forward looking statement.

Thanks, Jeremy Good morning, everyone and welcome to our first quarter of 2022 earnings update thanks.

Thanks, everybody for joining us this morning.

Going to kick the call off with an overview of the company's performance and our capital allocation priorities. After that Jeremy is going to provide a more detailed financial update and then Randy will come on and give an operational update including all the different business unit results.

I could turn everyone's attention to slide six.

These are these are very exciting times for spectrum brands. We've now begun our evolution into a faster growing higher margin pure play global pet and home and Garden company.

We believe we can create meaningful shareholder value with this transformation.

To expect to achieve our earnings framework for the full year of mid to high single digit net sales growth and low single digit adjusted EBITDA growth consumer demand and retailer interest in our products and categories remain positive.

We also continued to work towards the closing of the sale of our hardware and home improvement segment to Asa Bloye for $4 3 billion. We remain confident that this transaction will close this year and we're pleased to say that strong demand persists and <unk> end markets.

Moving to slide seven.

The Tri Starr acquisition, which we announced this morning will be transformational for our home and personal care segment, the ability to leverage the studio content creation.

Dr TV and direct to consumer business model of Tri Starr as talented team should enhance some of our legacy brands and help US drive continued market share gains with our combined slate of new product offerings, the increased scale and profitability of the combined HBC and Tri Starr.

Business will now enable us to create an independent global appliances company poised for faster growth and expanding margins and it creates a platform for further acquisitions in this space. We firmly believe that this value creation opportunity will create tremendous value to our shareholders and we.

Look forward to updating our investors on the progress of the separation of this business from our holding company as this year progresses.

Yes.

Slide eight our capital allocation priorities will continue to focus on allocating capital internally to our highest return opportunities. We believe this strategy has been paying off for us as we continue to drive growth through product vitality across all our businesses.

Secondly, we plan to continue to return cash to shareholders via dividends and opportunistic share repurchases.

During the quarter, we repurchased approximately one 1 million shares of our common stock for $110 million more recently, we concluded the prior quarters $150 million buyback plan as approved by the board of directors.

At our recent board meeting this week, we have authorized the repurchase of another $150 million of our common stock as we plan to continue to opportunistically repurchase our shares.

As we get closer to the closure of the AHRI transaction, we may accelerate our share repurchase activity.

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

As we have discussed on previous calls we expect to deleverage our balance sheet to approximately two five times gross leverage upon the closure of the <unk> sale.

Additionally, we have adjusted our long term net leverage ratio to a more conservative two to two five times net leverage.

Give ways to deliver our products to our customers.

<unk> me every day.

Now Youll hear more from Jeremy on the financials over to you Jeremy.

Thanks, David turning to slide 10, and a review of Q1 results from continuing operations beginning with net sales net sales increased two 9% <unk>.

Excluding the impact of $7 3 million of unfavorable foreign exchange and acquisition sales of $16 $5 million.

Organic net sales increased one 6%, despite COVID-19 related supply disruptions and overall supply chain constraints.

Gross profit decreased $33 5 million and gross margin of 29% declined 500 basis points from a year ago due to accelerated freight and input cost inflation pacing ahead of price increases timing.

Partially offset by productivity improvements.

SG&A expense of $203 5 million increased five 7% at 27% of net sales with the dollar increase driven by higher distribution and transportation costs and higher advertising and marketing investments.

The operating loss of $23 $8 million were driven by the gross margin decrease and higher SG&A I mentioned.

The declines in GAAP net income and diluted earnings per share were primarily driven by the operating loss and prior year gains from our previous investments in Energizer common stock.

Adjusted diluted EPS declined to a loss of <unk> <unk> in the quarter driven by lower operating income from the gross margin decline from inflation and higher SG&A.

Adjusted EBITDA was $49 $3 million declining due to accelerated freight and input costs pacing ahead of pricing adjustments and higher distribution costs, partially offset by improved productivity.

Turning to slide 11.

Q1 interest expense from continuing operations of $21 8 million decreased $1 $3 million due to our lower cost of debt.

Cash taxes during the quarter of $6 6 million were $400000 higher than last year.

Depreciation and amortization from continuing operations of $25 4 million.

It was $1 $7 million lower than the prior year.

And separately share in incentive based compensation decrease from $6 $9 million last year to $5 $6 million this year.

Cash payments for transactions were $17 9 million up from $12 $1 million last year.

Restructuring and related payments were $12 3 million versus $10 9 million last year.

Moving to the balance sheet. The company had a quarter end cash balance of $205 million and $116 million available on our $600 million cash flow revolver.

Total debt outstanding was approximately $3 billion, consisting of $2 billion of senior unsecured notes.

$862 million of term loans, and revolver draws and $100 million of finance leases and other obligations.

During the quarter as David mentioned, the company repurchased approximately $1 1 million shares for $110 million.

This accumulates to a total repurchase of $125 $9 million of the $150 million $10 billion share repurchase contract through the end of the first quarter and we have since completed the purchase of the remaining shares under that contract.

Capital expenditures were $14 1 million in Q1 versus $7 6 million last year, mainly due to higher investments in our SAP implementation.

Turning to slide 12, now and our expectations for fiscal 'twenty two.

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

Despite the additional inflation, we are maintaining our adjusted EBITDA framework of low single digit growth.

This includes continued benefits from our GPS program impact of annualized <unk> of current pricing actions and planned further price increases.

Productivity actions in approximately eight months of results from the recent rejuvenate transaction, which last year generated about $66 million in full year revenue.

From a phasing perspective.

We continue to expect the first half 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% to $30 million.

Full year interest expense is expected to be between $80 million to $90 million, including approximately $5 million of noncash items.

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

And capex are expected to be between 95 and $105 million.

We ended 2021 with approximately $725 million of usable federal Nols.

And expect to use substantially all of them to offset a portion of the gain on the sale of <unk>, we are projecting to be U S. Taxpayer in fiscal 'twenty two.

Cash taxes are expected to be between 25% and $35 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 are targeting a near term gross leverage target of two five times and after a full deployment of the <unk> proceeds we are targeting two to two five times net leverage for our long term target.

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

Moving to slide 13, I'd like to remind everyone of some of the modeling considerations for fiscal 'twenty two to assist them navigating the complexity of discontinued operations for <unk> as compared to our continuing operations presentation of financial results in our earnings framework.

<unk> interest expense reduction is about $20 million higher than that on an annual basis. After our planned debt reductions.

And finally from a cash flow and working capital perspective, a few notable items to point out.

<unk> free cash flow will not be presented in continuing operations for any period reported.

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

And we do still expect heavier than normal investments in capex, primarily due to our investments in our new <unk> program about 30% to $40 million.

And finally, working capital levels remain very difficult to predict given the global supply chain challenges and consumer demand.

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

Moving to slide 15, as David mentioned earlier in the presentation. The overall supply chain and cost environment remained very challenging in the first quarter.

Inflation remained high per our expectation, but the supply chain issues were more severe than we anticipated first some of our Asian suppliers experienced stricter COVID-19 related shutdowns that caused product availability issues. This negatively impacted shipments in the quarter, especially in our global pet care business.

<unk>.

Cobot surges in some U S communities caused labor disruptions, resulting in inefficiencies that drove our distribution costs higher.

From the overall global supply chain also remained strained with consumer demand outpacing global shipments capacity, especially in the high traffic holiday months.

This led to longer lead times and in turn required us to make inventory investments to ensure continuity of supply for our customers.

In light of these continued ocean shipment capacity issues, we expect the freight rates to remain higher for a longer period in fiscal 'twenty two.

This expectation of higher for longer freight cost is also the leading contributor to our increased inflationary outlook for fiscal 'twenty two.

Moving to slide 16.

I'd like to highlight the various countermeasures, we are putting in place to succeed in these very challenging times first and foremost our focus remains on executing our pricing actions in the marketplaces and.

Another important factor is improving product availability. This includes enhancing our supply chain resiliency by finding alternative sources of supply to ensure continuity in cases of further supply facility shutdowns.

As well as contract extensions with critical suppliers to avoid future disruptions.

We are simultaneously focusing on reducing the impact of ocean freight inflation by optimizing our shipping lanes to minimize exposure to volatile spot rates.

And finally, we continue to focus on our customer collaboration and operational execution to ensure we can react quickly to changing customer dynamics.

All of these actions are enabled by leveraging our operating model transformation towards one global supply chain with collaboration across our business units and regions.

David outlined earlier.

These efforts in addition to a combined commitment to long term commercial strategy and operational investments helped drive another quarter of top line growth.

Now, let's dive into the specifics for each business.

I'll start with home <unk> personal care, which is slide 17.

Reported and organic net sales increased <unk>, three and one 7% respectively.

Adjusted EBIT decreased to $27 $4 million.

Revenue growth in the quarter was driven by the Latin American region with strong holiday season sales performance and expanded distribution.

And this was tempered by product availability issues and comparison to prior year COVID-19 related demand increases in other regions.

Lower adjusted EBITDA margins were driven by accelerated freight.

And input cost inflation.

Head of incremental pricing actions, and partially offset by productivity improvements and continued investments in marketing and new product development initiatives.

The first quarter represented the 10th consecutive quarter of year over year top line growth.

Our our appliance division performance was driven by the continued post COVID-19 recovery of garment care products, which posted double digit growth and growth in small kitchen appliances.

The recent launch of our new two in one iron and steamer is driving growth in the government segment, which is perfectly timed for the rebound of that category.

Consumer demand remains strong throughout the holiday season, the product availability was impacted due to delayed shipments early in the quarter.

Product availability improved later in the quarter and helped cap a strong holiday season overall.

Our consistent commercial wins over the last two years in strategic investments gives us confidence in our plans to continue to grow share and shelf space in our key markets.

As we outlined on previous calls inflationary headwinds are only partially offset by earlier waves of pricing in the first quarter.

Net input cost inflation for appliances was actually slightly better than expected in the first quarter as we were able to delay certain supplier cost increases.

The pricing actions that were planned to ramp up in the second quarter to avoid disruption of our peak sales quarter have now been increased accordingly.

The timing of these additional pricing actions to address increased inflation and supply challenges will pressure margins through the first half of the fiscal year.

Our immediate focus in 2022 continues to be improving supply availability, while offsetting the input cost inflation impact through strategic pricing and supplier partnerships.

Moving to global Pet care, which is slide 18.

Our pet care business had a good quarter for revenue performance with reported and organic net sales growth of nine 7% and seven 3% respectively.

Net sales was attributable to double digit growth in Aquatics and continued strong growth in companion animal the business had growth in all regions and in all product categories as the fundamentals of this business remain very strong.

This quarter represented record 13th consecutive quarter, where revenue growth for the business as the consumer demand stayed strong.

U S and Canada sales increase from growth in brick and mortar channels as consumers continue to return to in store shopping.

The Latin American region grew double digits, as we improved product availability for the region and double digit organic growth in Asia was aided by our recently secured import license to begin selling our tetra brand efficient new products in China.

We've largely completed the <unk> integration into the global Pet care business and we are now fully leveraging our global expertise in the category to accelerate <unk> growth.

Great example of this is that our good boy brand now holds the number one position in the dog chews category in the U K.

The growth was achieved despite operating in a very challenging supply environment.

First the business day supply disruptions with a key product supplier in Asia due to temporary government enforced COVID-19 related shutdowns, which had a material impact on our first quarter revenue.

We found additional sources of supply for these products and have shifted significant volumes to these new sources. This change as well as other supply chain resiliency activities have now increased our available capacity for this product line by over 30% as compared to before the shutdown. These actions have begun to resolve the product availability issues and we anticipate.

Complete resolution by late next quarter.

Secondly, global supply chain challenges continued in the first quarter as freight capacity remain limited and lead times remain longer than normal.

Lastly, a competitive labor market led to higher turnover and labor inefficiency, which reduced shipping capacity for the business. Some of these challenges are expected to.

Persist for the near future.

<unk> in marketing and new product initiatives. This was partially offset by operational productivity improvements.

Pricing is expected to ramp up in the second half and price coverage should improve in the third quarter as we put in place additional pricing actions to offset the incremental costs.

Our long term focus remains on 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 consumables products within our portfolio. These tend to carry strong margins and they now represent over 80% of our total <unk>.

Revenue.

These category dynamics, and our strategic focus to capitalize on the trends across our full product portfolio is why we remain very bullish about the continued growth of this business.

Yes.

And finally home and garden, which is slide 19.

Our home and garden business actually executed very well in this quarter.

As you know is predominantly focused on preparation and staging for the highly seasonal home and garden business, which starts to ramp up in the second fiscal quarter.

First quarter organic net sales showed a decline across all product categories. As last year revenue was historically high driven by low year end retailer inventories at the end of fiscal 'twenty and an early inventory build by customers in the first quarter of fiscal 2011.

Our first quarter organic net sales this year actually increased 47% compared to a more normal first quarter of fiscal 'twenty.

We continue to see higher product cost for raw materials labor and freight to.

To offset this additional pressure we're implementing another round of price increases in this business that will go into effect this quarter.

The integration of the rejuvenate business is progressing well and we have achieved the milestone of systems integration in the first quarter distribution integration and our marketing refresh will be completed in the second quarter and we are confident we are setting up the rejuvenate business for long term success as part of spectrum brands.

We are excited about the distribution gains we've already secured existing and new customer accounts.

We continue to invest in delivering truly innovative consumer solutions, and our home <unk> garden business and to tell our story around the brands of Spectre side Hot shot cutter Equallogic and rejuvenation. We are confident that our continued strategic investments will further enhance our mission to be a recognized market leader in providing consumers the best solution.

<unk> to conquer natures challenges enjoy lives.

Our product development driven by consumer insights continues to drive our new product portfolio. This year, we are particularly excited about our new grasp weed killer products, we've introduced new ready to use skus in our easy to use one hand operated flipping go sprayer and for the consumers who prefer to mix their own spray, we've introduced an easier to use.

Accu measured concentrate product.

These innovations have led to significant distribution gains in fiscal year 'twenty two.

Now, let's turn to our internal growth and efficiency efforts on our global productivity improvement program, which is on slide 20 the.

<unk> continues to be on track and we remain focused on executing our plan to complete our global operating model transformation.

As communicated on the call in November the savings targets, excluding HHR is approximately $150 million of which over $140 million has been achieved thus far.

In my section I want to thank all of our global employees and the progress we've made on our operating model cultural advancements and our strategic initiatives and as David said earlier. These are truly exciting times as we make living better at home by creating a better stronger faster spectrum brands now back to you Dave.

Great. Thank you very much Randy Thanks, Jeremy.

Thank you everyone for joining us on the call today.

Look there was a lot of news in todays announcements and given that we've covered a lot on the call. Let me conclude with the key takeaways here on slide 22.

First of all we continue to make.

Great progress on our strategic strategic objective of creating a higher margin faster growing spectrum brands, a business focused on pet care and home and garden consumable products the <unk>.

<unk> divestitures progressing well with the teams focused on supporting our friends at Asa Boy with the regulatory reviews with the recent announcement of the Tri Starr acquisition, we're taking a significant step towards our objective of creating a separate pure play global platform with a powerful portfolio of leading brands in the home and personal care.

Their appliance space.

Though our first quarter EBITDA reflects the temporary impact of inflation pacing ahead of pricing, we expect our pricing coverage of inflation to improve with each sequential quarter.

Third despite the incremental inflation headwinds, we remain committed to our earnings framework for fiscal 'twenty. Two we are delivering on our global productivity improvement program efficiency targets and we continue to leverage our operating model to execute our winning playbook that has helped us exceed our commitments over the previous few quarters.

Though we are now projecting higher inflation impact for the full year of $310 million to $330 million, we're putting in additional pricing actions now and other 10th countermeasures to deliver low single digit EBITDA growth for the year, we remain encouraged by our consumer demand of our products and our retail partners.

For the categories brands and the new product launches, we have planned throughout the year.

As I have mentioned on previous calls we're committed to managing the business for the long term success of the company and I am very proud of the way. The team has come together to manage the business through this challenging supply chain environment I remain confident that this management team will continue to execute with tremendous discipline to drive the profitability of our company in fiscal 'twenty.

Two and beyond I want to close by saying thanks, once again to our employees who are navigating our company successfully through these unprecedented times I want you to know that the future of the company is bright and we continue to make spectrum brands better.

And we continue to make living better home for our customers around the world I want to turn the call back over to Jeremy now for questions. Thank you.

Thanks, David Hi, Chris Let's go ahead and start the Q&A can you queue that up please.

Thank you Sir.

A reminder to ask a question you will need to press star one on the telephone to withdraw your question. Please press the pound key standby as we compile the Q&A roster.

And our first question comes from Peter Grom of UBS. Your line is open.

Sure.

Hey, Hey, good morning, guys.

Peter So maybe just.

Maybe just to start on the <unk> transaction can you maybe provide some more context or background on the deal how does the timing of hei closing impact your decision around spinning HBC ethanol and then I guess more broadly can you just give some thoughts.

What determines how youre going to structure that deal how you decided on timing and then David David just more broadly like what in your opinion is kind of the right value.

Appliances business.

Well listen I appreciate all the questions.

Look we are really focused on creating value for our stakeholders right and we've got two phenomenal businesses and our holding company, our global pet care business.

And our home and garden business and these tend to be much faster growing much higher margin businesses and when I look at the valuations being trade in the private sector have recently $14 $15 16 times EBITDA for asset similar to this.

I think.

It's behoove and upon me as a fiduciary.

Think about how to create value for our stockholders and so look the <unk> business. We bought it in 2012, we were really good stewards of it we had to look each other in the eye and say hey can we make.

Real.

<unk>.

Leapfrog or an exponential uplift in earnings from where we've taken it and we decided that our friends at Asa boy are going to be able to take this really to the next level.

Globally, and we think it's a great.

A great partnership for quite frankly, our employees, there and Tim and the team is doing a great job. There the end markets remain robust and they are managing through this inflation cycle.

Better than a lot of people so hats off to Hai.

I've said in the past that once that $4 3 billion comes in the door.

Priority one is deleveraging the balance sheet, but we do want to redeploy that to roll off what we believe is very fragmented home and garden and global pet supply.

Industry and.

We really believe we can create a lot of value for shareholders. There I think if people really look at our business today.

The holding company today is trading at about seven times EBITDA pro forma the <unk> business.

So thats, what im trying to do to create wealth for our stockholders in terms of the appliance business.

For some time believe that small kitchen electrics needs to consolidate there's too many players the margins are too thin and the business needs true innovation and real direct to consumer capability.

Keith and the team at Tri Starr, our amazing group of talented people that have <unk>.

Studios film production facilities, they are excellent and making Dr television.

Promotions running infomercials and they have a direct to consumer business is about a third of their revenue.

There are higher margin business, they've built a bunch of brands.

They've grown about 85% over the last three years.

We're really looking to unburden them with kind of their back office situation, but frankly learn from them with their front office capabilities and I really believe this marriage is going to.

Excite the growth rates of our legacy assets.

Quite frankly, it gives me now the critical mass pro forma 171 $8 billion business with 140 $150 million EBITDA and then going higher that gives you a pathway to either IPO the business out of our holding company merge with another existing public company or in fact us spin it off but.

Yeah.

<unk> just got dry on the purchase agreement I'm going to need a couple of months to figure that out with the board of directors, but we.

We do hope to move expeditiously and update our investors on.

Where what path we will choose later this year I hope that answers most of your questions, obviously I can't get into the valuation of a specific business unit.

Yes, totally understand and maybe just following up on the comment around the protein <unk> last call sounded like buybacks would be best used obviously the stock has retreated quite a bit here and I know.

Either you or Jeremy mentioned that.

Timing or get closer for <unk>, you may accelerate IMAX, but can you maybe help us understand what.

That buyback program May look like.

Well I mean look we just bought 150 million Bucks of stock the other day.

Actually the share price declining is good for us, we like where we are buying back stock for the stock to be cheaper. So if you don't believe in our strategy, we're happy to take your shares and shrink that float.

Look clearly as we get closer to a $4 $3 billion coming over the transom.

If I happen to believe that our pet and home and garden businesses or were 14, or 15 times EBITDA and the market was to continue to value our company around seven times. The greatest single use of wealth creation that I could possibly do is continue to buy stock and so look let's let's get there. We're in a regulatory review we are very confident the deal will close.

But it's going to take a lot of work we don't have any specific date to give you that.

We can say hey. This is this is the date it is going to close but on the day of closing I want to de lever and.

As just depending on where our share prices and how the market is valuing us we will then.

Communicate to you what we're doing there on that front, but yes look clearly if the stock is around here and we've got.

Three and a half.

Plus $1 billion of net cash proceeds or somewhere thereabout, we will we will buy a lot more shares.

Got it thanks, so much and best of luck.

Great. Thank you I appreciate your questions.

Thank you.

Our next question comes from Bob Lubbock.

T K Securities Your line is open.

Good morning, Thanks lots of exciting stuff going on Bob Good morning, Bob.

I wanted to start I think you highlighted this is one of the slides, but maybe dig in a little more into call. It your inflation playbook and just how you are planning on mitigating through this year just get a little more details maybe you could talk about where how and where you decide which products. How do you decide on prices and where you can pass them on how.

Long does it take for the last 20% of the price increases to move through the channel just maybe the staging and then lastly, what's been the competitive response, so far to pricing obviously, the inflationary impacts are not unique to spectrum. It's a macro event so how how.

Our competitors reacting as well.

Look I'll do the top.

Big summary, and then Randy and Jeremy you the specifics.

We're living through an unprecedented time I mean, let's just face it I mean some of these input costs.

Their crop.

We have instances where are afraid is up 10 times from where it used to be in.

We have some input costs are up 45% and so we're not excited about having to raise prices or are retailers typically don't love. It and we don't think inflation at this level is great for the consumer what I would say is the consumer is appears to be flushed with cash deal.

Our demand across the board continues to be quite strong.

All kind of still trying to deal with a fragmented and broken supply chain.

It is taking longer than any of us wished to fix.

But look we unfortunately.

And I'll pass it to Randy and Jeremy for further detail.

Yes, Bob.

You asked about the mechanics, and really it's a item level profitability analysis that has to do with all of the.

The inflow of increased costs as David said price increases in this environment or really kind of the last thing that we want to spend our time on but it's what we have to and so.

We're simply taking the pricing when it's necessary to do the right thing for the business and you asked about the last 20%.

Want to imply that there is a 20% tail there and it's going to take a long time to get to that is just the timing associated with the new.

Visibility to longer term freight costs et cetera that are going to extend.

Deeper into the fiscal year than what we thought so I don't anticipate there to be any execution will increase the execution risk with that.

As.

As it relates to competitive response.

As David said this is a brand new playbook and so most of our buyers most of our retail partners in most of our <unk>.

Competitive response in most of our businesses.

Depending upon our brand positions, where he theres, leading or following but there's not a big dynamic is impacting our business there.

Okay, Great. That's very helpful. And then just one more and I will come back in queue in terms of the HBC numbers. Obviously, you gave us the combined entity numbers and we know the calendar 'twenty one margins for HBC were impacted by inflation.

What do you see as just kind of remind us theres been a lot of.

No change what is the normalized margin for the core call. It core spectrum HBC segment before the Tristar kind of going forward just to try to think about what margins do normalize the earnings power of the new entity, Yes, I mean listen we used to we used to run this business at 10% margins.

I think the industry should operate at 10% or better or.

Our legacy business I think we got our margins a size 12, maybe 14% when everything was going in the right direction.

We are under some pressure right now.

But I don't see any reason why we can't return to a 10% EBITDA margin Jeremy Randy if you want to give more color on that yes, I agree I mean, if you go back for the significant part of inflation. Starting here is hitting us last year, Bob I think we had an LTM quarter. We posted that we were $125 million of EBITDA on an LTM basis and that to David's point was.

Getting us into the low double digits, obviously inflation fitness, so youre seeing a couple of quarters that get down into the low to mid single digits, but with the actions we have in place.

With the current product mix.

Okay that's super.

Great. Thank you very much I'll get back in queue. Thank you. Thanks, Bob.

Thank you.

Our next question comes from Chris Carey Wells Fargo Securities. Your line is open.

Hey, good morning.

Thanks <unk>.

Not too bad.

It's Friday.

Can we just talk about like leverage.

There is a lot of cash potentially end, but a bit delayed your view.

Obviously from the appliance deal.

Is going to be additional leverage it's a little tough to see just with HHS and disc ops and continuing cash.

Maybe just.

Sure.

<unk> doesn't close for another six months.

Either I don't know if your view on that but.

Yes, how does this how does this kind of all come together with with your balance sheet online.

How do you view the pro forma exposure if you will over the next kind of three to six months as some of these things are.

Are unfolding.

Yeah look you're hitting on the correct points at the current time Leverages going higher because we were buying back stock.

And we are in an environment, where the supply chain has been elongated much longer than I would like.

Its consumed a lot of working capital on the balance sheet.

I am putting kind of a foot down on that.

We're going to take a lot of action to.

To cure that going forward.

I think a lot of companies in the CPG space have been solely focused on fill rate fill rate fill rate.

We need to take into consideration as you're modeling is obviously the EBITDA drop.

Which we anticipated for Q1, and then much less severe than Q2.

<unk>.

Our earnings on an LTM basis should start to recover.

Between Q2, and Q3, and then quite frankly, we have a pretty pretty large uptick once pricing is in place and we've covered every all the inflation.

We have a very.

We're very confident but we haven't we have a very strong second half and it happens to be as we've said earlier in the call the exact inverse powder.

What happened in the fiscal period, a year ago and so you've.

You've got two things going on here, you've got the debt ticking up a little bit you've got the earnings under pressure because of inflation.

Look I personally think we hit that inflection point.

Somewhere around June and then I think life gets a lot better to your question look I think it's I think HHR closes.

Have a very high degree of certainty around that but to your point or if it didn't close.

Look it's a great business generates a lot of free cash they would have to pay us a $350 million termination fee, that's almost a turn of leverage.

The remain co and I believe we will be able to navigate our leverage through earnings uplift and debt pay down to about three five times to exit the year.

That's incredibly helpful. If you'll entertain me.

There's a lot of confidence in the deal closing.

Certainly.

<unk> is not.

<unk> is no stranger to closing deals in spaces with highly consolidated market share.

Can you just maybe.

Give some sense of where in the regulatory review.

Yes.

Fed regulators may be walking is it.

Market shares at retail is in market shares.

Specific channels like commercial growth Rajeev.

Technology.

Canaccord birth electromechanical locks.

What is your sense of.

Why why the deal. Besides the fact that a lot of deals go through CCAR view might be seeing.

Another.

Another regulatory book and then if I could just connected to that at all but I'll stop is.

The leakage on the deal from a gross to net.

It's pretty big given the given the Nols that you have.

Can you maybe just expand on that if you have any additional perspective on why that gap is so big thanks, so much.

So first I'm really happy to entertain you on anything but to answer all your questions around regulatory.

We'll not indulging.

In terms of the the GAAP all paths to Jeremy I would just tell you look we have we're working diligently with US we're working very well with the regulators and we have a high confidence that this deal closes.

Alpha is an amazing partner.

This is not a financial trade for them. This is a strategic move on their part it.

It fills in a lot of gaps forum and we're going to get this done with our partners at <unk>, Jeremy you want to take the gross to net sure yeah and I'd just add.

This timeline is normal course in my eyes from a deal of this size and so there's really not been any surprises on our front.

On the gross to net I mean, you just have to remind everybody that we paid $1 $4 billion for the business 10 years ago. So.

Just on that purchase price <unk> got a $3 billion.

Okay.

Thanks for all that.

I thought I'd try anyways.

I'll get back Thanks, Hey, Happy Friday, good try good chart. Thanks, Chris.

Thank you.

Up next we have Steve powers of Deutsche Bank. Your line is open.

Hey, and good morning. Thanks.

Contribution from Tri Starr.

Yes, that's right, Steve we are still a little bit of uncertainty in the timing of closing of Tri Starr I believe we said within the next 90 days or so so it wouldn't be appropriate to put anything in there, but as time progresses, and we have certainty of closing date.

Add more as the year goes on.

Okay perfect perfect. So then in terms of all the steps youre taking to allow you to maintain that current guidance on the remain co. Despite the inflation and the supply chain pressure.

Because it seems like.

Given the time lag in getting price to market you have to be leaning on both levers and I think you spoke to that a little bit in the prepared remarks, but just maybe the balance there and to the extent that there is material productivity. It also builds in the back half is that can we think about that as a structural productivity that we can extrapolate the 'twenty three and beyond or is that just fiscal 'twenty to belt tightening to get.

Get through the year, and then we kind of reset the base next year.

Randy I'll take that one thank you yeah, great Great question, Steve and I would tell you that.

Most of the adjustment is coming through pricing actions and the team has been working on that.

Non stop for a long time and so.

It is a material portion of it with regards to the additional productivity.

Again kind of maybe half and half there. So some structural productivity related to kind of continuing down the work streams that we did.

Developed through our Galileo initiatives, but also doing some stuff is temporary just it's appropriate in response to given where we are on supply chain and product availability et cetera.

Okay, that's helpful and.

Randy maybe while I have you talking just as you think through what Youre, what youre putting in place.

To improve supply chain status improved service levels.

Any any sense for how you stack up on.

On those fronts relative to competition and whether you see the initiatives that youre, putting in place to improve product availability.

Is that.

Just help you kind of stated that connect with competition or do you think you can you've got some advantages to the extent that this good.

Be an opportunity to actually gain some gain some share gains in distribution. If you can outpaced competition.

Yes, great question, and we're working with a number of of.

Internal experts and advisers to help us keep a track on that and so.

As we operate various businesses in various regions around the world I would tell you that we find ourselves I believe we find ourselves in.

Pretty good position relative to the averages in most situations, but there are some variation up and down.

The the supply tightens, the economics of global supplier of becoming more efficient and so there's less opportunity to.

Our leverage for out outliers within the current market I think the real move here is on what you are going to be doing to your manufacturing supply chain base to address.

Resiliency and flexibility going forward because the certainty that exists today is that this isn't the last disruption we're going to see in the next five years will be something else that happens.

And the question is how are we setting up our networks to be able to respond to handle that as of yet next unforeseen challenge. So I don't think it's something that I would say.

We feel it is a huge advantage for us, but it definitely doesn't feel to be a negative versus our competition.

Okay very good thanks, Joe appreciate it.

Thanks, Steve Hey, Chris I think we have time for one more question before we hit the top of the hour.

Okay. Thank you.

Okay.

I think we have Ian Zaffino Oppenheimer.

Line is open.

Hi, great guys.

<unk>.

Okay, that's up today.

Wanted to just ask you David maybe longer term and I know you obviously have a lot of stuff going on right now with <unk> and now client.

But if we were to kind of pass that.

How do you think about the portfolio going forward are we going to get to.

Vertical company that continues to get larger margin each vertical do you think maybe you could go back to a third vertical.

How are you thinking about that.

And any other type of color you could give us as far as like a longer term strategy.

Yes.

Yes, I mean look I got to get there first right. So.

A lot of lifting to do here the next.

Nine months or so.

<unk>.

Yes.

We love the pet space.

We believe that we've got.

Phenomenal portfolio of brands.

We believe we have a very good team that knows how to bring fast innovation to our space.

We believe we are building the portfolio more and more to consumables.

And as an investor I happen to really like 5% to 10% type growth categories that we believe we can outpace.

And then I really like consistency of recurring cash flows.

And.

I believe these assets in today's market are 15 times EBITDA assets.

And.

It's my job to create shareholder wealth, that's why I come into work every day and so.

Home and garden.

It's very similar 20% plus EBITDA margin business.

We just became the number one pest control brand at retail with spectra side, we've invested very heavily in R&D. We've built out a very very good team that has a lot of innovation.

Still in the pipeline and got to get through EPA, but we think we're going to bring a lot of a lot of innovation in 2023.

And so if you can envision where we're trying to take the company youre going to end up with a basically a debt free pet home and garden business with phenomenal growth rate with really good margin structure excellent free cash flow conversion in industries that are very fragmented.

<unk>.

Similarly.

And I don't mean to drag the call out but charge star.

<unk> is really a game changer to appliances.

Being able to create content and excite the consumer through Dr television infomercials.

And.

Take that AD spend and show it to brick and mortar retailers in omnichannel.

Retail partners really drives categories news and excitement it's been something I've been trying to accomplish in three years.

Three years, we've been trying to marketing average and we've done a done a lot and we've done good but I think this is the.

Game changer for our HBC business and it just happens to be enough critical mass and profitability, where I believe I can IPO it.

Maybe you won't go that without route maybe we spin it maybe we do another merger with a public company, but.

If you think about how that typically happens most ipos your float 20% of our company.

We would be able to build that independently have a lot of equity at spectrum take our time to take dividends out sell it down over time you can create.

More amount of shareholder wealth doing that and so.

That's where we're going that's the vision of trying to.

Get everyone to focus and look at and I genuinely believe when we land these things.

Our stock price will be materially higher and again thats, what im excited about but yes look I want to build a very large pet and home <unk> garden business I have zero intention. After these actions are done to go do some third protocol. We've spent three or four years cleaning up the portfolio about to get our debt down.

And be a really really healthy company and I think we should stick to our knitting do it we know how to do and create a lot of wealth for our partners and.

That's how I'd end the call. Thanks for the question.

Yes. Thank you could answer have a great day.

Thanks, Ian and thanks, everybody for joining us we really appreciate it and thanks, Chris for hosting US I know, we still have a few people in the queue apologies, we didn't get to before we ended the call.

Please reach out to me directly or Joanne with vessel and were happy to get something on the schedule with you. Thanks Happy Friday and hope you all have a great weekend.

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

Have a pleasant day and enjoy your weekend.

Q1 2022 Spectrum Brands Holdings Inc Earnings Call

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