Q2 2024 Spectrum Brands Holdings Inc Earnings Call

May 9, 2024

Operator: Good day, and thank you for standing by. Welcome to the Spectrum Brands second quarter 2024 earnings 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 the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Joanne Chomiak, Senior Vice President of Tax and Treasury. Please go ahead.

Good day and thank you for standing by welcome to the Spectrum branch second quarter 2024 earnings 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.

Ask you a question during the session you will need to press star one one on your telephone.

Well then here an automated message advising your hand is raised to withdraw your question. Please press star one one again, please be advised that today's conference is being recorded.

Not like to hang on the conference over to your Speaker today, Joanna <unk> Senior Vice President of tax and Treasury. Please go ahead.

Joanne Chomiak: Thank you, and welcome to Spectrum Brands Holdings' Q2 2024 earnings conference call and webcast. I'm Joanne Chomiak, Senior Vice President of Tax and Treasury, 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.spectrumbrands.com. This document will remain there following our call.

Joanna: Thank you and welcome to the spectrum brands Holdings Q2, 2024 earnings conference call and webcast I'm Joanne show Mack Senior Vice President of tax and Treasury and I will moderate today is called to.

Joanna: To help you follow our comments, we have placed a slide presentation on the advent calendar page and the Investor Relations section of our website at Www Dot spectrum brands Dotcom. This document will remain there following or a call.

Joanne Chomiak: Starting with slide two of the presentation, our call will be led by David Maura, our Chairman and Chief Executive Officer, and Jeremy Smeltser, our Chief Financial Officer. After opening remarks, we will conduct the Q&A. Turning to slides 3 and 4, our comments today include forward-looking statements that are based upon management's current expectations, projections, and assumptions and are, by nature, uncertain. Actual results may differ materially.

Joanna: Starting with slide two of the presentation or call will be led by David Mura, Our chairman and Chief Executive Officer, and Jeremy Smeltzer, Our Chief Financial Officer. After opening remarks, we will conduct the Q&A.

David M. Maura: Turning to slides three and four.

David M. Maura: Our comments today include forward looking statements, which are based upon management's current expectations projections and assumptions and are by nature uncertain.

David M. Maura: Actual results may differ materially due to that risk spectrum brands that encourages you to review the risk factors and cautionary statements outlined in our press release dated May 9th 2024 are most recent S. C C filings and spectrum brands Holdings. Most recent annual report on Form 10-K and quarterly.

David M. Maura: [noise] ports and Form 10-Q, we assume no obligation to update any forward looking statements.

David M. Maura: Also please note that we'll discuss certain non-GAAP financial measures in this call reconciliations on a gap basis for these measures are included in today's press release, an 8-K filings, which are both available on our web site and the Investor Relations section.

Joanne Chomiak: Due to that risk, Spectrum Brands encourages you to review the risk factors and cautionary statements outlined in our press release dated May 9, 2024, our most recent SEC filings, and Spectrum Brands Holdings' most recent annual report on Form 10-K and quarterly reports on Form 10-Q. We assume no obligation to update any forward-looking statements. Also, please note that we will discuss certain non-GAAP financial measures in this call. Reconciliations on a GAAP basis for these measures are included in today's press release and 8K filing, which are both available on our website in the Investor Relations section. Now, I'll turn the call over to David Maura. David?

David M. Maura: Now I'll turn the call over to David Mura David.

David M. Maura: Thank you, Joanne. Good morning, everybody.

David M. Maura: Thank you Joanne.

David M. Maura: [noise] everybody welcomed to our second quarter earnings updates or thank everyone for joining us this morning.

David M. Maura: Welcome to our second quarter earnings update. I want to thank everyone for joining us this morning. I'm going to start the call today with an update on our operating performance and our strategic initiatives. Jeremy will then provide a more detailed financial and operational update, including a discussion of specific business unit results. During our last quarterly call, I shared with you that we've started a journey back to winning again. This quarter is further evidence that our operating performance from supply chain, working capital, inventory management, from our factories to our DCs and the resulting fill rates have materially improved over the past 18 months as we have upgraded talent across our company.

David M. Maura: We're gonna start the call today with an update on our operating performance are indoor strategic initiatives.

David M. Maura: Jeremy will then provide a more detailed natural.

Jeremy Smeltzer: Racial update including a discussion on specific business unit results.

Jeremy Smeltzer: During our last quarter's cole assured with you had we've started a journey back to winning again.

Jeremy Smeltzer: This quarter's further evidence that our operating performance from supply chain working capital inventory management.

David M. Maura: Factories toward D C's and the resulting filtrates.

David M. Maura: Materially improved over the past 18 months as we have upgraded talent across or a company.

David M. Maura: Given this improved performance and the continued rhythm and cadence of our new S&OP process, we are confident in our decision to continue to invest in our commercial operations, Innovation and Sales and Marketing Capabilities to Create and Restore Topline Growth and Delight Our Consumers.

David M. Maura: This given this improved performance and the continued rhythm and cadence of our new App Sinope process. We are confident in our decision to continue to invest now in our commercial operations innovation and sales and marketing capabilities to create and restore top line growth and delight our consumers.

David M. Maura: Our team is leaning into the opportunities that a strong balance sheet and improving margins provide us with the ability to invest back into our business. Our first quarter results were encouraging, but we remained cautious. Today we are adding momentum to our journey by reporting another quarter that met our top line expectations and delivered significant gross margin and adjusted EBITDA margin growth. The playbook for winning is to consistently do what we say we're going to do and deliver on our commitments to all of our stakeholders.

David M. Maura: Our team is leading into the opportunities that a strong balance sheet and improving margins provides us.

David M. Maura: The ability to invest back into our businesses.

David M. Maura: Our first quarter results were encouraging but we remain cautious today, we are adding momentum to our journey by reporting another quarter that met our top line expectations and delivered significant gross margin and adjusted EBITDA margin growth.

David M. Maura: The playbook for winning is to consistently do what we say, we're gonna do and deliver on our commitments to all of our stakeholders. We are doing this by leaning into our competitive advantages to drive longterm top line growth and by being judicious on the cost side.

David M. Maura: We are doing this by leaning into our competitive advantages to drive long-term top-line growth and by being judicious on the cost side. This quarter marks one more step along this journey. I would have you turn to slide six, and our financial performer. Net sales this quarter declined one and a half percent.

David M. Maura: This quarter marks one more step along this journey.

David M. Maura: Or it could have you turn to slide six and.

David M. Maura: And our financial performance.

David M. Maura: Net sales this quarter declined 1.5%.

David M. Maura: We are seeing stabilizing consumer demand in many categories, but there are still some areas of softness compared to last year. We are pleased that our global pet care and home and personal care businesses delivered sales in line with expectations, and we're encouraged by the early seasonal sales for our home and garden. Retailer order patterns early in the season confirm our assessment that last year's retail inventory management actions left our retail partners with healthier and relatively lower inventory levels to start this year's season.

David M. Maura: We are seeing stabilization, we are seeing stabilizing consumer demand in many categories, but there are still some areas of softness compared to last year.

David M. Maura: We are pleased that our global pact here at home and personal care businesses delivered sales in line with expectations and were encouraged by the early seasonal sales for a home and garden business.

David M. Maura: Retailer order powder as early in the season confirm our assessment with last year's retailer inventory management actions left our retail partners with healthier and relatively lower inventory levels to start this year season.

David M. Maura: Early orders were also helped by favorable weather in key regions and improved our confidence that our sales will be more closely aligned to point of sale this year. We're encouraged by the early start to the lawn and garden.

David M. Maura: Early orders were also helped by favorable weather in key regions and improve our confidence that our sales will be more closely aligned to point of sale. This year.

David M. Maura: We're encouraged by the early start of the lawn and garden season, we were but we are also mindful three quarters of RP U S occurs in the second half of the year.

David M. Maura: But we are also mindful that three-quarters of our POS occurs in the second half of the year. Across all three business units now, our growth in e-commerce continues to outpace brick-and-mortar channels, growing at over 17% compared to last year and now representing over 20% of our net sales. Including investment income, our adjusted EBITDA was $112.3 million, up from $51 million a year ago, with strong improvement across all three businesses. Our gross profit margin of 38.1% increased 870 basis points compared to last year

David M. Maura: Across all three business units now our growth in E. Commerce continues to outpace brick and mortar channels growing at over 17% compared to last year and now representing over 20 per cent of our net sales.

David M. Maura: Including investment income are adjusted EBITDA was $112 $3 million up from $51 million a year ago with strong improvement across all three business units.

David M. Maura: Our gross profit margin of 38.1% increased 870 basis points compared to last year.

David M. Maura: This quarter's results benefited from the sale of lower-cost inventory compared to last year. The high-cost inventory was substantially off our balance sheet by the end of the second quarter last year, so this is the last quarter we will see such a material comparable improvement. Our gross margins and bottom line are improving from the investments we've made in operational efficiency. Delivering Cost Savings and Plant Productivity Improvement

David M. Maura: This quarter's results benefited from the sale of lower cost inventory compared to last year.

David M. Maura: The high cost inventory was substantially off our balance sheet by the end of the second quarter last year. So this is the last quarter, we will see such a material comparable improvement.

David M. Maura: Our gross margins and bottom line are improving from the investments we've made an operational efficiencies delivering cost savings and plant productivity improvements we.

David M. Maura: We are being disciplined with our cost structures to ensure we remain lean with excess fixed costs, we took out of the business in the past.

David M. Maura: We are being disciplined with our cost structures to ensure we remain lean with excess fixed costs we took out of the business in the past. Our balance sheet continues to be a competitive strength supporting our company's growth. We are ending the quarter with a net debt position of approximately $155 million, down from almost $3 billion a year ago.

David M. Maura: Our balance sheet continues to be a competitive strength supporting our company's growth.

David M. Maura: We are ending the quarter with a net debt position of approximately $155 million down from almost $3 billion a year ago.

David M. Maura: Our strong balance sheet is a foundational advantage that fuels our investments back into our businesses with the goal of driving top-line growth. Now we can turn to slide 7 and review the strategic priorities of our company. While our operating teams are driving efficiencies, reducing costs, and preserving working capital, the average fill rates of our company are now back in the mid-90s across all businesses. Inventory levels that are approximately 45% below our peak amount.

David M. Maura: Are strong balance sheets.

David M. Maura: Foundational advantage that fuels, our investments back into our businesses with the goal of driving top line growth.

David M. Maura: Now if we can turn to slide seven and review the strategic priorities of our company.

David M. Maura: While our operating teams are driving efficiencies, reducing costs and preserving working capital. The average flow rates of our company are now back in the mid nineties across all businesses with inventory levels that are approximately 45% below our peak amounts.

David M. Maura: Inventory levels in the first two quarters have been relatively flat at around a $450 million investment, in spite of the seasonality of our home and garden business. This means we have $363 million less invested in inventory as compared to the high point in the third quarter of fiscal 22, and $131 million less than the second quarter of fiscal 23.

David M. Maura: Inventory levels in the first two quarters have been relatively flat at around $450 million investment and.

David M. Maura: In spite of the seasonality of our home and garden business. This means we have $363 million less invested in inventory as compared to the high point in the third quarter of fiscal 2002 at $131 million less than the second quarter of fiscal 2003.

David M. Maura: These improvements all contribute to our improved gross margin structures and adjusted EBITDA by reducing the costs that come with high inventory levels and low fill rates. We're also making capital investments in our manufacturing plants and systems to drive efficiencies, reduce costs, and refocus our spend on top-line activities. We're also investing in our people to improve commercial capabilities and drive a culture of accountability. Our leadership and business teams are delivering on their commitments and investing back into the future growth of our company. A year ago, our second quarter adjusted EBITDA margin was 7%, excluding investment income or adjusted EBITDA margin this quarter was 13.3%.

David M. Maura: These improvements all contribute to our improved gross margin structures and adjusted EBITDA are reducing the costs that come with high inventory levels and low Hill rates were also making capital investments that are manufacturing plants and systems to drive efficiencies reduced cost and refocus our spend on top.

David M. Maura: Line driving activities.

David M. Maura: We're also investing behind our people to improve commercial capabilities and drive a culture of accountability.

David M. Maura: Our leadership in business teams are delivering on their commitments and investing back into the future growth of our company.

David M. Maura: A year ago or second quarter, adjusted EBITDA margin was 7%.

David M. Maura: Excluding investment income are adjusted EBITDA margin this quarter is 13.3% and.

David M. Maura: In fact, the global pet care business delivered a record-adjusted EBITDA quarter, in part because of the very difficult decision we made a year ago to take a top-line hit from rationalizing lower-margin SKUs. We are now seeing the benefit of that decision in our operations, cash flow, and margin profile. Our stepped-up investments in our brands and new product roadmaps are now accelerating. We expect investments to increase throughout the rest of this year as the teams activate their investment plans for brand marketing, advertising, and innovation.

David M. Maura: In fact, the global pet care business delivered a record adjusted EBITDA quarter in part because of the very difficult decision. We made a year ago to take a top line hit from Rationalising lower margin SK US. We're now seeing the benefit of that decision and our operations cash flow and margin Profes.

David M. Maura: While.

David M. Maura: Our stepped up investments in our brands and new product Roadmaps are now accelerating we expect investments to increase throughout the rest of this year as the teams are activating their investment plans for brand marketing advertising and innovation.

David M. Maura: During our first quarter call, I told you we were accelerating the process to separate the HPC business via a sale, merger, or spin. This decision was driven in part by the improved performance of the underlying HBC business. HBC, in fact, had another very solid quarter, delivering or exceeding all of its key metrics.

David M. Maura: During our first quarter call I told you we were accelerating the process to separate the HBC business via a sale merger or spin.

David M. Maura: This decision was driven in part by the improved performance of the underlying HBC business.

David M. Maura: H B C. In fact had another very solid quarter, delivering or exceeding all of its key metrics.

David M. Maura: In fact, our personal care business grew by high single digits, and the sales declines we've been seeing in the North American home appliance business are now tempering. We are winning new listings in brick-and-mortar stores, and we're seeing material quarterly increases in our e-commerce sales. HPC's margins are improving, and the team is now investing in innovation and brand marketing again to drive profitable top-line growth. We're also happy to announce today that we've just signed an agreement with Stanley Block & Decker under which we will continue to license the Block & Decker brand in the same categories as before for an initial four-year term ending December 31, 2027, with two subsequent four-year renewal rights providing us with access to the Block & Decker brand name through the end of calendar 2035.

David M. Maura: In fact, our personal care business grew high single digits and the sales declines we've been seeing in the North American home appliance business are now temporary.

David M. Maura: We are winning new listings in brick and mortar and we're seeing material quarterly increases in R. E. Commerce sales H P. C's margins are improving and the team is investing now and innovation and brand marketing again to drive profitable top line growth.

David M. Maura: We are also happy to announce today that we've just sign an agreement with Stanley Black and Decker under which we will continue to license the black and Decker brand in the same categories as before for an initial four year term ending December 31, 22007 with two subsequent four year renewal rates for.

David M. Maura: Viding us with access to the blocking Decker brand name through the end of calendar 2035.

David M. Maura: This is a significant milestone for us and for the HPC business because it provides certainty for the continued use of this important brand name for an extended period of time. With this partnership secured, our teams are now excited to get back to building this brand for long-term growth. We would like to extend our thanks to Stanley Black and Decker for their continued partnership with us.

David M. Maura: This is a significant milestone for us and for the Hipc business because it provides certainty for the continued use of this important brand name now for an extended period of time with this partnership secured our teams are now excited to get back to building. This brand for long term growth, we would like to <unk>.

Speaker Change: <unk>, Thanks for standing what Stanley Black and Decker for their continued partnership with us.

David M. Maura: HPC's improving business results and the new Black and Necker license agreement have reinforced our view that the time is right to separate the HPC business. During the past three months, our internal teams have been focused on separation readiness, doing all the pre-work required for transactions of this nature, and we've been working with our bankers and advisors to develop separation options. We continue to dual-track the separation as either an M&A opportunity or a spin-off transaction.

Speaker Change: H P c's improving business results and the new blocking Necrose license agreement of reinforced our view that the time is right to separate the HBC business. During the past three months are internal teams have been focused on separation readiness doing all the pre-war required for transactions of this nature.

Speaker Change: Sure and we've been working with our bankers and advisers to develop separation options.

Speaker Change: We continued to dual track the separation for either an M&A opportunity or a spinoff transaction and we intend to file an initial registration statement over the summer to begin the SEC registration process for a spin off.

David M. Maura: And we intend to file an initial registration statement over the summer to begin the SEC registration process for a spinoff. I truly believe that a separation of HPC will allow both companies pro forma. Spectrum Brands is a pure play pet and home and garden business, and a standalone appliance HPC business to flourish by focusing on the unique needs of each business.

Speaker Change: I truly believe that a separation of H P. C will allow both companies pro forma spec.

Speaker Change: Spectrum brands as a pure play patent home and garden business and a standalone appliance HBC business Flores by focusing on the unique needs of each business. We will update you on our progress throughout the year.

David M. Maura: We will update you on our progress throughout the year. On one additional positive note as it relates to HPC, I'm pleased to report that we have had a favorable outcome for a claim we filed under a Representation and Warranty Insurance Policy regarding the TriStar acquisition. During the quarter, we came to an agreement with the insurers to receive the full $65 million under our policy. We received the first $50 million in the second quarter, and the remaining $15 million was collected in April.

Speaker Change: One additional positive note as it relates to HTC I'm pleased to report that we have had a favorable outcome for a claim we filed under a representation and warranty insurance policy regarding the Tri Star acquisition.

Speaker Change: During the quarter, we came to an agreement with the insurers to receive the full $65 million under our policy. We received the first $50 million in the second quarter and the remaining $15 million was collected in April.

David M. Maura: Now, if I could turn your attention to slide 8 and an update on our share repurchase program. Since the close of the HHI transaction, we have now returned over $920 million to our shareholders through our various share repurchase programs, and we have reduced our share count by approximately 29%, and now we have 29.1 million shares outstanding. We purchased those shares at a $102 million discount compared to yesterday's closing trading value. We have approximately $47 million remaining on a $200 million 10B51 share repurchase plan as of today. And as we keep delivering on our commitments, grow our earnings, and continue to shrink our share count, we believe, ultimately, our share price will react positively. Turning to page 9.

Speaker Change: Oh, if I could turn your attention to slide eight and an update on our share repurchase programs.

Speaker Change: Since the close of the HHR transaction, we have now returned over $920 million to our shareholders through our various share repurchase programs and we have reduced our share count by approximately 29% to.

Speaker Change: To know $29 1 million shares outstanding.

Speaker Change: We purchased those shares at 102 million dollar discount compared to yesterday's closing trading value.

Speaker Change: We have approximately $47 million remaining on a $200 million 10, B five one share repurchase plan as of today.

Speaker Change: And as we keep delivering on our commitments grow earnings and continue to shrink our <unk>, we believe ultimately our share price will react positively.

Speaker Change: Turning to page nine.

David M. Maura: Based on our results in the first half of the year and the trends we currently see with retailer and consumer behavior, we are updating our earnings framework. We now expect full-year net sales to be relatively flat to last year and Adjusted EBITDA to now grow low double-digit. This framework assumes that this summer's weather is similar to what we experienced last year during the peak lawn and garden season, and the tempering sales declines in small kitchen appliances hold, and the growth that we see in personal care continues. We are encouraged by our first half results. But we remain cautious given geopolitical and macroeconomic headwinds. Consumer demand is still relatively soft.

Speaker Change: Based on our results in the first half of the year. The trends. We currently see with retailer in consumer behavior, we are updating our earnings framework.

Speaker Change: We now expect full year net sales to be relatively flat to last year.

Speaker Change: And adjusted EBITDA to now grow low double digits.

Speaker Change: This framework assumes that this summer's weather is similar to what we experienced last year during the peak lawn and garden season and.

Speaker Change: And that tempering sales declines in small kitchen appliances holds and the growth that we see in personal care continues we are encouraged by our first half results, but we remain cautious given geopolitical and macroeconomic headwinds.

Speaker Change: Consumer demand is still relatively soft.

David M. Maura: We are seeing sequential improvements in our business. As we have continued our operational improvements over the past quarters, confidence in our performance is growing. Each quarter we deliver on our commitments, which reinforces our belief that we are on the journey to winning. Before I turn the call over to Jeremy, I would like to extend my thanks to each and every one of our global employees who are all on this journey together for their roles in contributing to our collective success. Now you'll hear more from Jeremy on the financials and additional business unit insights. Over to you, Jeremy.

Speaker Change: But we are seeing sequential improvements in our businesses.

Speaker Change: As we have continued our operational improvements over the past quarters confidence in our performance is growing <unk>.

Speaker Change: Each quarter, we deliver on our commitments reinforces our belief that we are on the journey to winning.

Speaker Change: Before I turn the call over to Jeremy I would like to extend my thanks to each and every one of our global employees, who are all on this journey together for their roles in contributing to our collective success.

Speaker Change: Now you hear more from Jeremy on the financials and an additional business unit insights over to your Jeremy.

Jeremy W. Smeltser: Thanks, David. Good morning, everybody.

Jeremy Smeltzer: Thanks, David Good morning, everybody, let's turn your attention to slide 11 for review of our queue to results from continuing operations.

Jeremy W. Smeltser: Let's turn your attention to slide 11 for a review of our Q2 results from continuing operations. Net sales decreased one and a half percent. Excluding the impact of $1.2 million of favorable foreign exchange, organic net sales decreased 1.6% primarily due to year-over-year sales declines in small kitchen appliances, softness in North American aquatics, and the impact of the SKU rationalization decisions we made in Fiscal 23 within our global pet care and home and personal care business, offset by higher sales of our Controls product.

Jeremy Smeltzer: Net sales decreased 1.5%.

Jeremy Smeltzer: Excluding the impact of $1.2 million, a favorable foreign exchange organic net sales decreased 1.6%, primarily due to year over year sales declines in small kitchen appliances softness in north American Aquatics, and the impact of the ski rationally rationalization decisions, we made in fiscal 2000.

Jeremy Smeltzer: Three within our global pet care and home and personal care businesses offset by higher sales of our controls products.

Jeremy W. Smeltser: The sales decline was generally in line with our expectations and earnings framework, with favorable weather trends providing a bit of a tailwind for our home and garden business. Gross profit increased $58.9 million and gross margins of 38.1% increased 870 basis points, largely driven by lower-cost inventory and inventory-related expenses, along with favorable mix and impacts from cost-improvement actions, partially offset by lower volume. Operating expenses of $197.5 million decreased 32% due to the $65 million settlement for claims under the Representation and Warranty Insurance Policy related to the Tristar acquisition, as well as reduced project spend on restructuring, optimization, and strategic transaction activities.

Jeremy Smeltzer: The sales decline was generally in line with our expectations and earnings framework with favorable weather trends, providing a bit of a tailwind for our home and garden business.

Jeremy Smeltzer: Gross profit increased $58 $9 million and gross margins of 38.1% increased 870 basis points.

Jeremy Smeltzer: Largely driven by lower cost inventory and inventory related expenses, along with favorable mix and impacts from cost improvement actions, partially offset by lower volume.

Jeremy Smeltzer: Operating expenses of $197.5 million decreased 32% due to the $65 million settlement for claims under representation of warranty insurance policy related to the Tri Star acquisition reduced project spend on restructuring optimization as strategic Tran.

Jeremy W. Smeltser: Distribution cost favorability, lower factoring charges, and reduced intangible asset impairments compared to last year. However, these were partially offset by increased investment spend in advertising and marketing as we reinvest in our brand. Operating income of $75.9 million improved by $152.9 million, driven by the gross margin improvement and lower operating expenses I mentioned. Gap net income and diluted earnings per share both increased, primarily driven by the higher operating income, higher investment income, lower interest expense, and lower share price. Suggested EBITDA was $112.3 million, an increase of 120% driven by improved gross margins and investment income of $17 million. Suggested EBITDA excluding investment income was $95.3 million.

Jeremy Smeltzer: Action activities.

Jeremy Smeltzer: Distribution cost favorability, lower factoring charges and reduced intangible asset impairments compared to last year.

Jeremy Smeltzer: These were partially offset by increased investment spent in advertising and marketing as we reinvest in our brands.

Jeremy Smeltzer: Operating income of $75 $9 million improved by $152 $9 million driven by the gross margin improvements and lower operating expenses I mentioned.

Jeremy Smeltzer: GAAP net income and diluted earnings per share both increased primarily driven by the higher operating income higher investment income lower interest expense and lower share count.

Jeremy Smeltzer: Adjusted EBITDA was $112 $3 million, an increase of 120% driven by improved gross margins and investment income of $17 million.

Jeremy Smeltzer: Adjusted EBITDA, excluding investment income was 95 $3 million.

Jeremy W. Smeltser: Adjusted diluted EPS increased by $1.76 to $1.62, driven by higher adjusted EBITDA and a reduction in shares outstanding. During the second quarter, we returned $98 million to shareholders through our share repurchase program and reduced our outstanding shares by approximately 4%, or 1.2 million shares. Our current share count is approximately 29% lower than it was prior to the closure of the HHI trend. Let's turn now to slide 12.

Jeremy Smeltzer: Adjusted diluted EPS increased by one dollar and 76 cents to one dollar and 62 cents driven by higher adjusted EBITDA and the reduction in shares outstanding.

Jeremy Smeltzer: During the second quarter, we returned $98 million to shareholders through our share repurchase program and reduced our outstanding shares by approximately 4% or 1.2 million shares.

Jeremy Smeltzer: Our current share count is approximately 29 per cent lower than it was prior to the closure of the Hai transaction.

Speaker Change: Let's turn now to slide 12.

Jeremy W. Smeltser: Q2 interest expense from continuing operations of $16.9 million decreased $14.7 million due to our lower outstanding debt balance. Cash taxes during the quarter of $14.4 million were $8.7 million higher than last year, appreciation and amortization of $25.4 million, $3 million higher than last year, and separately, share-based compensation was flat. Capital expenditures were $12.5 million in Q2, down from $15.9 million last year.

Speaker Change: Q2 interest expense from continuing operations of $16.9 million decreased $14.7 million due to our lower outstanding debt balance.

Speaker Change: Cash taxes during the quarter of $14.4 million were $8.7 million higher than last year.

Speaker Change: Depreciation and amortization of $25.4 million was 3 million higher than last year and separately sure based compensation was flat.

Speaker Change: Capital expenditures were $12.5 million in Q2 down from $15.9 million last year.

Jeremy W. Smeltser: Cash payments towards strategic transactions, restructuring-related projects, and other unusual non-recurring adjustments were $6.6 million versus $22.9 million last year. Moving to the balance sheet, we had a quarter-end cash balance of $746 million, plus $500 million in short-term investments, and $490 million available on our $500 million cash flow revolver. Total debt outstanding was approximately $1.4 billion, consisting of $1.3 billion of senior unsecured notes and $84 million of financing.

Speaker Change: Cash payments towards strategic transactions restructuring related projects and other unusual non-recurring adjustments were $6 $6 million versus $22.9 million last year.

Speaker Change: Moving to the balance sheet, we had a quarter and cash balance of $746 million plus.

Speaker Change: Plus $500 million in short term investments and $490 million available on our $500 million cash flow revolver.

Speaker Change: Total debt outstanding was approximately $1.4 billion consisting.

Speaker Change: Consisting of $1.3 billion of senior unsecured notes.

Speaker Change: And $84 million a finance leases.

Jeremy W. Smeltser: We ended the quarter with $155 million in net. Now let's get into the review of each business unit to provide details on the underlying performance drivers of our operations. I'll start with global pet care, which is slide 13. Reporting net sales decreased 2.3%. Excluding favorable foreign currency, organic sales decreased 3%.

Speaker Change: We ended the quarter with $155 million of net debt.

Speaker Change: Now, let's get into the review of each business unit to provide details on the underlying performance drivers of our operational results.

Jeremy W. Smeltser: Global companion animal sales were essentially flat to last year, while North American aquatics declined by high single digits. This quarter's sales were adversely impacted by our decision in fiscal 23 to exit several non-strategic categories and lower profit skews. As a reminder, these activities reduced our North American active item count by nearly a third.

Speaker Change: I'll start with global Pet care, which is slide 13.

Speaker Change: Reported net sales decreased 2.3%.

Speaker Change: Excluding favorable foreign currency organic sales decreased 3%.

Speaker Change: Global companion animals sales were essentially flat to last year, while North American Aquatics declined high single digits.

Speaker Change: This quarter sales were adversely impacted by our decision in fiscal twenty-three to exit several non strategic categories and lower profit skews.

Speaker Change: We have now anniversary the majority of the skew exits.

Speaker Change: As a reminder, these activities reduced our north American active item counts by nearly a third.

Jeremy W. Smeltser: And while the impact from a top-line perspective is a purposeful headwind, these actions are having a very positive impact on margins, inventory turns, and cash flow. North American aquatics sales continue to be impacted by lower foot traffic and sales within the pet specialty channel, where aquatics have a larger presence, as we see North American consumers shift purchasing toward e-commerce and other channels. In fact, GPC's e-commerce sales grew almost 12% year over year, making this a quarter of the high mark for e-commerce sales as a percentage of total sales for GPC.

Speaker Change: And while the impact from a top line perspective as a purposeful headwind. These actions are having a very positive impact on margins inventory turns in cash flow.

Speaker Change: North American aquatic sales continued to be impacted by lower foot traffic and sales within the pet specialty channel, where aquatics has a larger presence.

Speaker Change: As we see the north American consumer shift purchasing towards e-commerce and other channels.

Speaker Change: In fact, Gpcs E Commerce sales grew almost 12% year over year.

Speaker Change: Making this a quarter of high Mark of E Commerce sales as a percentage of total sales for GPC.

Jeremy W. Smeltser: In addition, we are now seeing aquatics nutrition growing in low single digits, which is a sign of stabilization in that category. We have also had a strong start to the pond season, which is contributing to the aquatics consumables recovery. On the innovation front, we are celebrating the 20th anniversary of Glowfish this year and unveiled the new Glowfish Starfire Red Angelfish at the Global Pet Expo in March. This is the largest fish we've ever offered, and was specifically designed to broaden the Glowfish platform's appeal to more hobbyists who generally keep larger fish tanks.

Speaker Change: In addition, we are now seeing aquatics nutrition growing low single digits, which is assigned a stabilization in that category.

Speaker Change: We have also had a strong start to the pawn season, which is contributing to the aquatics consumables recovery.

Speaker Change: On the innovation front, we are celebrating the 20th anniversary of Glo fish this year and unveiled the new glow fish Star fire Red Angel fish at the global Pet Expo in March.

Speaker Change: This is the largest fish we've ever offered in specific specifically designed to broaden the glo fish platforms appeal to more hobbyists, who generally keeps larger fish tanks.

Jeremy W. Smeltser: Our new Cat Treats line launched earlier under the Meowy and Good and Tasty brands. They continue to gain traction. We secured several new listings that will begin to ship next quarter. In EMEA, we launched Chews and Treats extensions in both Good Boy and 8-in-1 and built on the success of our earlier IMES dry cat food launch with dry food for dogs in Q2, with optimized claims and all new packages.

Speaker Change: Our new cat treats lined launched earlier under the alley, and good and tasty brands they continue to gain traction.

Speaker Change: We secured several new listings that will begin to ship next quarter.

Speaker Change: And EMEA, we launched choose and treats extensions and both good boy and eight and one and built on the success of our earlier imes dry cat food launch with dry food for dogs, and Q2 with optimized claims and all new packaging.

Jeremy W. Smeltser: Adjusted EBITDA for GPC increased by 34.6%, or 590 basis points to $62.3 million, delivering a record high adjusted EBITDA for the business in a. Similar to the first quarter, this quarter's increase of $16 million was primarily driven by a favorable comparison to last year's sales of higher-cost inventory, favorable mix due to the exit of low margin SKUs, and our continued focus on operational productivity. This was partially offset by lower volumes, increased investments in programming and advertising, and FX. This was the fifth consecutive quarter of year-over-year growth for GPC and the fourth consecutive quarter where the GPC business delivered a just-a-divide of over $50 million.

Speaker Change: Adjusted EBITDA for GPC increased by $34, 6% or 590 basis points to $62 $3 million delivering a record high adjusted EBITDA for the business and a quarter.

Speaker Change: Similar to the first quarter. This quarter is increase of $16 million was primarily driven by a favourable comparison favorable comparison to last year sales of higher cost inventory Faye.

Speaker Change: Favorable mix due to the exit a low margin skews and our continued focus on operational productivity investments.

Speaker Change: This was partially offset by lower volumes increased investments in programming and advertising and FX.

Speaker Change: This is the fifth consecutive quarter of year over year growth for GPC and fourth consecutive quarter, where the GPC business delivered adjusted EBITDA of over $50 million.

Jeremy W. Smeltser: With the business consistently delivering high margin results, we are increasing commercial investments in trade promotions, brand advertising, and new innovation launch support to accelerate growth and drive market share. We expect top line growth in the second half of the year, but with lower adjusted EBITDA margin levels as we focus on increasing brand and innovation investments to drive future growth. Although still challenged, the aquatics category is showing signs of recovery, particularly in consumables, which is very encouraging. Let's move now to Home and Garden, which is on slide 14.

Speaker Change: With the business consistently delivering higher margin results, we are increasing commercial investments and trade promotions brand advertising and new innovation launch support to accelerate growth and drive market share gains.

Speaker Change: We expect top line growth in the second half of the year, but with lower adjusted EBITDA margin levels as we focus on increasing brand and innovation investments to drive future growth.

Speaker Change: Although still challenged the Aquatics category is showing signs of recovery, particularly in consumables, which is very encouraging.

Speaker Change: Let's move now to home and garden, which is on slide 14.

Jeremy W. Smeltser: Net sales increased 4.8% in the second quarter, driven by double-digit sales growth in the controls category. Favorable weather trends and key regions drove higher retail POS and retail orders. The retailer reorder patterns we saw in the quarter support our view that retailers started this season with healthier inventory levels compared to last year, particularly in the controls category.

Speaker Change: Net sales increased 4.8% in the second quarter, driven by double digit sales growth and the controls category.

Speaker Change: Favorable weather trends in key regions drove higher retail Pos and retail orders.

Speaker Change: The retailer reorder patterns, we saw in the quarter support our view that retailers started this season with healthier inventory levels compared to last year, particularly in the controls category.

Jeremy W. Smeltser: Our retail customers have also allocated off-shelf and promotional space to our category ahead of last year. Our SpectraSide brand grew ahead of category in the quarter with strong POS driven by consumer demand as we head into the peak quarter for the business. While we were encouraged by the early season weather, increased promotional space, and strength of our brands, we continue to expect retailers to be cautious in building inventory for the season and to reorder in a more typical seasonal manner compared to 2023. Sales of household insect controls and repellents were lower this quarter than last year, which signals a slower buildup to a season that typically starts later in the summer. Cleaning, Rejuvenate Sales Decline Low Double Digits

Speaker Change: Or retail customers have also allocated off shelf and promotional space to our category ahead of last year.

Speaker Change: R. Specter side brand grew ahead of category in the quarter with strong pass driven by consumer demand as we head into the peak quarter for the business.

Speaker Change: While we were encouraged by the early season, whether increased emotional space and strength of our brands. We continue to expect retailers to be cautious and building inventory for the season and to reorder in a more typical seasonal manner compared to 2023.

Speaker Change: Sales of household insect controls and repellents, where lower this quarter than last year, which signals a slower build up to a season. It typically starts later in the summer.

Speaker Change: And cleaning rejuvenate sales declined low double digits, while sales of some subcategories have improved sequentially total category consumer demand continues to be soft.

Jeremy W. Smeltser: While sales of some subcategories have improved sequentially, total category consumer demand continues to be soft. Our earnings framework assumes the weather in 2024 is similar to 2023, but with retailer orders much more in line with POS than last year. Collaboration and partnership with our key customers has been very strong throughout the lawn and garden season pre-build. We are supporting our new products and innovations through increased media investment, which communicates our products' superior value to results-driven consumers. Our SpectraSide one-shot line, with the tagline, you hold the power, kills and prevents weeds for up to five months.

Speaker Change: Our earnings framework assumes the weather in 2024 is similar to 2023, but with retailer orders much more in line with pass than last year.

Speaker Change: The collaboration and partnership with our key customers has been very strong throughout the lawn and garden season Prebuild.

Speaker Change: We are supporting our new products and innovations through increased media investments, which communicate our products superior value to results driven consumers.

Speaker Change: R spectra side, one shot line with the tagline you hold the power <unk>.

Speaker Change: Skills and prevents weeds for up to five months.

Jeremy W. Smeltser: This is our longest-lasting SpectraSide product and is gaining traction at retail. We are supporting this product launch with focused top and bottom funnel advertising, allowing us to quickly geo-target our media spend when we see regions with the right weather for high consumer demand. In the repellent category, our new Cutter Eclipse Zone Mosquito Repellent provides 40 hours of invisible mosquito protection for families.

Speaker Change: This is our longest lasting specter side product and is gaining traction at retail.

Speaker Change: We are supporting this product launch with focused top and bottom funnel advertising.

Jeremy W. Smeltser: Wowing us to quickly Geo target our media spend when we see regions with the right weather for high consumer demand.

David Maura: And the repellent category are new cutter eclipsed zone Mosquito repellent provides 40 hours of invisible Mosquito protection for families.

Jeremy W. Smeltser: We are supporting this product with both online and digital media campaigns with our tagline, Protect Your People. Adjusted EBITDA margins increased by 840 basis points, nearly doubling to $29.2 million from last year's $15.1 million. The adjusted EBITDA increase was primarily driven by higher sales. Sales of Lower Cost Inventory, Manufacturing Efficiencies, Cost Improvement Initiatives, and Favorable Mix were offset by increased brand investment. Labor and raw material costs continue at fiscal 23 levels, but we have not experienced meaningful cost inflation this year.

Jeremy Smeltser: We are supporting this product with both online and digital media campaigns with our tagline, Protect Your People. Adjusted EBITDA margins increased by 840 basis points, nearly doubling to $29.2 million from last year's $15.1 million. The adjusted EBITDA increase was primarily driven by higher sales. Sales of Lower Cost Inventory, Manufacturing Efficiencies, Cost Improvement Initiatives, and Favorable Mix, offset by increased brand investment. Labor and raw material costs continue at fiscal 23 levels, but we have not experienced meaningful cost inflation this year.

Jeremy W. Smeltser: We are supporting this product with both online and digital media campaigns with our tagline protect your people.

Speaker Change: Adjusted EBITDA margins increased by 840 basis points, nearly doubling to $29.2 million from last year's $15 $1 million.

Jeremy W. Smeltser: The adjusted EBITDA increase was primarily driven by higher sales.

Jeremy W. Smeltser: Sales of lower cost inventory manufacturing efficiencies cost improvement initiatives and favorable mix offset by increased brand investments.

Jeremy W. Smeltser: Labor and raw material costs continue at physical twenty-three levels that we have not experienced meaningful cost inflation. This year.

Jeremy W. Smeltser: And finally, Home and Personal Care, which is slide 15, reported net sales decreased 4%. Excluding unfavorable foreign exchange, organic net sales decreased 3.7%. The organic net sales decrease was driven by low double-digit declines in global home appliances, offset by high single-digit global growth in personal care. We continue to see the largest sales declines in North American home appliances but are encouraged as the rate of decline has slowed, and we see North American consumer demand stabilizing in this category.

Jeremy W. Smeltser: And finally homeland personal care, which is slide 15 <unk>.

Jeremy W. Smeltser: Reported net sales decreased 4%.

Jeremy Smeltser: Excluding unfavorable foreign exchange organic net sales decreased three 7%.

Jeremy W. Smeltser: The organic net sales decrease was driven by low double digit declines in global home appliances, offset by high single digit global growth and personal care.

Jeremy Smeltser: We continue to see the largest sales declines in North America and home appliances, but are encouraged at the rate of decline has slowed and we see north American consumer demand stabilizing in this category.

Jeremy W. Smeltser: Our pricing and product mix is improving, and our promotional activity has delivered higher top and bottom line contributions. Global e-commerce sales for HPC grew almost 25% in the quarter year-over-year, driven by increased investments in this channel and a shift in consumer purchasing behavior. Sales in the EMEA region grew low single digits, with growth in personal care from strong hair care sales offset by a decline in home appliance sales after last year's strong top line performance.

Jeremy W. Smeltser: Our pricing and product mix is improving and our promotional activity has delivered higher top and bottom line contributions.

Jeremy W. Smeltser: Global E Commerce sales for HBC grew almost 25% in the quarter year over year, driven by increased investments in this channel and a shift in consumer purchasing behaviors.

Jeremy W. Smeltser: Sales and the EMEA region grew low single digits with growth and personal care from strong hair care sales offset by a decline in home appliance sales after last year's strong top line performance.

Jeremy W. Smeltser: Sales and LATAM posted mid-double-digit growth in both personal care and home appliances, partly driven by pricing and inflationary markets. Commercially, our Remington Boulder ProHead Shaver is performing well on the shelf and online, as Remington reacts to trends among men to embrace bald hairstyles.

Jeremy W. Smeltser: Sales in law Tan posted mid double digit growth in both personal care and home appliances.

Jeremy W. Smeltser: Partly driven by pricing an inflationary markets.

Jeremy Smeltser: Commercially are Remington Balder pro head Shaver is performing well on shelf and online.

Jeremy W. Smeltser: As Remington reacts to trends among men to embrace bald hair styles.

Jeremy W. Smeltser: We are investing behind the Remington One product line, particularly in EMEA, to capitalize on the higher price point for Remington in that region, and are seeing both retailer and consumer excitement for the product. We also recently launched the innovative and all new Russell Hobbs Calm Kettle, blending the expertise of our design and product development experts, supported by AI, product launched in the UK, a market where Russell Hobbs is the number one kettle adjusted EBITDA was $17.8 million in the quarter compared to a loss of $1.9 million last year, adjusted EBITDA margin improved 6.6%, driven primarily by lower cost inventory and inventory related expenses.

Jeremy W. Smeltser: We are investing behind the Remington one product line, particularly in EMEA to capitalize on the higher price point for Remington in that region and are seeing both retailer and consumer excitement for the product line.

We also recently launched the innovative and all new Russell Hobbs calm kettle blending the expertise of our design and product development experts supported by AI.

Jeremy Smeltser: The product launched in the UK, a market, where Russell Hobbs is the number one kettle brand.

Jeremy Smeltser: Adjusted EBITDA was $17.8 million in the quarter compared to a loss of $1.9 million last year.

Jeremy Smeltser: Adjusted EBITDA margin improved to $6, 6% drip.

Jeremy Smeltser: Driven primarily by lower cost inventory and inventory related expenses.

Jeremy W. Smeltser: Fewer Low Margin Promotional Events, FX Pricing in Certain Inflationary Markets, and the Continued Benefit of our Cost Improvement Initiative This was partially offset by lower volume and increased brand-focused investment. Let's turn now to slide 16 and our updated expectations for 2020. We are updating our expectation for net sales and now expect that sales to be relatively flat to Fiscal 23, driven by higher demand in our home and garden business, offset primarily by lower consumer demand in the small kitchen appliance category with an HPC, with tempering sales declines in small kitchen appliances and continued growth in personal care.

Jeremy Smeltser: Fewer low margin promotional events FX pricing in certain inflationary markets and the continued benefit of our cost improvement initiatives.

Jeremy Smeltser: This was partially offset by lower volume and the increased brand focused investments.

Jeremy Smeltser: Let's turn now to slide 16 and are updated expectations for 2024.

Jeremy Smeltser: We are updating our expectation for net sales and now expect that sales to be relatively flat to fiscal twenty-three driven by higher demand in our home and garden business offset primarily by lower consumer demand in the small kitchen appliance category with an H P. C with tempering sales declines in small kitchen appliances and continued growth.

Jeremy Smeltser: And personal care.

Jeremy W. Smeltser: Jesse DeVita, excluding investment income, is expected to grow in the low double digits, driven primarily from lower cost inventory as compared to last year, offset by increased investments in our brands and our people. From a phasing perspective, we now expect each business to deliver sales growth in the second half of the year. In global pet care, we expect growth now that we have anniversary the majority of the skew. In Home and Garden, we expect second half growth compared to last year when retailers were reducing inventory levels during that. We do, however, expect our large retail customers to defer taking on inventory until closer to consumer demand.

Jeremy Smeltser: Adjusted EBITDA, excluding investment income is expected to grow in the low double digits, driven primarily from lower cost inventory as compared to last year offset by increased investments in our brands and our people.

Jeremy Smeltser: From a phasing perspective, we now expect each business deliver sales growth in the second half of the year.

Jeremy Smeltser: And global Pet care, we expect growth now that we have anniversary the majority of the skew exits.

Jeremy Smeltser: And home and Garden, we expect second half growth compared to last year, when retailers were reducing inventory levels during that time.

Jeremy Smeltser: We do however, expect our large retail customers to defer taking an inventory until closer to consumer demand.

Jeremy Smeltser: Turning to slide 17, depreciation and amortization is expected to be between 115 and $125 million, including stock based compensation of approximately $15 million to $20 million.

Jeremy Smeltser: Cash payments towards restructuring optimization and strategic transaction costs are expected to be approximately $50 million.

Jeremy Smeltser: Capital expenditures are expected to be in the range of 65% to $75 million and cash taxes are expected to be approximately $40 million.

Jeremy Smeltser: Or adjusted EPS, we use a tax rate of 25% including state taxes.

Jeremy Smeltser: To end my section I want to Echo David and thank all of our global employees for their hard work so far this year.

David: Now back to David.

Jeremy W. Smeltser: Turning to slide 17, depreciation and amortization is expected to be between $115 and $125 million, including stock-based compensation of approximately $15 to $20 million. Cash payments towards restructuring, optimization, and strategic transaction costs are expected to be approximately $50 million. Capital expenditures are expected to be in the range of $65 to $75 million, and cash taxes are expected to be approximately $40 million. For adjusted EPS, we use a tax rate of 25%, including state taxes. To end my section, I want to echo David and thank all of our global employees for their hard work so far this year.

Speaker Change: Okay. Thank you Jeremy thanks, everyone for joining us today.

David M. Maura: Hey, thank you, Jeremy. Thanks, everyone, for joining us today. I'd like to take a couple of minutes just to recap the key takeaways on slide 19. We are pleased with our results this quarter and in the first half of the year. We've got another quarter here of strong performance showing that our playbook is working. And we're off to a good start, doing what we said we would do, delivering our commitments, and hitting the mile markers on our winning journey. We are taking this journey step-by-step to ensure that our confidence remains grounded in results. Our teams are focused on fewer, bigger, and better innovation.

Speaker Change: I'd like to take a couple of minutes just to recap the the key takeaways here on slide 19.

Jeremy Smeltser: We are pleased with our results this quarter and in the first half of the year.

Jeremy Smeltser: We've got another quarter here strong performance showing that our playbook is working and we're off to a good start doing what we said, we're going to do delivering our commitments and hitting the mile markers on our winning journey.

Jeremy Smeltser: We are taking this journey step by step to ensure that our confidence remains grounded and results.

Jeremy Smeltser: Our teams are focused on fewer bigger and better innovations, we're seeing impressive growth and R. e-commerce sales and recognize the importance of that growth on all of our sales chair on all of our sales across all of our channels.

David M. Maura: We are seeing impressive growth in our e-commerce sales and recognize the importance of that growth on all of our sales across all of our channels. Our strong balance sheet is providing us with a competitive advantage, which is fueling a growth mindset in our company. We are continuing to return cash to shareholders, now having bought back 29% of the company.

Jeremy Smeltser: Are strong balance sheet is providing us with a competitive advantage, which is fueling growth mindset and our company.

Jeremy Smeltser: We are continuing to return cash to shareholders now having bought back 29% of the company.

David M. Maura: During the second half of the year, we will be ramping up our investments in our commercial operations, as we activate the sales and brand marketing plans our businesses have developed to accelerate long-term, sustainable, top-line growth. I'm excited about the investments we're making and to see the results of this important step in our journey. We remain cautious about the full year, focusing on what we can control and preparing to be nimble through what we do not.

Jeremy Smeltser: During the second half of the year will be wrapping up our investments and our commercial operations as we activate the sales and brand marketing plans are businesses have developed to accelerate long term sustainable top line growth.

Jeremy Smeltser: I'm excited about the investments, we're making and to see the results of this important step in our journey.

Jeremy Smeltser: We remain cautious about the full year, focusing on what we can control and preparing to be nimble through what we do not.

David M. Maura: We are heading into the biggest sales quarter for our home and garden business, and while early season weather trends have been favorable, a lot of this year is still ahead of us. Inventory at retail is healthier, but we are seeing foot traffic and demand softness within pet specialty and some dollar channel retailers. We are continuing to face the same geopolitical and macroeconomic headwinds as last quarter. So while we're encouraged by the start of the year, we remain cautious about our full year expectations.

Jeremy Smeltser: We are heading into the biggest sales quarter for our home and garden business and while early season weather trends have been favorable a lot of this year is yet still ahead of us.

Jeremy Smeltser: Inventory retail is healthier, but we are seeing foot traffic and demand softness within cut specialty and some dollar channel retailers.

Jeremy Smeltser: We are continuing to face the same geopolitical in macroeconomics headwinds his last quarter.

Jeremy Smeltser: So while we're encouraged by the start of the year, we remain cautious on our full year expectations are winning playbook has a staying judicious on costs.

David M. Maura: Our winning playbook has us staying judicious on cost, keeping our operational house in order with lean inventory and high fill rates, and making the investments needed to return us to revenue growth. I am excited about our continued momentum and our start to the year. Now, we'll turn the call over to Joanne to take any of your questions.

Jeremy Smeltser: Keeping our operational house in order with lean inventory and high feel rates and making the investments needed to return us to revenue growth.

Jeremy Smeltser: I'm excited about our continued momentum and our start to the year.

Jeremy Smeltser: Now, we will turn the call over to Joann to take any of your questions.

Joanne Chomiak: Thank you, David. Operator, we can go to the question queue now. Thank you.

Speaker Change: Thank you David operator, we can go to the question queue now.

Operator: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A list. And our first question comes from Peter Grom of UBS. Your line is open.

Speaker Change: Thank you as a reminder to ask a question. Please press star one line and your telephone and wait for your name to be announced to withdraw your question. Please.

Jeremy Smeltser: One one again, please stand by while we can pile of Q&A roster.

Jeremy Smeltser: And our first question comes from the Peter Crouch C. B S.

Peter K. Grom: Thank you, operator. Good morning, everyone. I hope you're doing well. A few questions for me. Hey, Jeremy.

Speaker Change: Thank you operator, and good morning, everyone hope you're doing well.

Jeremy W. Smeltser: Just maybe, you know, I was hoping to get some updated perspective on the long-term earnings framework for the business. I know, you know, a $400 million number was kind of discussed for a period of time. I think, David, in the summer, you mentioned that it was somewhat premature. But just in the context of what you just delivered in the first half and what still appears to be a pretty tough environment, I would love to get some updated views on where you think the long-term earnings power of this business can be.

Jeremy Smeltser: <unk> for me.

Speaker Change: Hey, Jeremy.

Speaker Change: Maybe first.

Speaker Change: I was hoping to get some updated perspective on the long term earnings frameworks for the business I know for.

Jeremy Smeltser: 400 million dollar number was kind of discuss for a period of time I think payment in the summer you mentioned that was somewhat premature but just in the context of what you just delivered in the first half and what's still appears to be a pretty tough environment I would love to get some updated view them, where you think the long term earnings power of this business can be and then second.

Jeremy W. Smeltser: And then second, you know, I guess I just had a question on the implied second-half guidance. You know, I hear you stepped up investing in brands and people. But if I just look at it, the implied versus a year ago, the year-on-year gap would imply that even after accounting for this incremental spend, it doesn't seem you're embedding any underlying improvement in the business, despite what sounds like a much better top-line environment. Am I thinking about that right? If so, why would that be the case?

Speaker Change: I guess I just had a question on the implied second half guidance I you know I hear you stepped up investment and brands and people cause I just look at it and the imply versus a year ago, a year on year gap wouldn't plan a year, even after accounting for this incremental spending tendency here embedding any underlying improvement in the business. Despite what sounds like a much better top line environment. So.

Speaker Change: My thinking about that Ryan and if so why would that be the case isn't free causes it just conservatism just trying to understand.

Peter K. Grom: Is it free? Services, just trying to understand, you know, the second half of my guide. Thanks.

Jeremy Smeltser: The second half apply guide thanks.

David M. Maura: Let's start with the 400 million comment. I mean, look, you know.

Speaker Change: So let's start with the 400 million comment.

Speaker Change: I mean look you know.

David M. Maura: We made that, I think, 18 months ago or 24 months ago, that comment, and it's, you know, the company was, you know, seven times levered and was going through a DOJ lawsuit, and operating results were not satisfactory to any of us. And so I was trying to illustrate, look, we, you know, this appliance business we hold has, you know, historically been able to do $100 million in EBITDA. As you know, that felt almost $40 million last year, and we've already earned that.

Jeremy Smeltser: Made that I think 18 months ago, or 24 months ago that comment and the company was seven times levered and going through a Doj lawsuit and operating results were not satisfactory to any of us and so I was trying to illustrate look we this this appliance business. We hold has historically been able to do $100 million on ebay.

Jeremy Smeltser:

Jeremy Smeltser: As you know that felt almost $40 million.

David M. Maura: I mean, Tim, Tim Wright, and the team have earned more EBITDA in the six months of fiscal 24 than we did in all of 23 already. So HBC is getting much, much healthier, back on track. But you know, we're not saying we're going to do that $100 million this year.

Jeremy Smeltser: You know last year, and we've already earned that Tim Tim right in the team of earn more EBITDA in the six months of fiscal 2004 than we did all of 23 already so HBC getting much much healthier back on track, but we're not saying, we're going to do that $100 million this year.

David M. Maura: But we are creating a much healthier, stronger appliance business, but that was one component. We talked about, you know, getting the pet business back to $50 million in EBITDA a quarter, right? And that was a $200 million EBITDA framework. You know, so you see 100 from appliances, and 200 from pet.

Jeremy Smeltser: But we are we are creating a much healthier stronger appliance business, but that was one component we talked about getting the pet business back to 50 million Bucks, an EBITDA quarter right now is $200 million you, but a framework.

Jeremy Smeltser: Hundreds from appliances 200 from Pat and then home and garden in the past had been $100 million plus you, but a business that also felt almost $60 million and he but we've been building that business back in there on a they're on a fantastic run at the moment, we need some good weather to hold up two thirds of our pass is is still out in front of us. So we do.

David M. Maura: And then home and garden in the past was, you know, a $100 million plus EBITDA business. That also fell to almost $60 million in EBITDA, and we've been building that business back, and they're on a fantastic run at the moment. We need some good weather to hold up, and, you know, two-thirds of our POS is still out in front of us, so we don't want to get over our skis there. But that's the $400 million reference.

Jeremy Smeltser: Wanna get over our skis, there, but that's the $400 million reference <unk>.

David M. Maura: Obviously, you know, we continue to make strides in repairing the EBITDA earnings power and appliances home and garden. But you can see with a $62 million EBITDA print this quarter in PET, we're well on our way of building that business back. Look, we want to do this journey step-by-step, brick-by-brick, quarter-by-quarter. We want our guidance to be grounded in results, and we don't want to get out over our skis in any way, shape, or form.

Jeremy Smeltser: Obviously.

Jeremy Smeltser: Continue to make strides in repairing the EBITDA earnings power and appliances home and garden, but you can see with a $62 million EBIT print this quarter and cut.

Jeremy Smeltser: We are well on our way of a building that business back.

Speaker Change: Look we want to do this journey step by step brick by brick quarter by quarter.

Jeremy Smeltser: We want our guidance to be grounded and results and we don't want to get out over our skis in any way shape or form so look I think.

David M. Maura: So, look, I think we've taken the guidance up a little bit this morning because we are earning a little bit more than we initially thought. But we also want to make sure that we take this improved margin structure and improved cash flow situation and invest heavily in commercial operations. I mean, I think what your big takeaway should be, what the headline should be if you want to write an earnings recap, is that we've really got our operational house in order.

Jeremy Smeltser: We've taken the guidance up a little bit this morning, because we are earning a little bit more.

Jeremy Smeltser: Then we initially thought but we also wanted to make sure that we take this improved margins structure and improved cash flow situation invest heavily into into commercial operations. I mean, I think what what your big takeaway should be with the headlines you'd be if you want to write in earnings.

David M. Maura: You know, 18 months ago, I don't think we were getting raw materials correctly and efficiently. You know, we've got better freight lines, better freight rates. The teams have worked judiciously to put together a real S&OP process. You know, not only are we getting raw material correctly, but we're making more raw material, and we're turning that into finished goods more efficiently. Our DCs are functioning. We've gotten rid of excess storage capacity, and all the expenses that come with another $300-$400 million in inventory have been eliminated.

Jeremy Smeltser: And earnings recap, we've really got our operational house in order.

Speaker Change: 18 months ago, I don't think we were getting raw materials correctly efficiently, we've got better freight lines, but a freight rates.

Jeremy Smeltser: Teams of work judiciously to put together a real lesson opie process.

Jeremy Smeltser: Not only were getting a raw material correctly, we're making raw material more we're turning that into finished goods more efficiently R. D. C's are functioning we've gotten rid of excess storage capacities and all the expenses that come with another three or 400 million Bucks inventory has been eliminated inventory turns are are are rising we're just a much.

David M. Maura: Inventory turns are rising. We're just a much more efficient company. You know, fill rates in the mid-90s were as low as 60-something percent a couple of years ago.

Jeremy Smeltser: More efficient company fill rates in the mid nineties, there were as low as 60 something percent a coupla years ago. So we've really got our operational house in order Peter now.

David M. Maura: So, we've really got our operational house in order, Peter. Now we've got to go full bore on the commercial operations. We've got to invest in innovation. We've got to bring news and excitement to the customer. I've set up a lot of meetings with our major retailers over the next couple of months. I'm bringing all the divisional presidents, and the business unit presidents with me to these meetings. We've got a near debt-free balance sheet, and we're here to play aggressive.

Speaker Change: Now we've got to go full bore on a commercial operations, we've got to invest in innovation, we gotta bring news and excitement to the customer I've set up a lot of top the tops with our major retailers over the next couple of months I'm, bringing all the divisional President's the business unit President's with me to these meetings.

Jeremy Smeltser: We got we got near that free balance sheet.

David M. Maura: We want to build market share. We want to build brand equity. We want to build revenue. That is the, that's the pivot, all the while keeping our operational house in order and being very judicious on the cost side, so. I'll stop there and turn it to Jeremy to fill in any blanks or correct any errors. Yeah, no, I think those are great points, David.

Jeremy Smeltser: We're here to play aggressive we want to build market share won't build brand equity want to build revenue that is the that's the pivot all the while keeping our operational house in order and being very judicious on the cost side. So.

Speaker Change: I'll stop there returned to Germany to fill in any blanks are correct and your yeah, though I think those are great points, David and I would just send your second question. Peter I think that's a really important one for everybody listening today is.

Jeremy W. Smeltser: Yeah, no, I think those are great points, David. And I would just say in your second question, Peter, I think that's a really important one for everybody listening today. You know, the earnings framework and what we deliver in the first half versus what is implied in the second half shows top line growth sequentially half to half, but EBITDA declines sequentially half to half. That might seem odd or overly conservative without knowing all the details.

Jeremy Smeltser: The earnings framework and what we delivered in the first half versus what is implied in the second half shows top line growth sequentially have to have but.

Jeremy Smeltser: But EBITDA declined sequentially have to have that might seem odd or overly conservative without knowing all the details the reality is.

Jeremy W. Smeltser: The reality is, going back to the beginning of the year, we said we wanted to spend $40 to $45 million more on advertising and marketing activities for our brands this year. And that incremental spend is happening, but we only spent $12 million of that in the first half. We actually expect to spend $30 to $35 million more in the second half. So I think if you do that, you should add that math to your bridge.

Jeremy Smeltser: Going back to the beginning of the year, we said, we wanted to spend $40 million to $45 million more in advertising and marketing activities for our brands. This year and that incremental spend is happening, but we only spent $12 million of that in the first half, we actually expect to spend $30 million to $35 million more in the second half so.

Jeremy Smeltser: You could do that add that math to your bridge that'll.

Jeremy W. Smeltser: That'll help you get to where we are, where our earnings framework is landing for the second half. And that's really all about, you know, the first half increased investments were mostly focused on e-commerce, and you heard the outstanding results that have come from those investments. And they were also focused on building content for advertising that is launching now that we get to the second half because, first, our home and garden season is actually starting here in May.

Jeremy Smeltser: That will help you get to where we're earnings framework is landing for the second half and that's really all about.

Jeremy Smeltser: The first half increased investments were mostly focused and e-commerce and you heard the outstanding results that have come from those investments and they were also focused on building content for advertising that is launching now that we get to the second half because one our home and garden season is actually starting here and May you know there's no real reason.

Jeremy W. Smeltser: You know, there's no real reason to advertise hard before you get to the Memorial Day weekend, and two, many of our product launches, you know, I talked about some in the global pet care business. The same is true in the appliance business, where we have, you know, new SKUs, particularly in brick and mortar, that are launching here midyear, and we're going to start investing behind those. So that's really the driver. There's no.

Jeremy Smeltser: Than to advertise Howard before you get to the Memorial day weekend.

Jeremy Smeltser: And too many of our product launches I talked about some in the global pet care business. The same is true in the appliance business, where we have new skews, particularly in.

Jeremy Smeltser: In brick and mortar that are that are launching here mid year, and we're going to start investing behind those so that's really the driver there's no.

Jeremy W. Smeltser: No point of view that we're taking or anything that we're experiencing that says there's anything less healthy about any of the three business units as we move from the first to the second half. It's simply those incremental investments, which are to drive some growth in the second half of this year but, more importantly, to drive organic growth next year in fiscal 25.

Jeremy Smeltser: No point of view that we're taking or anything that we're experiencing that says there's anything less healthy about any of the three business units as we move for the first of the second half, it's simply those incremental investments which are to drive some growth in the second half of this year, but more importantly to drive organic growth next year in fiscal twenty-five.

Operator: Thank you. One moment for our next question, and our next question comes from Bob Labick of CJS Securities.

Speaker Change: Thank you one moment for our next question.

Jeremy Smeltser: And our next question comes from Bob <unk>.

Jeremy Smeltser: <unk> Securities.

Robert James Labick: Good morning. Thanks for taking our question. Bob, how are you doing? Very well, thanks. Hope you guys are the same.

Speaker Change: Good morning, Thanks for taking my questions.

Jeremy Smeltser: Bob How're you doing.

Speaker Change: Very well. Thanks Hope you guys are the same obviously lots of positives in the quarter and around H P. C. In particular, so kind of wanted to go there with some of the incremental news can you give us a sense of the.

Robert James Labick: Obviously, lots of positives in the quarter and around HPC in particular. So, I kind of wanted to go there with some of the, you know, incremental news. Can you give us a sense of the, you know, kind of balance sheet and capital structure outcomes with a potential separation of HPC? Obviously, if you sell it, you get cash, so that's easy to kind of figure out. But if you go down the JV route or spin route, would you be injecting capital into those potentially? Or how should we think about, you know, the balance sheet capital structure post-HPC?

Speaker Change: Kind of balance sheet and capital structure outcomes with a potential separation of H P. C. Obviously, if you sell it you get cash and that's easy to kind of figure out, but if you go down the GB route or spin route would you be injecting capital into those potentially or how should we think about.

Jeremy Smeltser: Balance sheet capital structure host H P C.

David M. Maura: You've got a lot of questions there. You know, M&A is inherently fluid, so uh... I don't know if I can answer a whole lot of that. We don't intend to put much capital into the business, if any. I think we've been really focused on materially improving the financial performance of that business. We've got an entirely new management team. We've recently made a number of amazing hires in the North American marketplace, where we were the weakest, and so we're just focused on really building that business back and, or hiring multiple businesses. And so we do believe that by separating HPC out, giving it a stand-alone platform to go grow, we do not intend to spin it out and lever it up.

Speaker Change: You got a lot of questions there.

Jeremy Smeltser: <unk> [laughter] is inherently fluid so.

Speaker Change: I don't know if I can answer a whole lot of that we don't intend to put much capital into the business if any.

Speaker Change: I think we've been really focused on <unk>.

Jeremy Smeltser: Materially improving the financial performance of that business, we've got an entirely new management team. We've recently made.

Jeremy Smeltser: Tremendous.

Jeremy Smeltser: A number of an amazing hires in North America marketplace, where we were the weakest.

Jeremy Smeltser: And so we're just focused on really building a business back and getting it healthy.

Speaker Change: But I mean, we do believe that you know.

Jeremy Smeltser: As we said for years that our pet and our hold the garden assets.

Jeremy Smeltser: Our higher multiple businesses and so we do believe that by separating HBC out, giving a standalone platform to go grow we do not intend to spit it out and Levered up we intend to spin a if a spinoff is what occurs we will spin it out with a very healthy balance sheet.

David M. Maura: We intend to, you know, if a spin-off is what occurs, we will spin it out with a very healthy balance sheet, and we will stand it up as a platform to be a consolidator for growth. If we can find an M&A partner in there because there are tons of synergies and the ability to get scale, that'd be great. But that's, you know, it's a very fluid situation.

Jeremy Smeltser: And we will stand it up as a plot for them to be a consolidator for growth. If we can find an M&A partnering there because there's tons of synergies and the ability to get scale that'd.

Speaker Change: That'd be great, but that's you know.

Jeremy Smeltser: It's a very fluid situation I think the best thing. We can do is continue to be better stewards of the business continue to drive the revenue and EBITDA in the margin profile of that business.

David M. Maura: I think the best thing we can do is continue to be better stewards of the business, continue to drive the revenue and EBITDA and the margin profile of that business. And we've been able to do that under the leadership of Tim Wright and a number of new hires across the platform. So we're going to keep doing that, and we'll see where we come out. But, you know, we do think that the stock continues to be undervalued, and it's partly undervalued because of HPC being embedded in the holding company, which is why we continue to buy back shares, shrink our float, and try to grow our earnings. We believe that it's the best way to create value for everybody here.

Jeremy Smeltser: And we've been able to do that under the leadership of Tim rate and a number of new hires across the platform. So we're going to keep doing that and we'll see where we come out but we do think that the stock continues to be.

Jeremy Smeltser: Undervalued and it's partly undervalued because of HBC being embedded in the holding company, which is why we continue to buy back shares shrink our float and try to grow grow earnings. We believe that's the best way to create value for everybody here.

Robert James Labick: Okay, great. Yeah. And obviously, as the results continue to improve at HPC, it's going to make the process easier whichever way you go. So that's great.

Speaker Change: Okay, great Yeah, and obviously as the results continue to improve and Hipc, it's gonna make the process easier whichever way you go so that's great.

Robert James Labick: And then kind of just like referring back to the last question, but without putting dollars around it, maybe give us a sense of the segment operating margins at, you know, pet and home and garden. They've been very volatile, obviously, the last few years with transportation, high-cost inventory, raw material swings, all that, you know, fun stuff. And now, you know, the absence of the fact receivables factoring, which is a good guide to this year, where should those settle out? You know, once you get that incremental spending that is going to start in the second half, you know, from a medium-term perspective, how do you view the margin profile of pet and home and garden?

Jeremy Smeltser: And then kind of just like referring back to the last question, but without putting.

Jeremy Smeltser: Around it maybe give us a sense of the.

Jeremy Smeltser: Segment operating margins it.

Jeremy Smeltser: Pat and home and garden.

Jeremy Smeltser: Been very volatile obviously, the last few years with transportation high cost inventory raw materials swings all that fun stuff and now the absence of their receivables factory, which was a good guy to this year.

Jeremy Smeltser: Should those settle out.

Jeremy Smeltser: You get that incremental spending that.

Jeremy Smeltser: Kind of starting to the second half.

Jeremy Smeltser: From a medium term perspective, how do you view the margin profile of pattern.

Jeremy Smeltser: Martin.

Jeremy W. Smeltser: Yeah, I mean, thanks, Bob. I think on the pet side, look, I think we're really pleased with where the margin performance is the last three or four quarters. I think certainly this high watermark in Q2 was an outstanding result by the team. So we're happy about that. But I do think, you know, we have to get grounded in the fact that we need to grow this pet business like we were growing it, you know, pre-COVID in the first couple years of COVID.

Jeremy Smeltser: Yeah.

Speaker Change: Thanks, Bob I think on the pet side look I think we're really pleased with where the margin performance as the last three or four quarters I think.

Speaker Change: Certainly this high water Mark and Q2 was outs and that's outstanding result by the team. So we're happy about that but I do think we have to get grounded in the fact that we need to grow this pet business like we were growing at pre Covid and the first coupla years of Covid it needs to grow it's our biggest.

Jeremy Smeltser: Biggest business and it's a I think the driver of our growth platform, so investing back into that and at the end of the brands to grow that business for the long term I think is the right thing and really just look to maintain margins at the blended level that we've experienced over the last couple of quarters. So I would not expect the level that we experienced in <unk>.

Jeremy W. Smeltser: It needs to grow. It's our biggest, our biggest business. And it's, I think, the driver of our growth platform. So investing back into that, into the brands, to grow that business for the long term is, I think, the right thing to do. And really just look to maintain margins at the blended level that we've experienced over the last couple quarters. So I would not expect the level that we experienced in Q2 to be what we do in the second half because we have to ramp up those investments.

Jeremy Smeltser: <unk> is what we will do in the second half because we have to ramp up those investments that we have to we have to take sure we have to get back behind our new products and grow including.

Jeremy W. Smeltser: And we have to, we have to take share, we have to get back behind our new products and grow, including in aquatics. On Home and Garden, obviously, you've been on the ride with us, Bob. It's been a roller coaster ride with Home and Garden over the last few years. Some outstanding years and a couple of very challenging years the last two years.

Jeremy Smeltser: Including an aquatics.

Jeremy Smeltser: Home and Garden, obviously, you know you've been on the ride with US Bob It's been a it's been a roller coaster with home and garden over the last few years, some outstanding ears, and a couple of very challenged years. The last two years, but I would say is <unk>.

Jeremy W. Smeltser: What I would say is fundamentally, we don't think anything has changed in the home and garden categories overall as to where consumers are going to be, where our retail customers want to be in those categories. I think it's going to normalize, you know, starting this year and into next year. And our expectations are that we actually still have margin improvement ahead of us in Home and Garden. We would like to see it ultimately in the high teens, you know, maybe around 20%, perhaps not at the peak that it was years and years ago when we were investing less in the brands, but I think there's still room to improve it. And ultimately, you know, holding margins in the high teens in that business while continuing to grow the top line will be a great outcome for our investors. So that's where we're targeted.

Speaker Change: Fundamentally we don't think anything has changed.

Jeremy Smeltser: In the home and garden categories, overall, where consumers are going to be where our retail customers want to be in those categories.

Jeremy Smeltser: I think it is normalized starting this year and into next year and our expectations are that we actually still have margin improvement ahead of us and home and garden, we would like to see it ultimately in the high teens, you know maybe around 20%, perhaps not at the peak that it was years and years ago. When we were investing less in the brands.

Jeremy Smeltser: But I think there's still room to improve it and.

Jeremy Smeltser: And ultimately holding margins in the high teens in that business, while continuing to grow the top line will be a great outcome for our investors. So that's that's where we are targeting.

Robert James Labick: Thank you very much. Thanks, Bob. Thank you. Thank you.

Speaker Change: Super that's helpful very much thank you very much.

Speaker Change: Thanks, Bob do.

Speaker Change: Thank you good day.

Operator: One moment for our next question, and our next question comes from Chris Carey of Wells Fargo Securities. Your line is open.

Speaker Change: Just one moment for next question.

Jeremy Smeltser: And our next question comes from Chris Carey and Wells Fargo Securities. Your line is open.

Christopher Michael Carey: Hey, good morning, everyone. Good morning.

Speaker Change: Hey, good morning, everyone.

Speaker Change: Good morning.

Christopher Michael Carey: One question about cost of goods sold has been down, you know, about low to mid teens over the last several quarters. This was the best gross margin I think you've done in seven or eight years. Can you contextualize what's going on with the cost there?

Jeremy Smeltser:

Speaker Change: One question about.

Jeremy Smeltser: Cogs so the cost of goods sold it's been down.

Jeremy Smeltser: Motivate teens over the last several quarters.

Jeremy Smeltser: This was the best gross margin I think you've done and <unk>.

Jeremy Smeltser: Seven or eight years in a long time.

Speaker Change: Can you contextualize, what's going on with with with the cost. There is that is that the the high cost inventory is finally coming out of the system or their operational changes that are driving bat that are a bit more structural going forward.

Christopher Michael Carey: Is that because the high-cost inventory is finally coming out of the system? Are there operational changes that are driving that that are a bit more structural going forward? Would you see any of this being sort of cyclical because of some improved commodity exposure that may be firming, just potentially contextualizing this cost structure a little bit more in the gross margin relative to what you might think about going forward?

Jeremy Smeltser:

Jeremy Smeltser: Would you see any of this being sort of cyclical because of some improved commodity exposure that maybe farming just potential.

Jeremy Smeltser: Potentially contextual I think this this cost structure.

Jeremy Smeltser: More than the gross margin relative to what you might think about going forward.

Christopher Michael Carey: I have a follow-up question. Sure. Yeah. Yeah, happy to, Chris. It's a good question. I think the single biggest driver is certainly the lower cost of inventory as compared to last year in the first half of the year. There's no doubt about that.

Jeremy W. Smeltser: You know, as you recall, that was about $55 million in the first half of last year, roughly split between the quarters evenly, so I think, you know, $28 million or so of a benefit year-over-year on cost of goods sold. The other thing I would call out is that, in response to David's earlier comments, the improvements that we're having in the plants, productivity improvements, are much stronger than we've seen the last few years.

Speaker Change: Sure Yeah, Yeah happy to <unk>. It's a good question I think the single biggest driver is certainly the lower cost inventory as compared to last year in the first half of the year. There's no doubt about that as you will recall that was.

Jeremy Smeltser: About $55 million in the first half of last year roughly split between the quarters evenly so I think $28 million or so of a benefit year over year.

Jeremy Smeltser: Cost of goods sold.

Jeremy Smeltser: The only thing I would call out is that the improvements that we're having in the plant's productivity improvements.

Jeremy Smeltser: Are much stronger than we've seen the last few years to David's earlier comments, we have a new team.

Jeremy W. Smeltser: You know, we have a new team, a lot of new talent in there, and things are going very well in our plants, and that's driving positive variances from a manufacturing perspective. And then the other thing I would say is that Q2 in particular probably marked the low watermark for our freight costs because we really, from a P&L perspective, are not yet having many of the Red Sea incremental charges, surcharges, hit the P&L.

Jeremy Smeltser: A lot of new talent in there and and things are going very well on our plans and that's driving positive variances from a manufacturing perspective.

Jeremy Smeltser: And then the other thing I would say is it Q2 in particular, probably marked the low watermark of our freight costs.

Jeremy Smeltser: Because we really from a P&L perspective are not yet in queue to.

Jeremy Smeltser: Having many of the Red Sea.

Jeremy W. Smeltser: That will really start in Q3. And that actually goes back to the earlier question by Peter about the first half to the second half. That's another driver of, you know, a decline in gross margins, first half to second half, is the incremental, I think we called out $10 to $12 million earlier in the year that we should likely see in Q3 and Q4 split relatively evenly. Okay. Helpful. And David, from a share repurchase standpoint, you've obviously been very front-footed, as you had said you would be.

Jeremy Smeltser: Incremental charges surcharges hit the P&L that will really start in Q3 and that that actually goes back to the earlier question by Peter on first half to second half Thats another driver.

Jeremy Smeltser: A decline.

Jeremy Smeltser: And gross margins first half the second half is the incremental I think we call out $10 million to $12 million earlier in the year that we should likely see in Q3 and Q4 split relatively evenly.

Speaker Change: Okay helpful and David.

Jeremy Smeltser: From a share repurchase standpoint, you've obviously been very front footed as you had said you would be.

Jeremy W. Smeltser: From here, can you talk about any constraints you would have on incremental share repurchases, specifically with some of the cash potentially tied up in some of your stipulations in your bond covenants? We've talked about this before, but just any context on where share repurchase and capital allocation might go over the next several quarters? Thanks so much.

Speaker Change: From here can you talk about any constraints you would have.

Jeremy Smeltser: Incremental share repurchases.

Jeremy Smeltser: Specifically with with some of the cash potentially tied up in some of your the stipulations in your in your bond covenants, we've talked about this before but just any contact on on unaware share repurchase capitalization Mike.

Speaker Change: Might go over over the next several quarters here. Thanks, so much.

Christopher Michael Carey: Oh, hey, that's a great question. I want to thank you for asking it.

Speaker Change: Oh, Hey, that's a great question I want to thank you for asking look we're gonna get through today's call Board meetings earlier this week and.

David M. Maura: Yeah, look, we're going to get through today's call. We had board meetings earlier this week. As soon as we get out of this room, we're going to go and look at that capital structure because it's got a lot of optimization left ahead of it. And we do have an asset sale covenant where we need to, you know, look at addressing the remaining bonds. And I think it'll be a really great thing for our company to clarify and get our gross debt down to our net debt, which will be a very low number.

Jeremy Smeltser: As soon as we get out of this room, we're going to go and look at the capital structure, because it's got a lot of optimization left out of it.

Jeremy Smeltser: And we do have an asset sale covenant, where we need to look at addressing the remaining bonds and I think it'll be a really great thing for our company to clarify and get our gross debt down to our net debt, which will be a very low number.

David M. Maura: But look, we continue to think that our stock is probably the cheapest thing we can buy. We don't see any assets that are attractive or at an attractive price to buy from an M&A standpoint. And quite frankly, we think we can continue to build a pretty robust pet and home and garden business, and we believe that the value of that business is worth a lot more than when we trade. So we're going to continue to try to grow the earnings of this company, shrink the float, and be really, really great operators from an efficiency standpoint while investing in commercial operations and see where we can go over the next couple of years. I think it'll be a fun ride. Yeah, and one thing I would just add.

Jeremy Smeltser: But look we continue to think that our stock is probably.

Jeremy Smeltser: Probably the cheapest thing we can buy we don't see any assets that are attractive or at an attractive price to buy from an M&A standpoint.

Jeremy Smeltser: And quite frankly, we think we can continue to build a pretty robust pet and home and garden business and we believe that the value of that businesses.

Jeremy Smeltser: Worst.

Jeremy Smeltser: A lot more than we we trade. So we're going to continue to try to grow the earnings of this company shrink to float and be really really great operators from an efficiency standpoint, while investing in commercial apps and see where we can go over the next couple of years I think it'll be a fun road.

Speaker Change: The one thing I would just add.

Jeremy W. Smeltser: Yeah, the one thing I would just add for everybody to think about as it relates to your question on constraints, is that we have put out a long-term net leverage target range of two to two and a half. And so I think that gives you a bogeyman to model what is possible based on the current earnings of the company and the current debt structure to think about how material incremental share purchases might be in the coming, you know, two to three years. Okay.

Jeremy Smeltser: For everybody to think about as it relates to question on constraint right as we have put out a long term net leveraged target range of two to two and a half and so I think that gives you a bogey to model of what is possible based on the current earnings of the company. The current debt structure to think about how material incremental share repurchases might be in.

Jeremy Smeltser: Coming two to three years.

Speaker Change: Okay. Thank you guys.

Speaker Change: Thank you.

Speaker Change: Thank you one moment for our next question.

Operator: Thank you. One moment for our next question, and our next question comes from Steve Powers of Deutsche Bank. Your line is open.

Jeremy Smeltser: And our next question comes from Steve Powers of Deutsche Bank. Your line is open.

Stephen Robert R. Powers: Hey, guys. Good morning. David, good morning.

Speaker Change: Hey, guys good morning.

Jeremy Smeltser: David David <unk>, Good morning, David going back to the the highlights.

Jeremy Smeltser: Making around just the operational improvements you'd be able to make this quarter.

Stephen Robert R. Powers: David, going back to the highlights you were making around just the operational improvements you've been able to make this quarter, you gave some good detail around inventory management, fill rate improvement, etc. You also alluded to additional efficiency issues you have underway. So I'm just hoping that you can expand a little bit on that. I don't think you're declaring mission accomplished on operational improvements. So as we think about the incremental gains you stand to make in the balance of this year into next year, how would you think about those flowing through?

Speaker Change: Yes, a good detail around the inventory management until right improvement et cetera, you also alluded to additional efficiency <unk> you have under way. So I'm just hoping that you can expand a little bit on that I don't I don't think you're declaring mission accomplished on operational improvements so.

Speaker Change: Think about the increments incremental gains.

Jeremy Smeltser: Gains you stay on the make a balance of this year into next year, how how would you think about those those swelling through just cause it seems like a lot of it in the near term is gonna get reinvested, so just a little bit.

Stephen Robert R. Powers: Just because it seems like a lot of it in the near term is going to get reinvested. So just a little bit of peeling back the onion, if you will, to give us a sense of how much more opportunity you see to build on what you've already accomplished.

Jeremy Smeltser: A little bit of feeling back the onion, if you will to give us a sense of of how much more opportunity you see.

Jeremy Smeltser: The build on what you've already accomplished.

David M. Maura: Yeah, look, to be blunt, I'm not sure I want to quantify anything today. I think, look, all credit goes to people.

Speaker Change: Yeah, I'd love to be blood I'm, not sure I want to quantify anything today I think look all credit goes to people.

David M. Maura: We made a conscious decision 18 months ago to upgrade talent, invest in people, and adopt a rigorous S&OP process at this company. And you know, Dave Gabriel, Bob Vollmar, Steve Coe, if I start naming people, they'll get offended; I don't name them, but we've built a pretty good operations team now. And we've got this company running efficiently. And I'd say, look, we've made pretty big strides. I agree with you, there are incremental gains to go.

Jeremy Smeltser: We made a conscious decision 18 months ago to upgrade talent invest in people.

Jeremy Smeltser: An adoptive rigorous SLP process at this company.

Jeremy Smeltser: And.

Jeremy Smeltser: Dave Gabriel Bob Walmart Thief goes.

Speaker Change: If I start naming people there'll be people get offended all named them, but we built a pretty good ops team now.

Speaker Change: And we've got this company running efficiently and and I'd say look we've made pretty big strides.

Speaker Change: Agree with you that is incremental gains to go get.

David M. Maura: But again, you know, as we've sold off a lot of revenue, right, through batteries and auto gear, and then recently, hardware. We've got this advantageous balance sheet today, but we've also got to be conscious of critical mass, and we can't get much smaller. You know, that's why you see me constantly taking out costs because you end up with unabsorbed overhead. And so, you know, as we move forward, you know, restoring an organic growth rate, getting a real algorithm where sales are growing, and earnings are growing at twice the rate.

Speaker Change: But again you know.

Jeremy Smeltser: As we've sold off a lot of revenue right through batteries in auto here and then recently hardware.

Jeremy Smeltser: We've got this advantageous balance sheet today, but we've also got we've got to be conscious of critical mass and we can't get much smaller.

Jeremy Smeltser: That's why you see me constantly taking a cost is because you end up with unabsorbed overhead and so as we move forward restoring an organic growth rate getting a real agar algorithm to our sales is growing earnings is growing at twice the rate.

David M. Maura: Unknown Executive, David Maura, Robert Labick, Christopher Carey, James Chartier, David Maura, It's a long road map on this journey to get back to winning, but we're starting to make some strides. I don't want to get into quantifying anything operationally unless Jeremy wants to.

Jeremy Smeltser: Returning to kind of.

Jeremy Smeltser: Throwing off lots of free cash flow.

Jeremy Smeltser: That's really where we're going to steer the company here in the next 24 months, while continuing to make incremental gains operationally, but.

Jeremy Smeltser: This journey is going to be built one step at a time one quarter at a time.

Speaker Change: It's a long roadmap to on this journey to get back to winning but we're starting to make some strides I don't Wanna get into quantify anything operation unless most Jeremy wants to [laughter] No I think I think that all makes sense I think the other thing we're always conscious as Steve is and.

Jeremy W. Smeltser: No, I think that all makes sense. I think the other thing we're always conscious of, Steve, is, you know, inflation is coming, right? We have inflation in our labor every year. Our suppliers have inflation in their labor every year, too. And, you know, that's something you're not going to avoid. And so we always have to have a productivity target out there that more than offsets that so that we can deliver some improvement for our shareholders.

Jeremy Smeltser: Inflation is coming right, we have inflation or labour every year, our suppliers of inflation and they labour every year and that's about something you're not going to avoid and so we always have to have a productivity target out there that more than offsets that so that we can deliver some improvement for our shareholders. So I agree with David and with the I think what you were implying with your question which is theirs.

Jeremy W. Smeltser: So I agree with David and with what you were implying with your question, which is that there's more runway out there. And I think, you know, as we go from year to year, we'll talk about exactly what we think we can achieve each year.

Jeremy Smeltser: More runway out there and I think as we go from year to year will talk about exactly what we think we can achieve each year.

Stephen Robert R. Powers: Okay, very good. If I could, I know we're at the end of time, but if I could squeeze in one more question,

Speaker Change: Okay very good if I could spend over at the end of time, but like I said squeezing one more question.

David M. Maura: You know, your call for sort of better revenue trends as we go forward stands out. We've heard from a lot of companies talking about a more difficult consumer environment, slowing demand, etc. So I just, you know, I think you're coming from a somewhat unique place and you've got seasonal dynamics, which I understand. But maybe just a little bit what gives you the confidence and then also the backdrop that we're seeing broadly influences and maybe maybe shifts a bit. How you plan to spend incrementally over the balance of the year to stimulate demand and what I think, generally, is a more cautious environment.

Speaker Change: <unk> your call for sort of better revenue trends as we go forward stands out we've heard from a lot of companies talking about a more difficult consumer environment swelling demand et cetera.

Speaker Change: So I just you know I should thank you you're coming from a somewhat unique place and you've got seasonal dynamics, which I, which I understand but maybe just a little bit what gives me confidence and then also does the backdrop that we're we're seeing broadly <unk>.

Speaker Change: Influence and maybe maybe shift a bit how do you plan to spend incremental incrementally over the balance of the year to to stimulate demand and what.

Jeremy Smeltser: I think generally as a more cautious environment.

David M. Maura: I mean, look, I think this all starts with kind of where we baseline the business. If you look back in November last year, the market was not too happy with my outlook for this year. And you know, that was based on the fact that, you know, interest rates had been at zero for 12 years. And, you know, I kind of viewed there were two kind of giant macro experiments going on, right?

David M. Maura: Yeah, I mean, look, I

Speaker Change: I mean look I think this all starts with kind of where we baseline the business. If you look back in November last year. The market was not too happy with my outlook on this year.

Jeremy Smeltser: And you know that was based on the fact that <unk>.

Jeremy Smeltser: Interest rates had been at zero for 12 years and you know.

Speaker Change: I kind of viewed there's there's two kind of giant.

David M. Maura: You had, oh, eight to 2022 was a free money environment. And, you know, it wouldn't be logical on my part to assume that if mortgage rates went from two and a half, 3% to seven plus, that that wouldn't have some sort of dampening impact. And then, you know, on the other side of that coin, we had this thing called a pandemic, and $5 trillion got stuck in the mail. And that money is going to find its way out some way. And that's, you know, there's no shock.

Jeremy Smeltser: Macro experiments going on right.

Jeremy Smeltser: Oh eight to 2022 is a free money environment.

Speaker Change: And you know it was just be.

Speaker Change: Wouldn't be logical on my part to assume that if mortgage rates go from two and a half 3% to seven plus.

Jeremy Smeltser: Wouldn't have some sort of dampening impact and then on the other side of that coin. We had this thing called a pandemic in five trillion dollars got stuck in the mail.

Jeremy Smeltser: That that's.

Jeremy Smeltser: That money is going to find its way out somewhere and that's.

David M. Maura: That's why we have an inflation problem in this country today, right? Big movements macro-wise. And so look, we think the consumer is struggling today, we see credit card delinquencies up, we see auto loans, you know, having more delinquencies. So I, you know, I think you have to be very cautious on this at the same time.

Speaker Change: No shock that's why we have an inflation problem in this country today right. So.

Speaker Change: You just try to be cautious with with all these.

Jeremy Smeltser: Big movements macro wives, and so look we think the consumer is struggling today, we see credit card delinquencies up with your auto loans.

Jeremy Smeltser: More delinquencies and.

Jeremy Smeltser: So.

Speaker Change: I think you have to be very cautious on this at the same time.

David M. Maura: You know, we were not running a very efficient business, and we've made massive improvements operationally, and now that gives you the platform, right? If you're running your business better, if you've got a better balance sheet, you know, and you're not being sued by the DOJ, you can actually focus. And, you know, it's difficult to convey to you inside the type of distraction that selling HHI and the pressure of the government were on this company, but it was real.

Jeremy Smeltser: We were not running very efficient business or and we've made massive improvements operationally and now that gives you the platform right. If you're running your business better if you've got a better balance sheet.

Jeremy Smeltser: And you are not being sued by the Doj you can actually focus and.

Speaker Change: It's difficult to convey to you inside the type of distraction that selling Hai Jai and the pressure of the government what that was on this company, but it was real [laughter] and so it would be free of that and have the balance sheet. We have an operational house in order. We can now go on the offensive and that's a growth mindset. It just wasn't here.

David M. Maura: And so, to be free of that, and to have the balance sheet we have, and to have our operational house in order, we can now go on the offensive. And that's a growth mindset that just wasn't here a few years ago, and so I think, Despite all these headwinds, and despite our continued cautious outlook for the back half of the year, we believe we're going to get more listings, and we believe we're going to win in the marketplace. And so maybe that is a little bit more unique to us, but again, I think it has to be anchored in the view we took in November.

Jeremy Smeltser: A few years ago, and so I think.

Jeremy Smeltser: Despite all these headwinds and despite our continued cautious outlook for the back half of the year. We believe we're going to get more of listings and we believe we're going to win in the marketplace and so maybe that is a little bit more unique to us.

Jeremy Smeltser: But again I think it has to be anchored in.

Jeremy Smeltser: The view we took in November.

Stephen Robert R. Powers: Very good. Well, thank you.

Speaker Change: Well, thank you and with that we have reached the top of the hour that we will conclude our conference call. Thank you, David and Jeremy and on behalf of spectrum brand. Thank you all for your participation.

Operator: And with that, we have reached the top of the hour. So we will conclude our conference call. Thank you, David and Jeremy. And on behalf of Spectrum Brands, thank you all for your participation.

Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.

Speaker Change: This concludes today's conference call. Thank you for participating and you may now disconnect.

Jeremy Smeltser: Mhm.

Jeremy Smeltser: [music].

Jeremy Smeltser: Okay.

Jeremy Smeltser: Mmm.

Q2 2024 Spectrum Brands Holdings Inc Earnings Call

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