Q3 2024 Spectrum Brands Holdings Inc Earnings Call
Operator: Thank you for standing by, and welcome to The Spectrum's third quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode.
Thank you for standing by and welcome to the spectrum spectrum Brands' third quarter 2024 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone thank for your question.
Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1-1 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 1-1 again.
Julia Chokeback: It has been answered and you'd like to remove yourself from the queue simply press star One one again as a reminder, today's program is being recorded and now I'd like to introduce your host for today's program Julia choked back.
Operator: As a reminder, today's program is being recorded. And now, I'd like to introduce your host for today's program, Joanne Chomiak, Senior Vice President of Tax and Treasury. Please go ahead.
Julia Chokeback: Senior Vice President of tax and Treasury. Please go ahead.
Joanne Chomiak: Welcome to Spectrum Brands Holdings' Q3 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.
Julia Chokeback: Welcome to spectrum brands Holdings, Q3, 2024 earnings conference call and webcast.
Glenn <unk> senior Vice President of tax and Treasury and I will be my I will moderate today's call to.
Speaker Change: To help you follow our comments, we have placed a slide presentation on the event calendar page in the Investor Relations section of our website at Www Dot spectrum brand Dot Com. This document will remain there following our 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 three and four, our comments today include forward-looking statements, which are based upon management's current expectations, projections, and assumptions and are, by nature, uncertain. Actual results may differ.
Speaker Change: Starting with slide two of the presentation, our call will be led by David Maura, Our chairman and Chief Executive Officer, and Jeremy Smeltzer, Our Chief Financial Officer. After opening remarks, we will conduct the Q&A.
Speaker Change: Turning to slides three and four our comments today include forward looking statements, which are based upon management's current expectations projections and assumptions and are by nature uncertain.
Speaker Change: Actual results may differ materially due to that risk spectrum brands encourages you to review the risk factors and cautionary statements outlined in our press release dated August eight 2020 for our most recent SEC filings and spectrum brands Holdings'. Most recent annual report on Form 10-K and quarterly.
Speaker Change: Our reports on Form 10-Q.
Speaker Change: We assume no obligation to update any forward looking statements.
Speaker Change: 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 8-K filing which are both available on our website in 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 August 8th, 2024, our most recent FCC filing. Holdings, Most Recent Annual Report on Form 10K, and Quarterly Reports on Form 10K. We assume no obligation to update any forward-looking... 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.
Speaker Change: Now I'll turn the call over to David Maura David.
David Maura: Hey, thanks, Joanne. Good morning, everybody, and welcome to our third quarter earnings update. We appreciate everybody joining us today. Like usual, I'm going to start this call 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 first quarter and second quarter calls, we talked about how the actions we've taken in fiscal 23 put us in a position to start on our journey back to winning this year. Our teams have worked extremely hard over the past years to put us in a position of competitive strength.
David Maura: Hey, Thanks, Joanne and good morning, everybody and welcome to our third quarter earnings update we appreciate everybody joining us today.
David Maura: But as usual I'm going to start this call with an update on our operating performance and our strategic initiatives.
David Maura: Jeremy will then provide a more detailed financial and operational update including a discussion on specific business unit results during our first quarter and second quarter calls, we talked about how the actions we've taken in fiscal 'twenty three put us in a position to start on our journey back to winning this year or two.
Speaker Change: <unk>, who have worked extremely hard over the past years to put us in a position of competitive strength.
David Maura: Through years of asset sales, we have deleveraged our company, returned capital to our shareholders, and turned our operations around. We are now focused on driving top-line growth through our commercial investment. In fact, over the past five or six years, we have reduced our gross debt by approximately five billion dollars.
Speaker Change: Through years of asset sales, we have Deleveraged, our company returned capital to our shareholders and turned our operations around we are now focused on driving topline growth through our commercial investments.
Speaker Change: Over the past five or six years, we have reduced our gross debt by approximately $5 billion. We are now the lowest levered companies in our peer group during that time, we also returned $2 billion to our equity shareholders through share repurchases, while also maintaining our quarterly dividend.
David Maura: We are now the lowest levered company in our peer group. During that time, we have also returned $2 billion to our equity shareholders through share repurchases while also maintaining our quarterly dividends. Our balance sheet is the fuel that has been providing us with the financial flexibility to make meaningful improvements in our operations. We have now developed a strong S&OP process that has reduced our inventory levels and meaningfully increased our fill rates. With our operational house now in order, we have the confidence to pivot toward making meaningful investments in our brand-focused advertising, marketing, and innovation.
Speaker Change: And our balance sheet is the fuel that has been providing us the financial flexibility to make meaningful improvements in our operations and we have now developed a strong S&P process.
Speaker Change: We reduced our inventory levels and meaningfully increased our fill rates with our operational house now in order, we have the confidence to pivot toward making meaningful investments in our brand focused advertising marketing and innovation, our flywheel, starting with our strong balance sheet the strongest in the history of <unk>.
Speaker Change: Company is now in motion, we now have the right leadership and talent and our operations team to deliver improving performance from supply chain to working capital management inventory management fill rates. All of these are now being used to fuel commercial growth aspirations, we have for our.
Speaker Change: <unk>.
Speaker Change: Today I am happy to let you know that this quarter marks another mile marker on our winning journey.
David Maura: As I've said, the playbook for winning is to consistently do what we say we are going to do and deliver for all of our stakeholders. And this third quarter is an incremental step forward on that journey. In these times of economic and geopolitical uncertainty, we are controlling what we can control, and we are setting ourselves up for the future through incremental investments in our brands, and our momentum is continuing. I can now ask everyone to please turn to slide six, and we will go over the financial performance for the quarter.
Speaker Change: As I've said the playbook to winning is to consistently do what we say, we're going to do and deliver for all of our stakeholders in this third quarter as an incremental step forward on that journey.
Speaker Change: In these times of economic and geopolitical uncertainty we are controlling what we can control and we are setting ourselves up for the future through incremental investments into our brands and our momentum is continuing.
Speaker Change: If I could now ask everyone to please turn to slide six and let's go over the financial performance for the quarter.
David Maura: During the first half of this year, you'll recall that our top line was suffering from the headwinds of SKU exit decisions that we made during fiscal 23, and this has negatively impacted our net sales numbers this year.
Speaker Change: During the first half of this year Youll recall that our topline was suffering from the headwinds of SKU exit decisions that we made during fiscal 'twenty three and this has negatively impacted our net sales number this year.
David Maura: Our gross and adjusted EBITDA margins have been realizing the tailwind benefit of selling lower-cost inventory as compared to the prior year. As I told you last quarter, the effect of these factors on our comparables is largely behind us, and we expect to now see sales growth in the second half of the year. Our teams actually delivered on that commitment with net sales growth of 6% and organic sales growth of 7.1% this quarter.
Speaker Change: Our gross and adjusted EBITDA margins have been realizing the tailwind benefit of slower selling lower cost inventory as compared to the prior year.
Speaker Change: And as I told you last quarter the effect of these factors on our Comparables are largely behind us and we expect to now see sales growth in the second half of the year.
Speaker Change: Our teams in fact delivered on that commitment with net sales growth of 6% and organic sales growth of seven 1% this quarter.
David Maura: Across the company, volume was the primary driver of this quarter's top line growth, and each business unit grew its top line, with our home and garden business delivering an impressive 13.1% top line growth compared to last year. The weather conditions in key regions improved over the course of the quarter, with more ideal temperatures and precipitation levels, especially compared to those we've seen in the prior two selling quarters.
Speaker Change: Across the company volume was the primary driver of this quarter's topline growth in each business unit grew its top line.
Speaker Change: With our home and garden business, delivering an impressive 13, 1% topline growth as compared to last year.
Speaker Change: The weather conditions in key regions improved over the course of the quarter with more ideal temperatures and precipitation levels, especially compared to those we've seen in the prior two selling seasons.
David Maura: Also, inventory in our retail partners is healthier than last year, and our sales were much more closely aligned with point of sale than in the prior year. We actually saw spikes in retail orders in regions where weather conditions were expected to result in increased foot traffic. Importantly, once the consumer was in the store, we won its shelf, with our full funnel marketing investments driving sales and supporting our brands, with SpectraSide taking market share in the controls category.
Speaker Change: Also inventory at our retail partners is healthier than last year and our sales were much more closely aligned with point of sale than in the prior year.
Speaker Change: We actually saw spikes in retail orders in regions, where weather conditions were expected to result in increased foot traffic in.
Speaker Change: Importantly, once the consumer was in the store, we wanted shelf with our full funnel marketing investments driving sales and supporting our brands with spectra side, taking market share in the controls category.
David Maura: We have one more quarter to go in the home and garden season, with about 40% of the POS still ahead of us in Q4. This is a strong quarter for consumer demand for household and the repellent category.
Speaker Change: We have one more quarter to go in the home and garden season with about 40% of the POS still ahead of us in Q4, which is a strong quarter for consumer demand for household and the repellent categories.
David Maura: A global pector of business grew organic sales by 4.1%, and our Home and Personal Care business through Organic Sales 6.1. I am particularly pleased with the organic sales in both our North American Home Appliance and the U.S. Department of Labor. Thank you.
Speaker Change: Our global Pet care business grew organic sales by four 1%.
Speaker Change: And our home and personal care business grew organic sales six 1%.
Speaker Change: I am, particularly pleased that the organic sales in both our North American home appliance business.
David Maura: Thank you very much, and our global aquatics business stabilized this quarter. Both of these categories have been facing major headwinds, and while we're cautious about the future, we're very encouraged to see demand improving. Our growth momentum in e-commerce continued with another quarter of over 20% growth compared to last year. E-commerce sales represented over 21% of this quarter's total net sales.
Speaker Change: And our global Aquatics business stabilized this quarter.
Speaker Change: Both of these categories have been facing major headwinds and while we are cautious about the future. We're very encouraged to see demand improving.
Speaker Change: Our growth momentum in E Commerce continued with another quarter of over 20% growth compared to last year.
Speaker Change: E Commerce sales represented over 21% of this quarters total net sales, while HBC is leading the way with ecommerce sales growth of over 33% each.
David Maura: While HPC is leading the way with e-commerce sales growth of over 33%, each business realized double-digit growth in e-commerce sales this quarter. Including investment income, our adjusted EBITDA was $106.3 million, up from $99 million a year ago. Strong Improvement Across All Three Businesses, Excluding Investment in, our adjusted EBITDA was $93.6 million. Our gross profit margin of 38.9% increased 310 basis points compared to the prior year. We delivered this growth in spite of investing almost $23 million more in brand advertising and innovation this quarter compared to last year.
Speaker Change: Each business realized double digit growth in e-commerce sales this quarter.
Speaker Change: Including investment income or adjusted EBITDA was $106 $3 million up from $99 million for the period a year ago with.
Speaker Change: With strong improvement across all three business units.
Speaker Change: Excluding investment income or adjusted EBITDA was $93 6 million.
Speaker Change: Our gross profit margin of 38, 9% increased 310 basis points compared to the prior year.
Speaker Change: We delivered this growth in spite of investing almost $23 million more in brand advertising and innovation this quarter compared to last year. The improved gross margin was driven by our team's focused on driving continuous improvements within our operations.
David Maura: The improved gross margin was driven by our team's focus on driving continuous improvements within our operations and through operational efficiencies, cost savings, and plant productivity improvements. We remain disciplined with our cost structure to ensure that we stay lean and do not add back the fixed costs that we took out of the business in the past. This was a pivotal quarter also for our balance. Since the close of the HHI Investiture, we've been carrying a significant amount of cash, maintaining our options for redeploying these profits as we approach the one-year anniversary of that transaction's close.
Speaker Change: And through operational efficiencies cost savings and plant productivity improvements.
Speaker Change: We remain disciplined with our cost structure to ensure that we stay lean and do not add back the fixed cost that we took out of the business in the past.
Speaker Change: This was a pivotal quarter also for our balance sheet.
Speaker Change: Since the close of the <unk> divestiture, we had been carrying a significant amount of cash maintaining our options for redeploying. These proceeds.
Speaker Change: As we approach the one year anniversary of that transactions close we launched and closed a debt tender across our existing bond portfolio to satisfy our covenant requirements to our bondholders.
David Maura: We launched and closed a debt tender across our existing bond portfolio to satisfy our covenant requirements to our bondholders. Through a combination of tenders and calls, we retired $1.174 billion of our bonds, and we have no remaining obligations under the HHI process.
Speaker Change: Through a combination of tenders and calls we retired $1 $1 $74 billion of our bonds and we have no remaining obligations per the HHR proceeds.
David Maura: To improve and simplify our capital structure with new capital, we also issued $350 million of a five-year unsecured convertible security with a coupon rate of 3.375%. These bonds are exchangeable into our shares upon certain events, and their original strike price of approximately $122 per year. As is common with these types of bonds, we entered into a cap-call structure to increase the economic conversion price for the company to approximately $159 per share. Taking the cost of the cap call into account, the effective borrowing rate on these new bonds is approximately 4.8%.
Speaker Change: To improve and simplify our capital structure with new capital. We also issued $350 million of a five year unsecured convertible security with a coupon rate of three 375%. These.
Speaker Change: These bonds are exchangeable into our shares upon certain events at an original strike price of approximately $122 a share.
Speaker Change: As is common with these types of bonds, we entered into a cap call structure to increase the economic conversion price for the company to approximately $159 per share.
Speaker Change: Taking the cost of the capped call into account the effective borrowing rate on these new bonds is approximately four 8%.
David Maura: We close this quarter with cash and short-term investments of $307 million, and our net debt is at $271.6 million, and our total liquidity position is close to $800 million. With our cash balance and capital structure reset to support our business, we will now no longer reference EBITDA excluding investment income as a metric going forward. I would now ask you all to turn to slide seven, and we can go over the strategic priorities of the company going forward.
Speaker Change: We closed this quarter with cash and short term investments of $307 million and with our net debt at $271 $6 million and our total liquidity position is close to $800 million.
Speaker Change: With our cash balance and capital structure reset to support our business. We will now no longer referenced EBITDA, excluding investment income as a metric going forward.
Speaker Change: If I could now ask you all to turn to slide seven and we can go over the strategic priorities of the company going forward.
David Maura: While our operations team continues to deliver for our company, our fill rates are now in the mid to high 90s in each business, with inventory levels that are over 45% below our peak amount. We are staying very disciplined on our inventory levels, and we've taken $375 million of inventory out of the system compared to our peak levels. Compared to last year's quarter, our inventory is $88 million lower.
Speaker Change: While our operations team continued to deliver for our company. Our fill rates are now in the mid to high ninety's in each business with inventory levels that are over 45% below our peak amounts.
Speaker Change: We are staying very disciplined on our inventory levels and we've taken $375 million of inventory out of the system compared to our peak levels.
Speaker Change: Compared to last year's quarter, our inventories $88 million lower inventory turns are up to four two times and they have improved 40 basis points.
Speaker Change: We intend now to actually build inventory levels this quarter to support our home and personal care holiday season, and we will increase safety stock now to support our global pet care as global growth strategies.
Speaker Change: We continue to realize the benefit of having less inventory on the balance sheet, which is helping contribute to our improved gross margins and adjusted EBITDA by reducing the cost that come with carrying higher inventory levels and low fill rates.
David Maura: We're also now investing in our people to improve our commercial capabilities and drive a high-performance culture with accountability. Our new talent additions across our sales and marketing functions are beginning to have a positive impact on our financial results. Our stepped-up investments in our brands and new product roadmaps accelerated this quarter, and our sales growth is now a testament that they are working. In this quarter alone, we made almost $23 million more in brand advertising and innovation-focused investments compared to a year ago.
Speaker Change: We are also now investing behind our people to improve our commercial capabilities and drive a high performance culture with accountability.
Speaker Change: Our new talent additions across our sales and marketing functions are beginning to have a positive impact on our financial results.
Speaker Change: Our stepped up investments in our brands and new product Roadmaps accelerated this quarter.
Speaker Change: Our sales growth is now a testament that they are working.
Speaker Change: In this quarter alone, we made almost $23 million more in brand advertising and innovative focus innovation focused investments just compared to a year ago and we're on track to invest approximately $50 million more for the full year.
David Maura: And we're on track to invest approximately $50 million more for the full year. The increased investment is the largest contributor to our EBITDA margin declining to 12% this quarter, excluding investment income, compared to last year's 12.7.
Speaker Change: The increase investment is the largest contributor to our EBITDA margin declining to 12% this quarter, excluding investment income compared to last year's 12, 7%.
David Maura: The most significant increase this quarter was in advertising, especially in our home and garden business, driving consumer demand during a peak season toward our brands by communicating not only the efficacy of our products but the tremendous value proposition that our products offer the consumer. And this created consumer excitement in the market.
Speaker Change: The most significant increase this quarter and was in advertising spend.
Speaker Change: Especially in our home <unk> garden business driving consumer demand during our peak season toward our brands by community not only the efficacy of our products, but the tremendous value proposition that our products offer the consumer and this created consumer excitement in the marketplace.
David Maura: Our HPC business continues to improve its performance, exceeding last year on every key metric and reinforcing our confidence that the time is right to separate that business via a sale, merger, or spin. Our global personal care business grew organic sales mid-double digits, and our global home appliance business had modest organic sales growth. We continue to win new listings now in brick-and-mortar across the personal care and home appliances categories.
Speaker Change: Our HBC business continues to improve its performance exceeding last year on every key metric and reinforcing our confidence that the time is right to separate that business via a sale <unk>.
Speaker Change: <unk> or spin.
Speaker Change: Our global personal care business grew organic sales mid double digits, and our global home appliance business had modest organic sales growth.
Speaker Change: We continue to win new listings now in brick and mortar across the personal care and home appliances categories.
David Maura: HPC's investment in digital marketing and activation drove the highest Amazon Prime Day sales ever for this business. This business is consistently meeting and exceeding expectations now, and it's not only stabilized, but it's back to winning. This quarter, our internal teams and advisors continued the dual-track process of the separation of our HPC business, preparing this unit for a sale, merger, or spinoff transaction. The process is progressing as anticipated, our bankers are working actively with potential buyers on the M&A track, and we filed a Form 10 Initial Registration Statement in early July to begin the SEC registration process for a spinoff.
Speaker Change: <unk> investment in digital marketing and activation drove the highest Amazon Prime day sales ever for this business unit.
Speaker Change: This business has consistently meeting and exceeding expectations now and has not only stabilized but its back to winning.
David Maura: Our teams are focused on separation readiness, doing the pre-work required for transactions of this nature, and we continue to believe that the separation of HPC... will allow both Spectrum Brands holding company as a pure-fled patent home and garden business and then the separate HPC business to flourish independently, focusing on the unique needs of each person.
Speaker Change: This quarter, our internal teams and advisors continue to dual track process of the separation of our HBC business.
Speaker Change: Repairing this unit for a sale merger or spin off transaction.
Speaker Change: The process is progressing as anticipated our bankers are working actively with potential buyers on the M&A track and we filed a form 10 initial registration statement in early July to begin the SEC registration process for a spin off.
Speaker Change: Our teams are focused on separation readiness.
Speaker Change: Doing the pre work required for transactions of this nature.
Speaker Change: And we continue to believe that the separation of HPE.
Speaker Change: Will allow both spectrum brands holding company as a pure play pet and home and garden business and then the separate HBC business to flourish independently focusing on the unique needs of each business.
David Maura: We will provide an update on our next earnings call or sooner if there's news to share. If we could now please turn to slide 8, we have an update on our share repurchase program. We repurchased 1.6 million shares this quarter, and since the close of the HHI transaction, we've returned over $1 billion to our shareholders through our various share repurchase programs. As a result, our share count is now approximately 32% lower than it was prior to the HHI close.
Speaker Change: We will provide an update on our next earnings call or sooner. If there is news to share.
David Maura: We have approximately $400 million remaining on our recently refreshed share repurchase authorization program, and with leverage still well below our long-term target range of 2.0 to 2.5 times, we have plenty of capacity to fund investments in our company and to continue to return value to our shareholders through quarterly dividends and opportunistic share repurchases. Now turning to page 9.
Speaker Change: If we could now please turn to slide eight and we have an update here on our share repurchase program.
Speaker Change: We repurchased one 6 million shares this quarter and since the close of the <unk> transaction, we have returned over $1 billion to our shareholders through our various share repurchase programs.
Speaker Change: Our share count is now approximately 32% lower than it was prior to the Achei close.
Speaker Change: We have approximately $400 million remaining on our recently refreshed share repurchase authorization program.
Speaker Change: And with leverage still well below our long term target range of two point out at two five times.
Speaker Change: We have plenty of capacity to fund investments into our company.
Speaker Change: And to continue to return value to our shareholders through quarterly dividends and opportunistic share repurchases.
Speaker Change: Now turning to page nine.
David Maura: Based on our results for the year to date and the trends in our retailer and consumer behavior, we are updating our earnings framework. While we continue to expect net sales to be relatively flat compared to the prior year, adjusted EBITDA is now expected to grow approximately 20%.
Speaker Change: Based on our results for the year to date and the trends in our retailer and consumer behavior. We are updating our earnings framework. While we continue to expect net sales to be relatively flat compared to the prior year.
Speaker Change: However, including investment income adjusted EBITDA is now expected to grow approximately 20%.
David Maura: This framework assumes that the favorable weather trends we've experienced this season continue as we head into a peak POS quarter for our household and repellent product segments. We are also assuming that e-commerce sales across the businesses continue to be strong and that the sales recovery in small kitchen appliances in global aquatics continues. Our businesses have performed well this year as we have leaned in to the competitive advantages that our strong balance sheet and improved operating cadence have provided. We remain cautious about the remainder of the year and headwinds heading into Fiscal 25 from geopolitical and macroeconomic uncertainty.
Speaker Change: This framework assumes that the favorable weather trends we've experienced this season continue as we head into our peak pass quarter for our household and repellent product segments. We are also assuming that E. Commerce sales across the businesses continued to be strong and that the sales recovery and small kitchen appliances and global acquire.
Speaker Change: <unk> continue.
Speaker Change: Our businesses performed well this year as we have leaned into the competitive advantages that our strong balance sheet and improved operating cadence of provider.
Speaker Change: But we remain cautious about the remainder of the year and headwinds heading into fiscal 'twenty five from the geopolitical and macroeconomic uncertainty.
David Maura: As we head into the holiday quarters, we're closely watching the health of the consumer as interest rates, food, and housing costs remain high. Consumer health is uncertain and volatile, not only in the US but across our global economy. Recently, ocean freight rates have risen as the geopolitical challenges stemming from the Red Sea crisis, coupled with peak season volume, have caused vessel and equipment shortages. While we continue to shift the predominance of our product under contracted rates, demand has caused us to shift some volume at spot rates, which is creating headwinds for future quarters that we will now seek to offset with cost improvement and plant productivity, in spite of these uncertainties and headwinds
Speaker Change: As we head into the holiday quarters, we're closely watching the health of the consumer as interest rates food and housing costs remain high consumer health is uncertain.
Speaker Change: And volatile not only in the U S, but across our global economies.
Speaker Change: Recently ocean freight rates have risen as the geopolitical challenges stemming from the Red Sea crisis, coupled with peak season volume have caused vessel and equipment shortages, while we continue to shift the predominance of our product under contracted rates demand has caused us to shift some volume at spot rates.
Speaker Change: <unk>, which is creating headwinds for future quarters that we will now seek to offset with cost improvement and plant productivity.
Speaker Change: In spite of these uncertainties and headwinds we intend to continue to invest behind our businesses meaningfully increasing our brand focused investments in the fourth quarter to set us up to drive sales in fiscal 'twenty five.
David Maura: We intend to continue to invest behind our business, meaningfully increasing our brand-focused investments in the fourth quarter to set us up to drive sales in fiscal 25. Each quarter that we deliver on our commitments reinforces our belief that we are on the journey to winning. Now, before I turn the call over to Jeremy, I want to take a moment to thank each and every one of our global employees who are all on this journey together and for their roles in contributing to our collective and mutual success.
Speaker Change: Each quarter that we deliver on our commitments reinforces our belief that we are on the journey to winning.
Speaker Change: Now before I turn the call over to Jeremy I want to take a moment to thank each and every one of our global employees, who are all on this journey together and for their roles and contributing to our collective and mutual success.
David Maura: Now you're going to hear a little bit more from Jeremy on the financials, and he'll give you updated business unit insights. And then we'll come back for some Q&A here at the end. At this time, I'd like to turn the call over to David. Thanks for watching, and don't forget to like, share, and subscribe to our channel. Good morning, everybody.
Jeremy Smeltzer: Now youre going to hear a little bit more from Jeremy on the financials and Youll give you updated business unit insights and then we'll come back to you for some Q&A here at the end at this time I would like to turn the call over to you Jeremy.
Jeremy Smeltser: Let's turn to slide 11 for a review of the key three results from the continuing operation. I'll start with net sales, which increased 6%. Excluding the impact of $8.5 million of unfavorable foreign exchange, organic net sales increased 7.1%, primarily due to favorable weather conditions and improved retailer inventory health in our home and garden business, along with continued growth in e-commerce across all sectors. Gross profit increased $39.3 million. And gross margins of 38.9% increased 310 basis points, largely driven by increased volume, lower freight costs, and inventory-related expenses, and impacts from the Cost Improvement Act.
Jeremy Smeltzer: Thanks, David Good morning, everybody, let's turn to slide 11 for a review of Q3 results from continuing operations I'll start with net sales, which increased 6%.
Jeremy Smeltzer: Excluding the impact of $8 5 million of unfavorable foreign exchange organic net sales increased seven 1%, primarily due to favorable weather conditions and improved retailer inventory health in our home and garden business.
Jeremy Smeltzer: Along with continued growth in e-commerce across all segments.
Jeremy Smeltzer: Gross profit increased $39 3 million and gross margins of 38, 9% increased 310 basis points, largely driven by increased volume lower freight costs and inventory related expenses and impacts from cost improvement actions.
Jeremy Smeltser: Operating expenses of $255.1 million decreased 34.3% due to the absence of goodwill and intangible asset impairments compared to last year, partially offset by increased investment spend in advertising and marketing as we reinvest in our... Operating income of $47.7 million improved by $172.4 million, driven by the gross margin improvement and lower operating expenses. Gap Net Income and Diluted Earnings Per Share Both Increased.
Speaker Change: Operating expenses of $255 1 million.
Jeremy Smeltzer: Decreased 34, 3% due to the absence of goodwill and intangible asset impairments compared to last year.
Jeremy Smeltzer: Partially offset by increased investment spend in advertising and marketing as we reinvest in our brands.
Jeremy Smeltzer: Operating income of $47 7 million improved by $172 4 million.
Jeremy Smeltzer: Driven by the gross margin improvement 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 a lower share count.
Jeremy Smeltser: This was primarily driven by higher operating income, higher investment income, lower interest expense, and a lower share. Adjusted EBITDA was $106.3 million, an increase of 7.9%, or $7.8 million over last year, driven by improved gross margins and investment income of $13 million, offset by almost $23 million in increased brand-focused investment. Adjusted EBITDA, excluding investment income, was $93.6 million.
Jeremy Smeltzer: Adjusted EBITDA was $106 3 million, an increase of seven 9% or $7 $8 million over last year, driven by improved gross margins and investment income of $13 million.
Jeremy Smeltzer: Offsetting by almost $23 million in increased brand focused investments.
Jeremy Smeltzer: Adjusted EBITDA, excluding investment income was $93 6 million.
Jeremy Smeltser: Adjusted diluted EPS increased by $0.17 to $1.10. This was driven by higher adjusted EBITDA and a reduction in shares outstanding. During the third quarter, we returned $142 million to shareholders through our share repurchase program and reduced our outstanding shares by approximately 5%, or 1.6 million shares. Our current share count is approximately 32% lower than it was prior to the closure of the H.H.H.I. Turning to slide 12, Q3 interest expense from continuing operations, $15.7 million decreased $14.6 million due to our lower outstanding debt balance. Cash taxes during the quarter of $4.4 million were $5.5 million lower than last year.
Speaker Change: Adjusted diluted EPS increased by 17 to $1 10.
Speaker Change: Driven by higher adjusted EBITDA and the reduction in shares outstanding.
Speaker Change: During the third quarter, we returned $142 million to shareholders through our share repurchase program and reduced our outstanding shares by approximately 5% or $1 6 million shares.
Jeremy Smeltzer: Our current share count is approximately 32% lower than it was prior to the closure of the <unk> transaction.
Jeremy Smeltzer: Turning to slide 12, Q3 interest expense from continuing operations of $15 7 million decreased $14 $6 million.
Jeremy Smeltzer: Due to our lower outstanding debt balance.
Speaker Change: Cash taxes during the quarter of $4 $4 million were $5 $5 million lower than last year.
Jeremy Smeltser: Appreciation and amortization of $25.2 million was $2.6 million higher than last year, and separately, share-based compensation was flat. Capital expenditures were $10.1 million in Q3, down from $18.4 million last year. And cash payments towards strategic transactions, restructuring-related projects, and other unusual non-recurring adjustments were $10.5 million versus $10.3 million less. Moving to the balance sheet, we had a quarter-end cash balance of $158 million, plus $149 million in short-term investments, and $490 million available on our $500 million cash flow report. The total debt outstanding was approximately $578 million.
Speaker Change: Depreciation and amortization of $25 $2 million was $2 6 million higher than last year and separately share based compensation was flat.
Speaker Change: Capital expenditures were $10 1 million in Q3 down from $18 $4 million last year.
Speaker Change: And cash payments towards strategic transactions restructuring related projects and other unusual nonrecurring adjustments were $10 5 million versus $10 $3 million last year.
Speaker Change: Moving to the balance sheet, we had a quarter end cash balance of $158 million.
Speaker Change: Plus $149 million in short term investments and $490 million available on our $500 million cash flow revolver.
Speaker Change: Total debt outstanding was approximately $578 million.
Jeremy Smeltser: Consisting of $496 million of senior unsecured notes and $82 million of financing, we ended the quarter with $272 million of net debt. Now, let's get into the review of each business unit to provide details on the underlying performance drivers of our operation. I'll start with global pet care, which is on slide 13. Reported net sales increased 3.6%, and excluding unfavorable foreign currency, organic sales increased 4.1%.
Speaker Change: Consisting of $496 million of senior unsecured notes and $82 million of finance leases.
Speaker Change: We ended the quarter with $272 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 Smeltser: Organic companion animal sales increased in the mid-single digits, while organic aquatic sales were flat to last year, growth and aquatics consumables offset by continued softness in new environments and CPC Sales in North America and EMEA grew this... North American companion animal sales grew from strong performance in the e-commerce and food and drug channels, offset by some softness in mass and dollar. Companion Animal Sales and EMEA also benefited from strength and e-commerce and growth in our good boy brand. The decline in North American aquatic sales is being tempering.
Speaker Change: I'll start with global Pet care, which is on slide 13.
Speaker Change: Reported net sales increased three 6% and excluding unfavorable foreign currency organic sales increased four 1%.
Speaker Change: Organic companion animal sales increased in the mid single digits, while organic aquatic sales were flat to last year with growth in aquatics consumables offset by continued softness in new environments and equipment.
Speaker Change: GPC sales in North America, and EMEA grew this quarter North American companion animal sales grew from strong performance in the e-commerce, and food and drug channels offset by some softness in mass and dollar channels.
Speaker Change: Companion animal sales in EMEA also benefited from strength in e-commerce and growth in our good boy brand.
Speaker Change: The decline in North American aquatic sales is tempering and aquatic sales continue to grow in EMEA.
Jeremy Smeltser: Aquatic sales continue to grow at EMEA with good performance in pond nutrition products this quarter, aiding our consumables. Global GPC e-commerce sales increased by double digits, continuing the recent trends of consumer behaviors moving to online buying for pet products. E-commerce sales were in the mid-20% of GPC's global sales this quarter and year-to-date.
Speaker Change: Excuse me with good performance in PON nutrition products this quarter.
Speaker Change: Aiding our consumable sales.
Speaker Change: Global GPC E Commerce sales increased by double digits, continuing the recent trends and consumer behaviors moving to online buying for pet products.
Speaker Change: E Commerce sales were in the mid 20% of Gpc's global sales this quarter.
Speaker Change: And year to date.
Jeremy Smeltser: On the innovation front, we recently launched Good and Tasty Dog Treats in the U.S., further expanding our presence in the nearly $5 billion U.S. pet treats market. The early results are promising, with Good & Tasty already demonstrating a positive halo effect from our well-established Good & Fun brand, driving increased brand awareness and household penetration. This demonstrates the power of our multi-branded portfolio and our ability to leverage brand synergies for both core and adjacent categories.
Speaker Change: On the innovation front, we recently launched good and tasty dog treats in the U S. Further expanding our presence in the nearly $5 billion.
Speaker Change: Pet treat market.
Speaker Change: The early results are promising with good and tasty already demonstrating a positive halo effect from our well established good 'n' fun brand driving increased brand awareness and household penetration.
Speaker Change: This demonstrates the power of our multi branded portfolio and our ability to leverage brand synergies for both core and adjacent category growth.
Jeremy Smeltser: We are also seeing encouraging early traction in our Furminator consumables segment with our new tub-free grooming offerings in the pet special. This innovative format is responding with consumers, opening up new avenues for growth in the pet grooming category. We also entered the fast-growing adjacent category of wet dog food in the UK this quarter with the launch of Good Boy Home Fave.
Speaker Change: We are also seeing encouraging early traction in our <unk> consumables segment with our new tub free grooming offerings in the pet specialty channel.
Speaker Change: This innovative format is resonating with consumers opening up new avenues for growth in the pet grooming category.
Speaker Change: We also entered the fast growing adjacent category of wet dog food in the UK This quarter with the launch of good boy home phase securing listings and major retailers and promoting natural meaty recipes across the range.
Jeremy Smeltser: Securing listings in major retailers and promoting natural meaty recipes across the, This was the second best adjusted EBITDA quarter ever for GPC after posting the highest adjusted EBITDA quarter ever in the second quarter. Suggested EBITDA for GPC grew by $3.1 million to $56.7 million, primarily driven by higher sales volume, a favorable comparison to last year's higher input cost. Operational Productivity Improvements and Favorable Mix partially offset my unfavorable F. [inaudible] PC also significantly increased its brand building investment to the sixth consecutive quarter of year-over-year growth and the fifth consecutive quarter where the GPC business delivered a just-a-dip of over $50 million, giving us confidence that our model of investing in innovation to drive growth as a market leader is working.
Speaker Change: This was the second best adjusted EBITDA quarter ever for GPC after posting the highest adjusted EBITDA or EBITDA quarter ever in the second quarter of this year.
Speaker Change: Adjusted EBITDA for GPC grew by $3 1 million to $56 $7 million.
Speaker Change: Primarily driven by higher sales volume.
Speaker Change: A favorable comparison to last year's higher input costs operational productivity improvements and favorable mix, partially offset by unfavorable FX.
Speaker Change: GBC also significantly increased its brand building investments this quarter.
Speaker Change: This is the sixth consecutive quarter of year over year growth for GPC and fifth consecutive quarter, where the GPC business delivered adjusted EBITDA of over $50 million, giving us confidence that our model of investing in innovation to drive growth as a market leader is working.
Jeremy Smeltser: Commercial Investments we are making in brand advertising, trade promotions, and new innovation launches are supporting our sales. Let's move now to Home and Garden, which is on slide 14. Net and organic sales increased 13.1% in the third quarter, driven primarily by higher volume.
Speaker Change: The commercial investments, we are making in brand advertising trade promotions and new innovation launches are supporting our sales growth.
Speaker Change: Let's move now to home <unk> Garden, which is on slide 14.
Speaker Change: Net and organic sales increased 13, 1% in the third quarter, driven primarily by higher volumes.
Jeremy Smeltser: Double-digit sales growth in the controls and household categories and mid-single-digit growth in repellents were partially offset by decline. However, this year's weather trends have been more constructive than last. Weather conditions for our Controls products generally improved in key regions throughout the quarter, with improved temperatures and precipitation levels, providing favorable weather conditions, and driving foot traffic at our large retail park.
Speaker Change: Double digit sales growth in the controls and household categories and mid single digit growth in repellents were partially offset by declines in cleaning.
Speaker Change: This year's weather trends have been more constructive than last year.
Speaker Change: Weather conditions for our controls products generally improved in key regions throughout the quarter with improved temperatures and precipitation levels, providing favorable weather conditions and driving foot traffic at our large retail partners.
Jeremy Smeltser: Retailers also allocated off shelf and promotional space to our categories ahead of last year, helping drive sales. Continuing this season's trend, we saw a strong correlation between POS and retailer orders, and we believe retail inventory levels are substantially back to normal. We are particularly pleased with the impact our increased brand building investments are having on our sales. Our SpectraSide brand continued to increase sales ahead of category this quarter, gaining share and control.
Speaker Change: Retailers also allocated off shelf and promotional space to our categories ahead of last year, helping drive sales volumes.
Speaker Change: Continuing this season's trend we saw a strong correlation between Pos and retailer orders and we believe retail inventory levels are substantially back to normal.
Speaker Change: We are particularly pleased with the impact our increased brand building investments are having on our sales.
Speaker Change: <unk> brand continued to increase sales ahead of category this quarter gaining share in controls.
Jeremy Smeltser: Sales Growth and Household was led by our Hotshot brand, where Hotshot is performing well in the household categories where we, Cutter Area Repellents, led the sales growth in our repellents category. E-commerce sales grew by mid-double digits and represent a low double-digit percent of sales in a quarter and a high single-digit percent of sales year-to-date.
Speaker Change: Sales growth in household was led by our Hotshot brand, where hotshot is performing well in the household categories, where we compete.
Speaker Change: Qatar area Repellents led to sales growth in our wood pellets category.
Speaker Change: And E Commerce sales grew by mid double digits and represent a low double digit percent of sales in the quarter and high single digit percent of sales year to date.
Jeremy Smeltser: We are supporting this season's new products and innovations with increased media investment to drive top-line growth. This quarter, the H&G business invested over three times more in advertising than last. Communicating our product's superior value to results-driven consumers. We are supporting the season with full-funnel advertising, activating TV, digital, social media, and influencer investments to build both awareness of our products and their effectiveness and drive sales. This approach has driven sales and category growth for our Spectracide products. And as we head into the highest selling season for repellents, we will activate the same strategy for our Cutter Eclipse Zone Mosquito Repellent.
Speaker Change: We are supporting this season's new products and innovations with increased media investments to drive top line growth.
Speaker Change: This quarter, the <unk> business invested over three times more on advertising than last year communicating our product's superior value to results driven consumers.
Speaker Change: We are supporting the season with full funnel advertising activating TV digital social media and Influencer investments to build both awareness of our products and their effectiveness and drive sales conversion.
Speaker Change: This approach has driven sales and category growth of our spectrum <unk> products and as we head into the highest sales season for repellents, we will activate the same strategy for our cutter eclipsed zoned mosquito repellent.
Jeremy Smeltser: Justice Ibidda increased by 12.2% to 43.3 million dollars. The increase in adjusted EBITDA was primarily driven by higher sales. Cost Improvement Initiatives and Pricing Offset Partially by a Significant Increase in Brand Building. And finally, home and personal care, which is on slide..., reported net sales increased three and a half. And excluding unfavorable foreign exchange, organic net sales increased 6.1% from the increased sales.
Speaker Change: Adjusted EBITDA increased by 12, 2% to $43 3 million.
Speaker Change: The increase in adjusted EBITDA was primarily driven by higher sales cost.
Speaker Change: Cost improvement initiatives and pricing offset partially by a significant increase in brand building investments.
Speaker Change: And finally home and personal care, which is on slide 15.
Speaker Change: Reported net sales increased three 5% and excluding unfavorable foreign exchange organic net sales increased six 1% from the increased sales volume.
Jeremy Smeltser: The organic net sales increase was driven by mid-double-digit growth in global personal pair sales and modest organic sales growth in global home appliances. E-commerce performance was particularly strong for HPC this quarter, growing by over 33% from a record prime Day in both North America and the EMEA. eCommerce sales accounted for over 25% of HPC's global sales in the quarter and year to date. North American sales increased by high single digits with growth in both the personal care and home appliance categories.
Speaker Change: The organic net sales increase was driven by mid double digit growth in global personal care sales and modest organic sales growth in global home appliances.
Speaker Change: E Commerce performance was particularly strong for HPT this quarter growing by over 33% from our record Prime day in both North America and EMEA.
Speaker Change: E Commerce sales accounted for over 25% of <unk> global sales in the quarter and year to date.
Speaker Change: North American sales increased high single digits with growth in both the personal care and home appliance categories.
Jeremy Smeltser: We are encouraged to see North American consumer demand for small kitchen appliances starting to grow. Sales of the Emeril Lagasse French Door Air Fryer continue to be strong and growing compared to last year. We have seen new listings on both e-commerce and brick and mortar stores in Q3, with more expected in Q4. Ah! Ah! Ah!
Speaker Change: We are encouraged to see north American consumer demand for small kitchen appliances starting to grow.
Speaker Change: Sales of the Emerald the gassy French door Air Fryer continued to be strong and grow compared to last year.
Speaker Change: And we have seen new listings in both e-commerce and brick and mortar in Q3 with more expected in Q4.
Speaker Change: Yes.
Jeremy Smeltser: Sales in EMEA grew mid-single digits with growth in personal care from strong hair care and shaving group sales, offset by declines in home appliances. Sales in Wattam posted single-digit growth led by personal care with flat sales at home. Our Remington One products are performing particularly well internationally and are reacting to the brand-focused investments we are making. The Remington One Dry & Style Hair Dryer and the Remington One Curl & Straight Styler won the Australian Gloss Color Award 2024 for Best New Hair Dryer and Best New Multi-Use Styler.
Speaker Change: Sales in EMEA grew mid single digits with growth in personal care from strong hair care and shave and groom sales offset by a decline in home appliance sales.
Speaker Change: Sales in Latam posted single digit growth led by personal care with flat sales and home appliances.
Speaker Change: Our Remington one products are performing particularly well internationally and are reacting to the brand focused investments we are making there.
Speaker Change: Remington, one dry and style hair dryer and Remington one curling straight styler, one the Australian Glass color Award 2024 for best New hair, dryer and best New multiyear styler.
Jeremy Smeltser: Remington outperformed two key competitors to win this award that recognized the best new products launched across skin, hair, and beauty categories. Commercially, our Remington Balder Pro Head Shaver continues to perform well and was recently named the number one head shaver in the U.S., according to Circona. We are investing behind a PowerXL relaunch in the fourth quarter and have secured new Q4 listings for our new innovative PowerXL StirMap, which is a self-staging slow cook, and our expanding international distribution of the PowerXL brand supported by marketing and advertising investments. Adjusted EBITDA was $11.8 million in the quarter compared to $11.4 million last quarter. The adjusted EBITDA margin was flat to last year at 4.1%, driven by higher sales volume and lower inventory-related expenses.
Speaker Change: Remington outperform two key competitors to win this award that recognizes the best new products launched across skin hair and beauty categories.
Speaker Change: Commercially our Remington Baldor Pro head Shaver continues to perform well and was recently named the number one head chamber in the U S. According to <unk>.
Speaker Change: We are investing behind our power excel relaunch in the fourth quarter and have secured new Q4 listings for our new innovative power EXL Star Max which is a self starting slow cooker and our expanding international distribution of the power Excel brand supported by marketing and advertising investments.
Speaker Change: Adjusted EBITDA was $11 8 million in the quarter compared to $11 4 million last year.
Speaker Change: Adjusted EBITDA margin was flat to last year at four 1%.
Speaker Change: Driven by higher sales volume lower inventory related expenses, a favorable favorable comparison to last year's higher input costs and the continued benefit of cost improvement initiatives offset primarily by higher brand focused investments unfavorable mix and pricing.
Jeremy Smeltser: A favorable comparison to last year's higher input costs and the continued benefit of cost improvement, offset primarily by higher brand-focused investments, unfavorable mix, and price. Now we'll turn to slide 16 and our expectations for 2024. Consistent with our prior earnings framework, we expect Fiscal 24 net sales to be relatively flat to Fiscal 2023, driven by higher demand in our home and garden business offset primarily by lower consumer demand in the small kitchen appliance category we experienced in the first half.
Speaker Change: Now I will turn to slide 16, and our expectations for 2024.
Speaker Change: Consistent with our prior earnings framework, we expect fiscal 'twenty for net sales to be relatively flat to fiscal 2023.
Speaker Change: Driven by higher demand in our home and garden business offset primarily by the lower consumer demand and the small kitchen appliance category, we experienced in the first half of the year.
Jeremy Smeltser: Adjusted EBITDA, excluding investment income, is expected to grow approximately 20 percent, driven primarily by higher sales volumes and lower cost inventory as compared to fiscal 23, offset by the increased investments in our brands and. Turning now to slide 17, Adjusted EBITDA is expected to be between $115 and $125 million, including stock-based compensation of approximately $15 to $20 million.
Speaker Change: Adjusted EBITDA, excluding investment income is expected to grow approximately 20% driven primarily by higher sales volumes and lower cost inventory as compared to fiscal 'twenty three offset by the increased investments in our brands and people.
Speaker Change: Turning now to slide 17.
Speaker Change: Appreciation and amortization is expected to be between 115 and $125 million <unk>.
Speaker Change: Including stock based compensation of approximately $15 million to $20 million.
Jeremy Smeltser: Cash payments toward restructuring, optimization, and strategic transaction costs are expected to be approximately $50 million. Capital expenditures are now expected to be between $45 and $55 million. Cash taxes are expected to be $35 to $40 million.
Speaker Change: Cash payments towards restructuring optimization and strategic transaction costs are expected to be approximately $50 million.
Speaker Change: Capital expenditures are now expected to be between 45, and $55 million and cash taxes are expected to be $35 million to $40 million.
David Maura: To end my section, I want to echo David and thank all of our global employees for their hard work so far this year. Hey, thanks, Jeremy, and thanks, everybody, for joining us on today's call. Let's take a couple minutes here to recap just a few of our key takeaways, and I think you can find these on slide 19.
Speaker Change: 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 Maura: Now back to David.
David Maura: Look, to sum it up, we had a good quarter. Our strategy of leaning into our strengths to fuel growth is working. We started the year planning to increase brand and innovation-focused investments by an incremental 40 to $50 million. And the team started the year slowly, being judicious in their spend, making sure they were focused on getting the right strategies, making sure that the investments we're going to get a return on them and be able to drive profitable top-line growth.
David Maura: Thank you Jeremy.
David Maura: Thanks, everybody for joining us on today's call.
David Maura: Look let's take a couple of minutes here to recap just a few of our key takeaways and I think you can find these on slide 19.
Speaker Change: Look to sum it up we had a good quarter our strategy of leaning into our strengths to fuel growth is working we.
Speaker Change: We started the year plan to increase brand and innovation focused investments by an incremental $40 million to $50 million and the team started the year slowly being judicious in their spend making sure. They were focused on getting the right strategies, making sure that the investments we're going to get a return on them and be able to drive profitable top line growth.
David Maura: This quarter, the teams really jumped in, activating almost $23 million more in investments than last year, and our results are just the evidence that the strategy is working. For us to spend $23 million more on advertising and innovation and still grow to this quota speaks to the quality of the earnings power of our company. We delivered top-line growth driven by volume increases in each one of our businesses, and we fueled our sales momentum in e-commerce, where our teams have been focused on a significant portion of the investments we've been making.
Speaker Change: This quarter. The team has really jumped in activating almost $23 million more in investments than last year.
Speaker Change: Our results are just the evidence of the strategy is working.
Speaker Change: For us to spend $23 million more in advertising and innovation and still grow EBIT. This quarter speaks to the quality of the earnings power of our company, we delivered topline growth driven by volume increases in each one of our businesses and we fueled our sales momentum in E Commerce, where our teams have been focused a significant portion of the.
Speaker Change: Investments, we've been making.
David Maura: While home and garden results were certainly helped by a more favorable weather condition, healthier retail inventory levels and our investments were critical in helping us win at shelf and win with the consumer, and we took category share for our key brands and our products. Our global pet care business continues its strong companion animal sales, and our home and personal care business had a record prime Day in both North America and EMEA.
Speaker Change: While home and Garden results were certainly helped by more favorable weather condition.
Speaker Change: A healthier retail inventory levels and our investments were critical in helping us win at shelf and win with the consumer and we took category share for our key brands and our products are.
Speaker Change: Our global Pet care business continues its strong companion animal sales in our home and personal care business had a record Prime day in both North America and EMEA.
Speaker Change: These results could not be achieved without the right leadership and the right teams in the businesses and our operating team with these these results could also not be achieved without a healthy balance sheet.
David Maura: These results could not be achieved without the right leadership and the right teams in the businesses and our operations. These results could also not be achieved without a healthy balance. As I said in my opening remarks, we're on a journey back to winning, and this quarter is just another mile marker on that journey. As I've been watching the Olympics, as I'm sure all of you have over the past couple of weeks, I've truly been inspired by the journey some of these athletes have taken to get to the pinnacle of their careers.
Speaker Change: As I said in my opening remarks, we're on a journey back to winning in this quarter as just another mile marker on that journey.
Speaker Change: As I've been watching the Olympics I'm sure all of you have over the past couple of weeks I've truly been inspired by the journey. Some of these athletes who have taken to get to the pinnacle of their careers.
David Maura: They've clearly got the right coaches, teams, resources, opportunities, and the determination to win. And if something doesn't go right during training, they make the necessary adjustments. We've been building up our teams, upgrading our talent, leaning on resources, and we're starting to capitalize on the opportunities we have to win. We believe we have the right coaches, teams, and the determination now. We will be making adjustments along the way to our continued winning journey.
Speaker Change: Clearly got the right coaches team's resources the opportunities and the determination to win and if something doesn't go right during training they make the necessary adjustments.
Speaker Change: <unk> been building up our teams we've been upgrading our talent, we're leaning into resources and we're starting to capitalize on the opportunities we have to win.
Speaker Change: We believe we have the right coaches teams and the determination now we will be making adjustments along the way to our continued winning journey and while we're in the early stages, we are gaining momentum.
David Maura: And while we're in the early stages, we are gaining momentum. Look, we do remain cautious about the things that we cannot control, like the uncertain geopolitical situation, the macroeconomic environment, rising ocean freight rates, and the uncertainty of the consumer's health.
Speaker Change: Look we do remain cautious about the things that we cannot control like the uncertain geopolitical situation the macroeconomic environment rising ocean freight rates and the uncertainty of the consumer health.
David Maura: We'll continue to focus on controlling what we can control and staying as healthy as possible to be nimble and weather the headwinds that we'll face ahead. Our balance sheet is strong. Our operations are now efficient and performing, and we will continue to invest in our brands and our people to drive growth. I'm excited about our continued momentum. At this time, I'd like to turn the call back over to Joanne, and we'll open the line up, and we'll take your questions. Joanne, back to you.
Speaker Change: We'll continue to focus on controlling what we can control and staying as healthy as possible to be nimble and weather. The headwinds that we will face ahead. Our balance sheet is strong our operations are now efficient and performing and we will continue to invest in our brands and our people to drive growth.
Speaker Change: I am excited about our continued momentum at this time I would like to turn the call back over to Joanne and we'll open the lineup and we will take your questions Joanne back to you. Thank you David Operator, we can go to the question queue now.
Joanne Chomiak: Thank you, David. Operator, we can go to the question queue now. Certainly. And our first question comes from the line of Bob Labick from CJS Securities. Your question, please. Hi, good morning. It's Pete Lucas on behalf of Bob.
Joanne: Certainly and our first question comes from the line of Bob <unk> from CJS Securities. Your question. Please.
Speaker Change: Hi, Good morning, it's Pete Lucas for Bob.
Bob Labick: I guess just talking about HPC, once that's separated, what's the heavy lifting that's left? Is there further portfolio optimization to be made in pet or home and garden? And you had talked very briefly about some extensions to categories or adjacent categories. Is that a factor? And if so, where?
Pete Lucas: I guess just talking about HP see once that separated what's the heavy lifting that's left is there further portfolio optimization to be made in pet or home and garden.
Speaker Change: And you would talk very briefly about some extensions to categories are adjacent categories is that a factor and if so where so.
Speaker Change: Yes.
Speaker Change: Look I think our bankers and our investors believe as I do.
Speaker Change: Our sale merger separation of the appliance unit.
Speaker Change: We will cause the multiple uplift on our remaining company.
Speaker Change: And.
David Maura: Look, I think our bankers and our investors believe, as I do, that, you know, a sale merger separation of the appliance unit will cause a multiple uplift on our remaining company. You know, as I said in my opening remarks, we've spent about five years here, doing asset sales, but we paid off over $5 billion of debt. And we're the lowest levered credit in the space now.
Speaker Change: As I said in my opening remarks, we spent about five years here doing asset sales.
Speaker Change: We paid off over $5 billion of debt and.
Speaker Change: We're the lowest levered credit in the space now and.
David Maura: And, you know, we, after getting the balance sheet fixed, really turned our attention to getting our operations right. We brought in a whole new team, built a new S&OP process, and got our fill rates up. And so we really feel like we're getting some operating momentum. Look, strategically, there was a transaction yesterday in the pet space that traded for 13 times on a business that has a lot less scale than ours, and half is even a margin structure. So, we continue to be perplexed as to why our shares trade where they do.
Speaker Change: After getting the balance sheet checks, we really turned our attention to get our operations right.
Speaker Change: Brought in a whole new team built a new <unk> process got our fill rates up and so we really feel like we're getting some operating momentum.
Speaker Change: Strategically there was a transaction yesterday in the pet space the traded for 13 times on a business that has a lot less scale than ours and half of our EBITDA margin structure.
Speaker Change: So we continue to be perplexed as to why our shares trade, where they do we continue to believe they're materially undervalued and that's why we continue to shrink the flow, but no. After we separate the HBC business through either a sale or merger spin.
David Maura: We continue to believe they're materially undervalued, and that's why we continue to shrink the flow. But no, after we separate the HPC business into either a sale, merger, or spend, we will look to grow organically and inorganically and build back scale. But we want to put some more wins on the board first. On the adjacency side, I think where you've seen us go in the last 18 months is really trying to expand on our strength in companion animal chews over to the treat side, where we've been smaller. So, we've focused first on a cat treat launch.
Speaker Change: We will look to grow organically and inorganically.
Speaker Change: And build back scale.
Speaker Change: But we want to we want to put some up but we want to put some more wins on the board.
Speaker Change: Yes on the adjacency side I think.
Speaker Change: Where you've seen US go in the last 18 months is really trying to expand on our strength in companion animal choose over to the trade side, where we've been smaller so we focus first on our cat tree.
David Maura: We've recently launched some dog treats. In EMEA, we are in the food space with our Iams and Eukanuba brands. We think there's an opportunity in North America as well.
Speaker Change: Treat launch we've now recently launched a dog treats.
Speaker Change: Yeah.
Speaker Change: In EMEA.
Speaker Change: We are in the food space with our <unk> brand, we think theres opportunity in North America as well.
David Maura: That's particularly for fresh, wet food, that's a strong growth category, really globally. We think there are opportunities for our brand to play in those spaces too. So those are the areas we're focused on. And last one for me, just in terms of the increased marketing spend that you talked about, you talked about $23 million with the focus on home and garden. Can you kind of give us a little more detail in terms of the breakdown between home and garden and pet and the categories that it was focused on there and where you're looking to put it to work going forward? I'll maybe let Jeremy take that.
Speaker Change: Particularly for fresh wet food, that's a strong growth category really globally, we think theres opportunities for our brands to play in those spaces to so those are the areas we're focused on for the future.
Speaker Change: And last one for me just in terms of the increased marketing spend that you talked about you talked about $23 million with a focus on home and garden can you kind of give us a little more detail in terms of the breakdown between home and garden and pet in the categories that it was focused on there and where youre looking to.
Speaker Change: Put it to work going forward.
David Maura: I'm not, you know, I'm not all super thrilled about breaking out every penny of spend and where it goes. But I can tell you, what I'm proud of is, you know, increasing our advertising spend by 23 million bucks in a single quarter and then being able to grow EBITDA by $10 million on top of that 10 million plus. I think that's something that investors should pay attention to. I think that shows the real quality and strength of the earnings power of this company that we're putting back on the map. Yeah, I agree, David.
Speaker Change: I'll, maybe let Jeremy take that I'm not.
Jeremy Smeltzer: Not all Super thrilled about breaking out every penny of spin and where it goes but I can tell you what I'm proud of is.
Speaker Change: To increase our advertising spend $23 million in a single quarter, and then be able to grow EBITDA $10 million on top of that $10 million plus.
Speaker Change: That's something that investors should pay attention to I think that shows real quality and strength of the earnings power of this company that we're putting back on the map here.
David Maura: And again, we won't, and we're not going to get into specific details, because it's going to change quarter to quarter to quarter, you know, H&G is a seasonal business, HPC has some seasonality. Also, it'll be higher in quarters where we have significant new product launches. What I'll say for this quarter is that for H&G, it was probably getting close to half of the 23 million, followed by GPC second, and HPC was a little bit behind that. But, you know, I actually think you'll see that shift in the second half of the calendar.
David Maura: Yes, I agree David.
David Maura: Again, we will we're not going to get into specific details because it's going to change quarter to quarter to quarter <unk> is a seasonal business HBC has some seasonality.
Speaker Change: So it will be higher in quarters, where we have significant new product launches what I'll say for this quarter is that for <unk>. It was probably getting close to half of the $23 million.
Speaker Change: By GPC, and HBC was a little bit behind that but.
David Maura: Actually I think youll see that shift in the second half of the calendar year, where HCC had heads into its shrunk our holiday season will ramp up a little bit.
Jeremy Smeltser: This year, when HPC heads into its stronger holiday season, we'll ramp that up a little bit. And as H&G is in its lower seasonal selling season, we'll ramp that down a little bit. It'll be fluid. Great. Helpful. Thanks. I'll jump back in the queue.
Speaker Change: And as of <unk> and its lower.
Speaker Change: Seasonal selling season will ramp that down a little bit it'll be fluid.
Speaker Change: Great helpful. Thanks, I'll jump back in the queue.
Bob Labick: Thank you. Thank you for your questions. Thank you, and our next question comes from the line of Ian Zaffino from Oppenheimer. Your question, please? Hi. Great. I wanted to just touch on PET a little bit here.
Speaker Change: Thank you thanks for your questions.
David Maura: Thank you.
Speaker Change: Next question.
Ian Zaffino: Comes from the line of Ian Zaffino from Oppenheimer. Your question. Please.
Ian Zaffino: Okay, Great wanted to just touch on a little bit here.
Ian Zaffino: It sounds like hardware's coming back. Can you maybe tell us how hardware compared to consumables or, you know, vice versa, you know, vis-a-vis how they both did compared to each other? And maybe also when you talk about online sales, kind of, you know, what categories and what's doing best online. And I'll let Jeremy take the specifics. But I mean, listen, the durable side is still tough.
Ian Zaffino: It sounds like harvest coming back can you maybe tell us how hardware compare.
Ian Zaffino: <unk> or vice versa.
Speaker Change: Are they both did compare to each other.
Speaker Change: And maybe also when you talk about the online sales.
Speaker Change: What categories and what's doing best.
David Maura: Fine.
David Maura: Thanks.
David Maura: But, you know, we had a good pond season in Europe and, you know, fish food and growing, you know, the filtration media, you know, it's good, good business replacement, you know, high-churn consumables doing well. So, you know, that business was negative for a long time. It's just nice to see aquatics stabilize, despite the continued pressure on the higher priced durable tanks, etc., and we continue to get kind of mid-single-digit growth. And our sweet spot, which is our choice.
David Maura: And then I'll, let Jeremy take the specifics, but I mean listen the durable side is still tough, but we had a good PON season in Europe, and fish food and growing filtration media good good business replacement.
Jeremy Smeltzer: Hi, churn consumables doing well so.
David Maura: That business was negative for a long time, and it's just nice to see a quad stabilized. Despite continued pressure on the higher price durable tanks et cetera.
Jeremy Smeltzer: And we continue to get kind of mid single digit growth in.
David Maura: Sweet spot, which is.
David Maura: Our chews business and so.
David Maura: So we're just going to continue to invest there. We're going to continue to drive growth. Definitely see the business migrating more toward e-commerce, and we've got a great team there that is investing heavily in digital advertising and content creation, and there's a lot more upside there. We want to get after it, but we see big-time adjacencies. We believe we have the right to win.
David Maura: We're just going to continue to invest there we continue to drive growth.
David Maura: Definitely see the business migrating more towards E Commerce, and we've got a great team. There that is investing heavily in digital advertising and content creation and Theres a lot more upside there we're going to get after it but we see big time Adjacencies. We believe we have the right to win we have some big powerful brands like good fun.
David Maura: Good and tasty can can get into.
David Maura: <unk> reach and dog toppers.
David Maura: A lot of other adjacencies that are very big categories.
David Maura: Where we think we can we can be a player. So if we can move the needle on some of those things going into 'twenty five 'twenty six.
David Maura: I think we can have a pretty exciting pet story here. So that's the focus.
David Maura: I'll turn it to Jeremy if I, Miss something or he wants to give more specifics.
Jeremy Smeltzer: Not to add I mean, it's exciting to see the visit both this business and HBC and over 25%.
Jeremy Smeltzer: E Commerce year to date I mean, that's obviously a trend that's not going to reverse the good news is we have really good capabilities globally commercially as well as operationally to Phil from an E Commerce perspective, and our margins are relatively consistent across brick and mortar and E Commerce, which is another strength for us I think.
Jeremy Smeltser: The good news is we have really good capabilities globally, commercially, as well as operationally, to fill from an e-commerce perspective. And our margins are relatively consistent across brick and mortar and e-commerce, which is another strength for us. I think, naturally, the strength in e-commerce has really followed our normal category sizes.
David Maura: Naturally the strength in E. Commerce has really followed our normal category.
Jeremy Smeltser: So think, choose, and now, with Up and Coming Treats being the biggest category where you see consumers move to an online purchase, even a recurring purchase, a monthly delivery across our e-commerce retail partners, and that's the business that we collectively love to see. And it's a great convenience for our consumers, and we hope to see it continue to grow. Okay, thank you.
Speaker Change: Sizes, so think chewy.
Speaker Change: Choose and now with up and coming treat as being the biggest category, where you see consumers move to.
David Maura: An online purchase even a recurring purchase of monthly delivery across our E Commerce retail partners in that business that we collectively love to see and it's a great convenience for our consumers and we hope to see continue to grow.
Ian Zaffino: And then also, just. Did we get your question, Eric? Did we answer it? Yes, no, that's perfect.
Speaker Change: Okay. Thank you and then also just.
Speaker Change: Do we get to your question or did we answer it.
Ian Zaffino: And I'm just going to ask one more on the M&A kind of adjacency front, which is, you know, what are you thinking as far as adjacency goes, just given kind of where we are on the macro side, you know, how are you thinking about multiples in that space? And then how are you thinking about, maybe, integration risk? Because, you know, you guys are kind of humming along really nicely here now; operations seem to be doing very well. You know, obviously, any type of M&A would maybe disturb that, or maybe not disturb that. How do you kind of think about all of those factors?
Speaker Change: Yes, that's.
Speaker Change: That's perfect answer I can ask one more on the on the M&A kind of adjacency front is.
Speaker Change: What are you thinking as far as.
David Maura: Adjacency, just given kind of where are we on the macro side.
Speaker Change: How are you thinking about multiples in that space and then how you're thinking about maybe integration risk. Because you guys are kind of humming along really nicely here now operations seem to be doing very well.
Speaker Change: Obviously any type of M&A would maybe to start that or maybe not to start that and you kind of think about all of those factors.
David Maura: Thanks. I think the first thing to do is unlock a lot of value with appliances, right? That's the hot lunch.
Speaker Change: Thanks.
Speaker Change: First thing you do is unlocked a lot of value of appliances right and so.
Speaker Change: That's that's the hot launch and.
David Maura: And I think going forward, if you look at the amount of revenue we've sold off to pay down $5 billion of debt, we need to regain some scale. And we like the pet space, and we like the home and garden space. And so we'll be active there. But you're 100% right.
Speaker Change: I think going forward. If you looked at the amount of revenue, we have sold off to pay down $5 billion of debt.
Speaker Change: We need to regain some scale and we like the pet space and we like the home and garden space and so we will be active there, but you're 100% right. Our next deal has to be a slam dunk, it's got to be something in our wheelhouse. It's got to have hard synergies and it's got to have growth and we can't overpay for it.
David Maura: Our next deal has to be a slam dunk. It's got to be something in our wheelhouse. It's got to have hard synergies.
David Maura: It's got to have growth, and we can't overpay for it. So we're just going to take our time. It's an election year.
Speaker Change: So.
David Maura: We're just going to take our time, it's an election year, we see a lot of geopolitical risks, we see a lot of economic uncertainty.
David Maura: We see a lot of geopolitical risk. We see a lot of economic uncertainty. But we don't feel like we need to run out and do anything right now.
Speaker Change: We don't feel like we need to run out and do anything right now.
David Maura: But there are a lot of assets being marketed. We are being targeted because everyone knows our balance sheet helps de-lever them. So we're seeing tons and tons of acquisition opportunities, and we're going through them all. I don't have anything to report right now other than we are focused on... Maximizing the Value Outcome of Appliance. Okay, thank you very much.
Speaker Change: But there are a lot of assets being marketed.
Speaker Change: We are being targeted because everyone knows our balance sheet helps delever them.
David Maura: And so we're seeing tons and tons of acquisition opportunities.
David Maura: And we're going through but.
David Maura: I don't have anything to report right now other than we're focused on maximizing the value outcome of appliances.
Speaker Change: Okay. Thank you very much.
Speaker Change: Ryan.
Ryan: Thank you.
Speaker Change: And our next question comes from the line.
Ian Zaffino: Thanks, Ian. Thank you. And our next question... comes from the line of Peter Grom from UBS. Your question, please. Thanks, operator. Good morning, everyone. There are two quick ones for me.
David Maura: Peter Grom from UBS Your question please.
David Maura: Thanks, operator, good morning, everyone, Hey, Peter two quick ones for me.
Peter Grom: Hey, Jeremy, how are you doing? So just, David, on the HPC separation, it's more of a how-to thing. You mentioned an updated 4Q or before then. Are we to interpret that as we're going to have a final decision between now and, say, you know, mid-November as to how this separation occurs, or is that just a broad-based comment? And then, just second, I was hoping to just get some color on the implied 4Q guidance from the sales and EBITDA perspectives, a little bit of a step down in terms of top line growth and margin progression, maybe, versus what we've seen. Can you maybe just unpack the drivers of that?
David Maura: Hey, Jeremy how are you doing.
Jeremy Smeltzer: So I guess just on the ACC separation, it's more of a housekeeping you mentioned an updated <unk> or before then are we to interpret that as we're going to have a final decision between now and say mid November.
Speaker Change: This separation of periods or is that just a.
Speaker Change: A broad based comment and then just second I was hoping to just get some color on the implied <unk> guidance on the sales and EBITDA perspective, a little bit of a step down in terms of topline growth and margin progression maybe versus what we've seen.
Speaker Change: Can you maybe just unpack the drivers of that are you simply just being conservative just given the.
David Maura: Are you simply just being conservative, just given the uncertainties out there, or is there something that you're seeing quarter to date that's really driving that view? Thanks. Yeah, look, I'll take the first, you know, and I'll give Jeremy the second.
Speaker Change: Uncertainties out there or is there something that you're seeing quarter to date, that's really driving that.
Speaker Change: Yes.
Speaker Change: Yeah look I'll take the first.
Speaker Change: Now I'll give Jeremy the second.
Jeremy Smeltser: Uh, look, um... We've got multiple bids from financial players and strategic players on this appliance asset. And we've got a spin path. And so, you know, we've just got to work through all those options and see where we come out.
David Maura: Look.
David Maura: Yeah.
Jeremy Smeltzer: We've got multiple bids from financial players strategic players on this appliance asset.
David Maura: And we've got a spin path and so we've just got to work through all those options and see where we come out and.
David Maura: You know, I just can't comment on it any further than that, but, you know, let's see where we are. You're right. I will put out a press release that will update you on it by the fourth quarter, but it might be sooner. But that's where we are.
Speaker Change: I just can't comment on it any further than that.
David Maura: But.
David Maura: Let's see where we are in.
David Maura: Youre right I put in our press release that will update you on it.
David Maura: By the fourth quarter, but it might be sooner.
David Maura: But that's where we are there's a lot of interest in the asset.
Jeremy Smeltser: There's a lot of interest in the asset. Yeah, and on the second question, Peter, so a couple of things. As I said earlier, what happens to us sequentially in our fiscal Q4 is that seasonally HPC starts to ramp up, and seasonally, home and garden starts to ramp down a bit. And that has a natural reduction in our sequential EBITDA margin on a blended basis because, as you know, Home and Garden is quite a bit higher from an EBITDA margin perspective than HPC. There is really nothing else really happening there than that.
Peter Grom: Yes, and on the second question, Peter So a couple of things.
David Maura: One.
David Maura: As I said earlier.
Speaker Change: Happens to us sequentially in our fiscal Q4 is that seasonally HBC starts to ramp up and seasonally home and garden starts to ramp down a bit and that has.
David Maura: A natural reduction in our sequential EBITDA margin on a blended basis, because as you know home and garden.
David Maura: Quite a bit higher from an EBITDA margin perspective in HBC nothing else really happening there than that and then what I would say on the topline.
Jeremy Smeltser: And then what I would say on the top line, you know, we held the top line flat for the year. We do still expect growth in the fourth quarter on the top line. However, we do expect it to moderate, which shouldn't surprise you.
David Maura: <unk>.
David Maura: We held the top line flat for the year, we do still expect growth in the fourth quarter on the topline.
David Maura: However, we do expect it to moderate which shouldnt surprising because if you look at what happened last year from Q3 to Q4, we saw growth, particularly in global pet care. So we're really not seeing seeing much of a change sequentially its really about the comps to last year.
Jeremy Smeltser: Because if you look at what happened last year, from Q3 to Q4, we saw growth, particularly in global pet care. So we're really not seeing much of a change, sequentially. It's really about the comps to last year.
Jeremy Smeltser: And we feel it's the right number to put out there, as we have started the early part of the holiday season for HPC. And for Home and Garden, I think we're off to a good start in the fourth quarter. July was good.
David Maura: And we feel it's the right number to put out there.
Holly: Start the early part of the whole Holly.
David Maura: Holiday season for HP.
David Maura: <unk> and for home and Garden.
David Maura: We're off to a good start in the fourth quarter July was good, but whether will drive how long that season lasse at retail Pos which will impact how long, we see retailer replenishment orders and Thats still something that has to develop over the next seven to eight weeks.
Jeremy Smeltser: But weather will drive how long that season lasts at retail POS, which will impact how long we see retailer replenishment orders. And that's still something that has to develop over the next seven, eight months.
Speaker Change: Awesome. Thank you Bob I'll pass it on.
Speaker Change: Thank you.
Speaker Change: Thank you.
Peter Grom: Thank you. And our next question comes from the line of Chris Carey from Wells Fargo Securities. Your question, please. Hey, good morning, guys.
Speaker Change: And our next question comes from the line of Chris Carey from Wells Fargo Securities. Your question. Please.
Chris Carey: I wanted to ask about free cash flow. Can you just characterize how you feel about conversion so far this year, perhaps some expectations for the near term, like David, you mentioned building some inventory into Q4, and maybe just, you know, medium-term thoughts on, you know, kind of how cash conversion should be trending going forward, and then I'll let Jeremy comment on it.
Chris Carey: Hey, good morning, guys.
Chris Carey: I wanted to ask about free cash flow.
David Maura: Yes.
Speaker Change: Can you just characterize.
Speaker Change: Heightened about Virgin.
David Maura: So far this year, perhaps the expectation in the near term David you mentioned building some inventory into Q4, and maybe just medium term thoughts on.
Speaker Change: Kind of how cash conversion should be trending going forward and then a follow up.
David Maura: I will tell you, look, we've had so much strategic activity, right? I mean, if you go back to selling batteries and auto care and HHI, you know, debt pay down. And then, you know, I wanted the balance sheet to be squeaky, squeaky clean as we fixed operations. And so, you know, we got off all factoring programs, everything.
Speaker Change: And I'll, let Jeremy comment on it I will tell you. It look we've heard so much.
Speaker Change: Strategic activity right I mean, if you go back to selling batteries and auto care and <unk>.
Speaker Change: Debt Paydown.
Speaker Change: Then I wanted the balance sheet to be squeaky squeaky clean as we fixed operations and so we got off all factoring programs everything I mean, we're.
David Maura: I mean, we're, I'm just telling you, our earnings quality is starting to get amazingly good, and our balance sheet is. Phenomenal, and I'm not just talking about our leverage ratios. I'm talking about how we manage our payables, receivables, etc. We're really starting to run a best-in-class organization here, but that consumed a lot of cash, paying back what in the past was, you know, and every company does it, you know, they factor receivables to get cash sooner. And I got off all that.
Jeremy Smeltzer: I'm, just telling you I mean, our earnings quality is starting to get amazingly. Good our balance sheet is phenomenal and I'm not I'm not just talking about our leverage ratios I'm talking about how we manage payables receivables et cetera, we're really starting to run a best in class organization here, but that consumed a lot of cash paying back.
Speaker Change: In the past was and every company does it.
Speaker Change: They factor receivables to get cash sooner than I got off all that and we put a lot of money in that.
David Maura: And we put a lot of money into that. We put a lot of money into CapEx, but obviously, with materially paying down debt, I can tell you as I look into 2025, you're going to see a big drop in interest expense. We're going to do our best to manage taxes. We're going to continue to work tight on the working cap. We continually want to fund a dividend, but we keep shrinking the float, and so that amount of money goes down.
Speaker Change: We put a lot of money in the Capex.
Speaker Change: But obviously with materially paying down debt I can tell you as I look into 'twenty five.
Speaker Change: Youre going to see a big drop in interest expense, we're going to do our best to manage taxes, we're going to continue to work tight on working cap, we can continually going to want to fund a dividend, but we keep shrinking the float and so that amount of money goes down.
David Maura: CapEx is CapEx, and then all the money I put into getting rid of factoring programs goes away. I'll let Jeremy talk about the big picture, but you should see free cash flow get a lot better at this company, and in Fiscal 25. Yeah, I agree with everything that David said.
Jeremy Smeltzer: Capex as Capex and then all the money I put into getting rid of factoring programs goes away. So ill, let Jeremy talk Big picture, but you should see free cash flow will get a lot better at this company as we get into fiscal 'twenty five.
Jeremy Smeltzer: Yes, I agree with everything that David said I've been Super pleased I mean, net cash from operating activities continuing ops year to date.
Jeremy Smeltser: I've been super pleased. I mean, net cash from operating activity from continuing operations year to date is at, you know, $178 million before CapEx. And that is quite a bit higher than I expected as we started the year, really driven by working capital and EBITDA, frankly. You know, in the first three quarters of the year, we unwound factoring to the tune of circa, I think, about $80 million, give or take. And in Q4, we have another $35 to $40 million that will unwind.
Jeremy Smeltzer: 178 million before Capex.
Jeremy Smeltzer: That is quite a bit higher than I expected as we started the year really driven by working capital and EBITDA frankly.
Speaker Change: In the first three quarters of the year, we unwound factoring to the tune of circa I think about $80 million give or take and in Q4, we have another $35 million to $40 million that will unwind, but despite that the cash flow has been positive and good so I feel really good heading into 'twenty five.
Jeremy Smeltser: But despite that, the cash flow has been positive and good. So I feel really good heading into 25, certainly less, really no unusual items that I can think of as I head into it. So I think it's going to be strong. You know, I usually model.
Speaker Change: Certainly less.
Speaker Change: Really no unusual items that I can think of as I head into it. So I think it's going to be strong I usually model.
Jeremy Smeltser: Free cash conversion for the business in the 40% to 50% range of EBITDA. I think that's a fair place to model, and we'll be more specific as. Okay.
Speaker Change: Free cash conversion for the business in the 40% to 50% range of EBITDA I think that's a fair place to model it will be more specific as we get to November.
Chris Carey: On this step-up in inventory, you know, just as you're preparing to execute on your sales initiatives, is that expected to have a noticeable impact on your margin profile as well? I think, you know, there was a comment about seeing some favorability on inventory carrying costs in the quarter. And perhaps this is just flagging and dynamic as opposed to something that's, you know, overly material one way or the other. Yeah, good question.
Speaker Change: Okay.
Speaker Change: On this.
Speaker Change: Step up in inventory that you are preparing to execute on your sales initiatives.
Speaker Change: Is that is that expected to have.
Speaker Change: At Otis full impact on your margin profile as well I think there is.
Speaker Change: There was a comment about.
Speaker Change: Some capability on.
Speaker Change: Inventory carrying cost in the quarter.
Speaker Change: Perhaps this is just.
Speaker Change: Flagging, a dynamic as opposed to something that's overly material one way or the other that's it for me.
Jeremy Smeltser: No, it's not going to have an impact on margins negatively. We are right-sized from a DC perspective. We're in a really good place, and we can certainly handle the incremental inventory that we mentioned in the prepared remarks. There are really two things.
Speaker Change: Yes. Good question no, it's not going to have an impact on margins negatively. We are we are right sized from a DC perspective, we're in a really good place and we can certainly handle.
Speaker Change: The incremental inventory that we mentioned in the prepared remarks, that's really about two things it's about having the right. It enough inventory for HTC to deliver on holiday sale needs into retail, which are as I said earlier sequentially. Those those demands go up.
Jeremy Smeltser: It's about having the right and enough inventory for HPC to deliver on holiday sale needs into retail, which are, as I said earlier, sequentially those demands go up. And then the other thing is the strength of e-commerce; it does have an impact on our need for a little bit more inventory because, as you know, the consumer can have a much wider choice from a SKU perspective on e-commerce than they do in brick and mortar. And so over time, we're going to carry a little bit more inventory to service that, but it won't be noticeable to our DCs or operations. It's just really more a call out on working capital.
Speaker Change: And then the other is the strength in E. Commerce. It does have an impact on our need for a little bit more inventory because as you know the consumer.
Speaker Change: Have a much wider.
Speaker Change: Joyce from a SKU perspective on e-commerce than they do in brick and mortar and so.
Speaker Change: Over time, we're going to carry a little bit more inventory to service that not not noticeable to our Dcs. Our operation is just really more of a call out on working capital and that's because as we've seen the blended.
Jeremy Smeltser: And that's because, as we've seen the blended... fill rates in the mid-90s, even moving a little bit into the high 90s, especially at Home and Garden, what's underlying that is high 90% fill rates in brick and mortar and usually low 90s in e-comm because it's such a balance of filling that wider variety that consumers choose. And so this is really just about turning the dials to get even better, from an S&OP perspective, to get those fill rates to help drive growth higher as we move into 2025. A couple years ago, we had fill rates in the 60s, and our inventory was bloated. So all the big levers have been moved.
Speaker Change: Fill rates in the mid Ninety's, even moving a little bit on the high ninety's, especially at home and garden.
Speaker Change: Whats underlying that is high.
Speaker Change: More high 90% margins in brick and mortar fill rates in brick and mortar unusually low ninety's and E com because it's such a balance of filling that wider variety of consumers choose and so this is really just about turning the dials.
Speaker Change: To get even better from an S&P perspective to get those fill rates to help drive growth higher as we move into 'twenty five yeah. Let me, let me jump in I mean look.
Speaker Change: <unk>.
Speaker Change: A couple of years ago, we had fill rates in <unk> and our inventory was bloated. So all of the big levers. We've moved I told you earlier I mean, we took almost $400 million of inventory in this company and so we've really cleaned that up what we're talking about in Q4 is very marginal.
Jeremy Smeltser: I told you earlier, I mean, we took almost $400 million out of inventory. And so, you know, we've really cleaned that up. What we're talking about in Q4 is very marginal. Just letting you know we're going to add a little bit of inventory because we're trying to grow the business again, and top line growth requires a little bit of inventory. There's nothing to really read into that, but yeah, in other words, the magnitude. We have instilled a ton of discipline, and we've done that, and that's behind us. Okay, thanks guys. Thank you.
Speaker Change: Just let me know, we're going to add a little bit of inventory because we're trying to grow the business again top line growth requires a little bit of inventory it's.
Speaker Change: There's nothing to really read into that.
Speaker Change: Other words the magnitude.
Speaker Change: We have been still a ton of discipline and we've done that and that's behind us.
Matt: Okay. Thanks, Matt.
Chris Carey: And our next question comes from the line.... Steve Powers from Deutsche Bank. Your question, please? Hey, thanks. A couple of technical ones for me.
Matt: Yes.
Matt: Thank you.
Speaker Change: And our next question comes from the line of.
Steve Powers: Steve powers from Deutsche Bank. Your question. Please.
Steve Powers: One is a follow-up on Chris's cash flow. I may have missed it in your answer, but it looked like there was a pretty big outflow from discontinued operations this quarter. I guess just any color on what that might have been and if we should view it as kind of a one-time thing or if there's any prospect of something similar repeating. No, definitely a one-time thing.
Steve Powers: Okay. Thanks.
Matt: Yes.
Steve Powers: A couple of technical ones for me one is a follow up on Chris's cash flow I may have missed it in your answer but it looked like there was a pretty big outflow from discontinued ops. This quarter I guess, just any color on what that might have been and if we should view that as kind of a one time thing or if there's any.
Speaker Change: Prospects are something similar repeating.
Speaker Change: No definitely a one time thing theres always trailing things and divestitures that it can be final tax judgments and settlements. They can be final purchase price allocation adjustments, but I think given that we're now over a year out that settles down settled down quite a bit.
Jeremy Smeltser: There are always trailing things in divestitures. You know, they can be final tax judgments and settlements. They could be final purchase price allocation adjustments. But I think, you know, given that we're now over a year out, that settles down quite a bit. Okay, great.
Steve Powers: If I did the math right, bridging from, you know, gap to adjusted EPS and taking a ticket to cut your EBITDA disclosure, it looks like there's a pretty big tax headwind this quarter on adjusted earnings. Just curious as to, you know, again, what that was and any implications for the future in terms of... Yeah, that's a great call out. Yeah, great call out, Steve.
Speaker Change: Okay, Great and then.
Speaker Change: If I did if I did the math right.
Speaker Change: <unk> from.
Speaker Change: GAAP to adjusted EPS.
Speaker Change: EBITDA is because it looks like there's a pretty big tax headwinds.
Speaker Change: This quarter on adjusted earnings just curious as to again what that was.
Speaker Change: Any implications for the future in terms of yes, thats, a great call out great color Steve.
Jeremy Smeltser: So, in this quarter, the implied tax rate in the adjusted EPS is about 43 percent. And those of you who follow us closely on EPS, you know we've used 25 percent as a standard normalized effective tax rate for adjusted EPS purposes for the last few years. Recently, we received some SEC commentary that indicated we should change that practice, and we should let unusual items flow through the tax rate. And so, you know, in particular in this quarter, you've got things like return to provision and a couple of tax rate changes globally that impacted it.
Speaker Change: So in this quarter, the implied tax rate and the adjusted EPS is about 43%.
Speaker Change: And those of you who follow US closely on EPS, you know we've used 25% as a standard normalized effective tax rate for adjusted EPS purposes for the last few years.
Speaker Change: Recently, we received from the FCC commentary that that indicated we should change that practice and we should let unusual items flow through the tax rate and so.
Speaker Change: And this quarter you have got things like return to provision and a couple of.
Speaker Change: Tax rate changes globally that impacted it and when you get our share count as low as ours is now.
Jeremy Smeltser: And when you get our share count as low as ours is now, that moves the needle pretty quickly. So, just in other words, if you did the math the old way, we probably would have had another 40 cents or so in earnings per share on an adjusted basis, which is probably what's reflected in most of the sell-side models. So, Joanne's ready to talk everybody through that today and tomorrow on the calls that she has set up. But that is a change.
Speaker Change: That moves the needle pretty quickly so just in other words.
Speaker Change: If you did the math the old way, we probably would have had.
Speaker Change: Another 40 or so.
Julien: Earnings per share on an adjusted basis, which is probably what's reflected in most of the sell side models. So Julien ready to talk everybody through that today and tomorrow and the calls that she has set up but that hasn't changed and so.
Jeremy Smeltser: And so, you know, unfortunately, while the reality is our true underlying normalized rate is 25 percent on a global basis, there are always things when you run a global business like this with as many countries and legal entities as we have that pop up as the year progresses, and we're probably going to see more surprises like this in the adjusted earnings per share due to taxes. And so we'll build an approach as we get into Q4 and next year that we'll be able to communicate more clearly on that.
Speaker Change: Unfortunately, while the reality is our true underlying normalized rate is 25% on a global basis. There are always things when you run a global business like this with as many countries in legal entities as we have that pop up.
Speaker Change: The year progresses, and we'll probably going to see more.
Speaker Change: Surprises like this in the adjusted earnings per share due to taxes and so we'll build an approach as we get into Q4 and next year that that will be able to communicate more clearly on that this was an adjustment that happened relatively late in the quarter. I. Appreciate you asking the question I was getting a couple of E mails earlier and I didn't have it.
Jeremy Smeltser: This was an adjustment that happened relatively late in the quarter. I appreciate you asking the question. I was getting a couple of emails earlier, and I didn't have it addressed in my prepared remarks. Does that make sense, Steve? It makes perfect sense. I appreciate it. Thank you very much.
Speaker Change: Address it in my prepared remarks, so that makes sense Steve.
Steve Powers: It makes perfect sense I appreciate it.
Speaker Change: Thank you very much.
Steve Powers: All right, thank you. Thank you. This does conclude the question and answer session for today's program. I'd like to hand the program back to Joanne Chomiak for any further remarks. Thank you, Jonathan.
Steve Powers: Alright, thank you.
Speaker Change: This does conclude the question and answer session of today's program I'd like to hand, the program back to <unk>.
Julien: Julien <unk> for any further remarks.
Joanne Chomiak: And with that, we have reached the top of the hour, so we will conclude our conference call. Thanks, everybody. This is David and Jeremy, and on behalf of Spectrum Brands, thank you all for your participation. Have a good day, everyone.
Speaker Change: Thank you Jonathan and with that we've reached the top of the hours that we will conclude our conference call. Thanks, everybody and Jeremy.
Steve Powers: The second Brian. Thank you all for your participation and have a good day everyone.
Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect.
Steve Powers: Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
Operator: Good day...
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Sure.
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Operator: [music] Thank you for standing by, and welcome to The Spectrum. This is the third quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode.
Speaker Change: [music].
Speaker Change: [music].
Operator: After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you'll need to press star-one-one on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star-one-one again.
Speaker Change: Thank you for standing by and welcome to the spectrum spectrum Brands' third quarter 2024 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone if your question has been.
Speaker Change: Answered if you'd like to remove yourself from the queue simply press Star One again as a reminder, today's program is being recorded and now I'd like to introduce your host for today's program Juliet.
Operator: As a reminder, today's program is being recorded. And now, I'd like to introduce your host for today's program, Joanne Chomiak, Senior Vice President of Tax and Treasury. Please go ahead.
Juliet: Senior Vice President of tax and Treasury. Please go ahead.
Joanne Chomiak: Welcome to Spectrum Brands Holdings' Q3 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.
Joanne Shomock: Welcome to spectrum brands Holdings, Q3, 2024 earnings conference call and webcast I'm Joanne show Max Senior Vice President of tax and Treasury and I will be my I will moderate today's call to.
Speaker Change: To help you follow our comments, we have placed a slide presentation on the event calendar page in the Investor Relations section of our website at Www Dot spectrum brands Dot Com. This document will remain there following our call.
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 three and four, our comments today include forward-looking statements, which are based upon management's current expectations, projections, and assumptions and are, by nature, uncertain. Actual results may differ.
Speaker Change: Starting with slide two of the presentation, our call will be led by David Maura, Our chairman and Chief Executive Officer, and Jeremy Smeltzer, Our Chief Financial Officer. After opening remarks, we will conduct the Q&A.
Speaker Change: Turning to slides three and four our comments today include forward looking statements, which are based upon management's current expectations projections and assumptions and are by nature uncertain.
Speaker Change: Actual results may differ materially due to that risk spectrum brands encourages you to review the risk factors and cautionary statements outlined in our press release dated August eight 2020 for our most recent SEC filings and spectrum brands Holdings'. Most recent annual report on Form 10-K and quarterly.
Joanne Chomiak: Due to that risk, Spectrum Brands encourages you to review the risk factors and cautionary statements outlined in our press release dated August 8, 2024, our most recent SEC filing, polling's most recent annual report on Form 10-K and quarterly reports on Form 10-Q. We assume no obligation to update any forward-looking... 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
Speaker Change: Our reports on Form 10-Q.
Speaker Change: We assume no obligation to update any forward looking statements.
Speaker Change: 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 8-K filing which are both available on our website in the Investor Relations section.
Speaker Change: Now I'll turn the call over to David Maura David.
David Maura: Hey, thanks, Joanne. Good morning, everybody. And welcome to our third quarter earnings update. We appreciate everybody joining us today. Like usual, I'm going to start this call 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 first quarter and second quarter calls, we talked about how the actions we've taken in fiscal 23 put us in a position to start on our journey back to winning this year. Our teams have worked extremely hard over the past years to put us in a position of competitive strength.
David Maura: Hey, Thanks, Joanne and good morning, everybody and welcome to our third quarter earnings update we appreciate everybody joining us today.
David Maura: But as usual I'm going to start this call with an update on our operating performance and our strategic initiatives.
David Maura: Jeremy will then provide a more detailed financial and operational update including a discussion on specific business unit results during our first quarter and second quarter calls, we talked about how the actions we've taken in fiscal 'twenty three put us in a position to start on our journey back to winning this year or two.
Speaker Change: <unk>, who have worked extremely hard over the past years to put us in a position of competitive strength.
David Maura: Through years of asset sales, we have deleveraged our company, returned capital to our shareholders, and turned our operations around. We are now focused on driving top-line growth through our commercial investment. In fact, over the past five or six years, we have reduced our gross debt by approximately five billion dollars.
Speaker Change: Through years of asset sales, we have Deleveraged, our company returned capital to our shareholders and turned our operations around we are now focused on driving topline growth through our commercial investments.
Speaker Change: Over the past five or six years, we have reduced our gross debt by approximately $5 billion. We are now the lowest levered companies in our peer group during that time, we also returned $2 billion to our equity.
David Maura: We are now the lowest levered company in our peer group. During that time, we have also returned $2 billion to our equity shareholders through share repurchases while also maintaining our quarterly dividends. Our balance sheet is the fuel that has been providing us with the financial flexibility to make meaningful improvements in our operations. We have now developed a strong S&OP process, reduced our inventory levels, and meaningfully increased our fill rates. With our operational house now in order, we have the confidence to pivot toward making meaningful investments in our brand-focused advertising, marketing, and innovation.
Speaker Change: The shareholders through share repurchases, while also maintaining our quarterly dividend our balance sheet is the fuel that has been providing us the financial flexibility to make meaningful improvements in our operations and we have now developed a strong <unk> process.
Speaker Change: We reduced our inventory levels and meaningfully increased our fill rates with our operational house now in order, we have the confidence to pivot toward making meaningful investments in our brand focused advertising marketing and innovation, our flywheel, starting with our strong balance sheet the strongest in the history of <unk>.
David Maura: Our flywheel, starting with our strong balance sheet, the strongest in the history of our company, is now in motion. We now have the right leadership and talent in our operations team to deliver improving performance from supply chain to working capital management, inventory management, and fill rates. All of these are now being used to fuel the commercial growth aspirations we have for our company. Today, I'm happy to let you know that this quarter marks another mile marker on our winning journey.
Speaker Change: Company is now in motion, we now have the right leadership and talent and our operations team to deliver improving performance from supply chain to working capital management inventory management fill rates. All of these are now being used to fuel commercial growth aspirations, we have for our.
Speaker Change: <unk>.
Speaker Change: Today I am happy to let you know that this quarter marks another mile marker on our winning journey.
David Maura: As I've said, the playbook for winning is to consistently do what we say we are going to do and deliver for all of our stakeholders. And this third quarter is an incremental step forward on that journey. In these times of economic and geopolitical uncertainty, we are controlling what we can control, and we are setting ourselves up for the future through incremental investments in our brands, and our momentum is continuing. I could now ask everyone to please turn to slide six, and we will go over the financial performance for the quarter.
Speaker Change: As I've said the playbook to winning is to consistently do what we say, we're going to do and deliver for all of our stakeholders in this third quarter as an incremental step forward on that journey.
Speaker Change: In these times of economic and geopolitical uncertainty we are controlling what we can control and we are setting ourselves up for the future through incremental investments into our brands and our momentum is continuing.
Speaker Change: If I could now ask everyone to please turn to slide six and let's go over the financial performance for the quarter.
David Maura: During the first half of this year, you'll recall that our top line was suffering from the headwinds of SKU exit decisions that we made during fiscal 23, and this has negatively impacted our net sales numbers this year.
Speaker Change: During the first half of this year Youll recall that our top line was suffering from the headwinds of SKU exit decisions that we made during fiscal 'twenty three and this has negatively impacted our net sales number this year.
David Maura: Our gross and adjusted EBITDA margins have been realizing the tailwind benefit of selling lower-cost inventory as compared to the prior year. As I told you last quarter, the effect of these factors on our comparables is largely behind us, and we expect to now see sales growth in the second half of the year. Our teams actually delivered on that commitment with net sales growth of 6% and organic sales growth of 7.1% this quarter. Across the company, volume was the primary driver of this quarter's top line growth.
Speaker Change: Our gross and adjusted EBITDA margins have been realizing the tailwind benefit of slower selling lower cost inventory as compared to the prior year.
Speaker Change: And as I told you last quarter the effect of these factors on our Comparables are largely behind us and we expect to now see sales growth in the second half of the year.
Speaker Change: Our teams in fact delivered on that commitment with net sales growth of 6% and organic sales growth of seven 1% this quarter.
Speaker Change: Across the company volume was the primary driver of this quarter's topline growth in each business unit grew its top line.
David Maura: And each business unit grew its top line, with our home and garden business delivering an impressive 13.1% top line growth as compared to last. Weather conditions in key regions improved over the course of the quarter, with more ideal temperatures and precipitation levels, especially compared to those we've seen in the prior two selling quarters. Also, inventory at our retail partners is healthier than last year, and our sales were much more closely aligned with point of sale than in the prior year.
Speaker Change: With our home and garden business, delivering an impressive 13, 1% topline growth as compared to last year.
Speaker Change: The weather conditions in key regions improved over the course of the quarter with more ideal temperatures and precipitation levels, especially compared to those we've seen in the prior two selling seasons.
Speaker Change: Also inventory at our retail partners is healthier than last year and our sales were much more closely aligned with point of sale than in the prior year.
David Maura: We actually saw spikes in retail orders in regions where weather conditions were expected to result in increased foot traffic. Importantly, once the consumer was in the store, we won at the shelf, with our full-funnel marketing investments driving sales and supporting our brands, with SpectraSide taking market share in the controls category. We have one more quarter to go in the home and garden season, with about 40% of the POS still ahead of us in Q4. This is a strong quarter for consumer demand for household and the repellent category.
Speaker Change: We actually saw spikes in retail orders in regions, where weather conditions were expected to result in increased foot traffic in.
Speaker Change: Importantly, once the consumer was in the store, we wanted shelf with our full funnel marketing investments driving sales and supporting our brands with spectra side, taking market share in the controls category.
Speaker Change: We have one more quarter to go in the home and garden season with about 40% of the POS still ahead of us in Q4, which is a strong quarter for consumer demand for household and the repellent categories.
David Maura: Our global pet care business grew organic sales by 4.1%, and our Home and Personal Care business through Organic Sales 6.1. I am particularly pleased that the organic sales in both our North American home appliance business and our global aquatics business stabilized this quarter, as both of these categories have been facing major headwinds.
Speaker Change: Our global Pet care business grew organic sales by four 1%.
Speaker Change: And our home and personal care business grew works organic sales six 1%.
Speaker Change: I am, particularly pleased that the organic sales in both our North American home appliance business.
Speaker Change: And our global Aquatics business stabilized this quarter.
Speaker Change: Both of these categories have been facing major headwinds and while we are cautious about the future. We're very encouraged to see demand improving.
David Maura: And while we're cautious about the future, we're very encouraged to see demand improving. Our growth momentum in e-commerce continued with another quarter of over 20% growth compared to last year. E-commerce sales represented over 21% of this quarter's total net sales.
Speaker Change: Our growth momentum in E Commerce continued with another quarter of over 20% growth compared to last year.
Speaker Change: E Commerce sales represented over 21% of this quarters total net sales, while HBC is leading the way with ecommerce sales growth of over 33% each.
David Maura: While HPC is leading the way with e-commerce sales growth of over 33%, each business realized double-digit growth in e-commerce sales this quarter. Including investment income, our adjusted EBITDA was $106.3 million, up from $99 million a year ago, a strong improvement across all three businesses. Excluding investment, our adjusted EBITDA was $93.6 million. Our gross profit margin of 38.9% increased by 310 basis points compared to the prior year.
Speaker Change: Each business realized double digit growth in e-commerce sales this quarter.
Speaker Change: Including investment income or adjusted EBITDA was $106 $3 million up from $99 million the period a year ago with.
Speaker Change: With strong improvement across all three business units.
Speaker Change: Excluding investment income or adjusted EBITDA was $93 6 million.
Speaker Change: Our gross profit margin of 38, 9% increased 310 basis points compared to the prior year.
David Maura: We delivered this growth in spite of investing almost $23 million more in brand advertising and innovation this quarter compared to last year. The improved gross margin was driven by our team's focus on driving continuous improvements within our operations and through operational efficiencies, cost savings, and plant productivity improvements. We remain disciplined with our cost structure to ensure that we stay lean and do not add back the fixed costs that we took out of the business in the past. This was a pivotal quarter also for our balance.
Speaker Change: We delivered this growth in spite of investing almost $23 million more in brand advertising and innovation this quarter compared to last year. The improved gross margin was driven by our team's focused on driving continuous improvements within our operations.
Speaker Change: And through operational efficiencies cost savings and plant productivity improvements.
Speaker Change: We remain disciplined with our cost structure to ensure that we stay lean and do not add back the fixed cost that we took out of the business in the past.
Speaker Change: This was a pivotal quarter also for our balance sheet.
David Maura: Since the close of the HHI divestiture, we have been carrying a significant amount of cash, maintaining our options for redeploying these proceeds. As we approach the one-year anniversary of that transaction's close, we launched and closed a debt tender across our existing bond portfolio to satisfy our covenant requirements to our bondholders. Through a combination of tenders and calls, we retired $1.174 billion of our bonds, and we have no remaining obligations under the HHI process.
Speaker Change: Since the close of the <unk> divestiture, we had been carrying a significant amount of cash maintaining our options for redeploying. These proceeds.
Speaker Change: As we approach the one year anniversary of that transactions close we launched and closed a debt tender across our existing bond portfolio to satisfy our covenant requirements to our bondholders.
Speaker Change: Through a combination of tenders and calls we retired $1 $1 $74 billion of our bonds and we have no remaining obligations per the HHR proceeds.
David Maura: To improve and simplify our capital structure with new capital, we also issued $350 million of a five-year unsecured convertible security with a coupon rate of 3.375%. These bonds are exchangeable into our shares upon certain events, at an original strike price of approximately $122 a share. As is common with these types of bonds, we entered into a cap-call structure that increased the economic conversion price for the company to approximately $159 per share. Taking the cost of the cap call into account, the effective borrowing rate on these new bonds is approximately 4.8%.
Speaker Change: To improve and simplify our capital structure with new capital. We also issued $350 million of a five year unsecured unsecured convertible security with a coupon rate of three 375%. These.
Speaker Change: These bonds are exchangeable into our shares upon certain events at an original strike price of approximately $122 a share.
Speaker Change: As is common with these types of bonds, we entered into a capped call structure to increase the economic conversion price for the company to approximately $159 per share.
Speaker Change: Taking the cost of the capped call into account the effective borrowing rate on these new bonds is approximately four 8%.
David Maura: We close this quarter with cash and short-term investments of $307 million, and our net debt is at $271.6 million, and our total liquidity position is close to $800 million. With our cash balance and capital structure reset to support our business, we will now no longer reference EBITDA excluding investment income as a metric going forward. I would now ask you all to turn to slide seven, and we can go over the strategic priorities of the company going forward.
Speaker Change: We closed this quarter with cash and short term investments of $307 million and with our net debt at $271 $6 million and our total liquidity position is close to $800 million.
Speaker Change: With our cash balance and capital structure reset to support our business. We will now no longer reference EBITDA, excluding investment income as a metric going forward.
Speaker Change: If I could now ask you all to turn to slide seven and we can go over the strategic priorities of the company going forward.
David Maura: While our operations team continues to deliver for our company, our fill rates are now in the mid to high 90s in each business, with inventory levels that are over 45% below our peak amount. We are staying very disciplined on our inventory levels, and we've taken $375 million of inventory out of the system compared to our peak levels. Compared to last year's quarter, our inventory is $88 million lower.
Speaker Change: While our operations team continued to deliver for our company. Our fill rates are now in the mid to high 90 is in each business with inventory levels that are over 45% below our peak amounts.
Speaker Change: We are staying very disciplined on our inventory levels and we've taken $375 million of inventory out of the system compared to our peak levels.
Speaker Change: Compared to last year's quarter, our inventories $88 million lower inventory turns are up to four two times and they've improved 40 basis points.
David Maura: Inventory turns are up to 4.2 times, and they've improved 40 basis points. We intend now to actually build inventory levels this quarter to support our home and personal care holiday season, and we will increase safety stock now to support our global pet care global growth strategy. We continue to realize the benefit of having less inventory on the balance, which is helping contribute to our improved gross margins and adjusted EBITDA by reducing the costs that come with carrying higher inventory levels and low fill rates.
Speaker Change: We intend now to actually build inventory levels this quarter to support our home and personal care holiday season, and we will increase safety stock now to support our global pet care as global growth strategies.
Speaker Change: We continue to realize the benefit of having less inventory on the balance sheet, which is helping contribute to our improved gross margins and adjusted EBITDA by reducing the cost that come with carrying higher inventory levels and low fill rates.
David Maura: We're also now investing in our people to improve our commercial capabilities and drive a high-performance culture with accountability. Our new talent additions across our sales and marketing functions are beginning to have a positive impact on our financial results. Our stepped-up investments in our brands and new product roadmaps accelerated this quarter, and our sales growth is now a testament that they are working. In this quarter alone, we made almost $23 million more in brand advertising and innovation-focused investments compared to a year ago.
Speaker Change: We are also now investing behind our people to improve our commercial capabilities and drive a high performance culture with accountability.
Speaker Change: Our new talent additions across our sales and marketing functions are beginning to have a positive impact on our financial results.
Speaker Change: Our stepped up investments in our brands and new product Roadmaps accelerated this quarter.
Speaker Change: Our sales growth is now a testament that they are working.
Speaker Change: In this quarter alone, we made almost $23 million more in brand advertising and innovative focus innovation focused investments just compared to a year ago and we're on track to invest approximately $50 million more for the full year.
David Maura: And we're on track to invest approximately $50 million more for the full year. The increased investment is the largest contributor to our EBITDA margin, declining to 12% this quarter, excluding investment income, compared to last year's 12.7%.
Speaker Change: The increase investment is the largest contributor to our EBITDA margin declining to 12% this quarter, excluding investment income compared to last year's 12, 7%.
David Maura: The most significant increase this quarter was in advertising, especially in our home and garden business, driving consumer demand during our peak season toward our brands by communicating not only the efficacy of our products but the tremendous value proposition that our products offer the consumer. And this created consumer excitement in the marketplace. Our HPC business continues to improve its performance, exceeding last year on every key metric and reinforcing our confidence that the time is right to separate that business via a sale, merger, or spin.
Speaker Change: The most significant increase this quarter in App was in advertising spend, especially in our home <unk> garden business driving consumer demand during our peak season toward our brands by community not only the efficacy of our products, but the tremendous value proposition that our products offer the consumer and this created consumer.
Speaker Change: Excitement in the marketplace.
Speaker Change: Our HBC business continues to improve its performance exceeding last year on every key metric and reinforcing our confidence that the time is right to separate that business via a sale merger or spin.
David Maura: Our global personal care business grew organic sales mid-double digits, and our Global Home Appliance business had modest organic sales growth. We continue to win new listings now in brick-and-mortar across the personal care and home appliances categories.
Speaker Change: Our global personal care business grew organic sales mid double digits, and our global home appliance business had modest organic sales growth.
Speaker Change: We continue to win new listings now in brick and mortar across the personal care and home appliances categories.
David Maura: HPC's investment in digital marketing and activation drove the highest Amazon Prime Day sales ever for this business. This business is consistently meeting and exceeding expectations now, and it's not only stabilized, but it's back to winning. This quarter, our internal teams and advisors continued the dual-track process of the separation of our HPC business, preparing this unit for a sale, merger, or spinoff transaction. The process is progressing as anticipated, our bankers are working actively with potential buyers on the M&A track, and we filed a Form 10 Initial Registration Statement in early July to begin the SEC registration process for a spinoff.
Speaker Change: <unk> investment in digital marketing and activation drove the highest Amazon Prime day sales ever for this business unit.
Speaker Change: This business has consistently meeting and exceeding expectations now and has not only stabilized but its back to winning.
Speaker Change: This quarter, our internal teams and advisors continue to dual track process of the separation of our HBC business.
Speaker Change: Repairing this unit for a sale merger or spin off transaction.
Speaker Change: The process is progressing as anticipated our bankers are working actively with potential buyers on the M&A track and we filed a form 10 initial registration statement in early July to begin the SEC registration process for a spin off.
David Maura: Our teams are focused on separation readiness, doing the pre-work required for transactions of this nature, and we continue to believe that the separation of HPC... will allow both Spectrum Brands Holding Company as a pure play patent home and garden business and then the separate HPC business to flourish independently, focusing on the unique needs of each business.
Speaker Change: Our teams are focused on separation readiness doing the pre work required for transactions of this nature.
Speaker Change: And we continue to believe that the separation of HPE.
Speaker Change: Will allow both spectrum brands holding company as a pure play pet and home and garden business and then the separate HBC business to flourish independently focusing on the unique needs of each business.
David Maura: We will provide an update on our next earnings call, or sooner, if there's news to share. If we could now please turn to slide 8, we have an update on our share repurchase program. We repurchased 1.6 million shares this quarter, and since the close of the HHI transaction, we've returned over $1 billion to our shareholders through our various share repurchase programs. As a result, our share count is now approximately 32% lower than it was prior to the HHI close.
Speaker Change: We will provide an update on our next earnings call or sooner. If there is news to share.
Speaker Change: If we could now please turn to slide eight and we have an update here on our share repurchase program.
Speaker Change: We repurchased one 6 million shares this quarter and since the close of the <unk> transaction, we have returned over $1 billion to our shareholders through our various share repurchase programs. Our share count is now approximately 32% lower than it was prior to the <unk> close.
David Maura: We have approximately $400 million remaining on our recently refreshed share repurchase authorization program, and with leverage still well below our long-term target range of 2.0 to 2.5 times, we have plenty of capacity to fund investments in our company and to continue to return value to our shareholders through quarterly dividends and opportunistic share repurchases. Now turning to page 9.
Speaker Change: We have approximately $400 million remaining on our recently refreshed share repurchase authorization program.
Speaker Change: And with leverage still well below our long term target range of two point out of two five times.
Speaker Change: We have plenty of capacity to fund investments into our company.
Speaker Change: And to continue to return value to our shareholders through quarterly dividends and opportunistic share repurchases.
Speaker Change: Now turning to page nine.
David Maura: Based on our results for the year to date and the trends in our retailer and consumer behavior, we are updating our earnings framework. While we continue to expect net sales to be relatively flat compared to the prior year, adjusted EBITDA is now expected to grow approximately 20%.
Speaker Change: Based on our results for the year to date and the trends in our retailer and consumer behavior. We are updating our earnings framework. While we continue to expect net sales to be relatively flat compared to the prior year.
Speaker Change: However, including investment income adjusted EBITDA is now expected to grow approximately 20%.
David Maura: This framework assumes that the favorable weather trends we've experienced this season continue as we head into a peak POS quarter for our household and repellent product segments. We are also assuming that e-commerce sales across the businesses continue to be strong and that the sales recovery in small kitchen appliances and global aquatics continues. Our businesses have performed well this year as we have leaned in to the competitive advantages that our strong balance sheet and improved operating cadence have provided.
Speaker Change: This framework assumes that the favorable weather trends we've experienced this season continue as we head into our peak pass quarter for our household and repellent product segments. We are also assuming that E. Commerce sales across the businesses continued to be strong and that the sales recovery and small kitchen appliances and global acquire.
Alex: Alex continue.
Speaker Change: Our businesses performed well this year as we have leaned into the competitive advantages that our strong balance sheet and improved operating cadence of provider.
David Maura: We remain cautious about the remainder of the year and headwinds heading into Fiscal 25 from geopolitical and macroeconomic uncertainties. As we head into the holiday quarters, we're closely watching the health of the consumer as interest rates, food, and housing costs remain high. Consumer health is uncertain and volatile, not only in the U.S. but across our global economy.
Speaker Change: But we remain cautious about the remainder of the year and headwinds heading into fiscal 'twenty five from the geopolitical and macroeconomic uncertainty.
Speaker Change: As we head into the holiday quarters, we're closely watching the health of the consumer as interest rates food and housing costs remain high consumer health is uncertain and volatile not only in the U S, but across our global economies recently ocean freight rates have risen as the geopolitical.
David Maura: Recently, ocean freight rates have risen as the geopolitical challenges stemming from the Red Sea crisis, coupled with peak season volume, have caused vessel and equipment shortages. While we continue to shift the predominance of our product under contracted rates, demand has caused us to shift some volume at spot rates, which is creating headwinds for future quarters that we will now seek to offset with cost improvement and plant productivity, in spite of these uncertainties and headwinds.
Speaker Change: Challenges stemming from the Red Sea crisis, coupled with peak season volume have caused vessel and equipment shortages, while we continue to shift the predominance of our product under contracted rates demand has caused us to shift some volume at spot rates, which is creating headwinds for future quarters that we will.
Speaker Change: Now seek to offset with cost improvement and plant productivity.
Speaker Change: In spite of these uncertainties and headwinds we intend to continue to invest behind our businesses meaningfully increasing our brand focused investments in the fourth quarter to set us up to drive sales in fiscal 'twenty five.
David Maura: We intend to continue to invest behind our business, meaningfully increasing our brand-focused investments in the fourth quarter to set us up to drive sales in fiscal 25. Each quarter that we deliver on our commitments reinforces our belief that we are on the journey to winning. Now, before I turn the call over to Jeremy, I want to take a moment to thank each and every one of our global employees who are all on this journey together and for their roles in contributing to our collective and mutual success.
Speaker Change: Each quarter that we deliver on our commitments reinforces our belief that we are on the journey to winning now.
Speaker Change: Now before I turn the call over to Jeremy I want to take a moment to thank each and every one of our global employees, who are all on this journey together and for their roles and contributing to our collective and mutual success.
David Maura: Now you're going to hear a little bit more from Jeremy on the financials, and he'll give you updated business unit insight, and then we'll come back to you for some Q&A here at the end.
Jeremy Smeltzer: Now youre going to hear a little bit more from Jeremy on the financials and Youll give you updated business unit insights and then we'll come back to you from for some Q&A here at the end at this time I would like to turn the call over to you Jeremy.
Jeremy Smeltser: Thank you. Thanks, David. Good morning, everybody.
Jeremy Smeltzer: Thanks, David Good morning, everybody, let's turn to slide 11 for a review of Q3 results from continuing operations I'll start with net sales, which increased 6%.
Jeremy Smeltzer: Excluding the impact of $8 5 million of unfavorable foreign exchange organic net sales increased seven 1%, primarily due to favorable weather conditions and improved retailer inventory health in our home <unk> Garden business.
Speaker Change: Along with continued growth in e-commerce across all segments.
Speaker Change: Gross profit increased $39 3 million and gross margins of 38, 9% increased 310 basis points, largely driven by increased volume lower freight costs and inventory related expenses and impacts from cost improvement actions.
Speaker Change: Operating expenses of $255 1 million.
Speaker Change: Decreased 34, 3% due to the absence of goodwill and intangible asset impairments compared to last year partially.
Speaker Change: Offsetting by increased investment spend in advertising and marketing as we reinvest in our brands.
Speaker Change: <unk> income of $47 7 million improved by $172 4 million.
Speaker Change: Driven by the gross margin improvement and lower operating expenses I mentioned.
Speaker Change: GAAP net income and diluted earnings per share both increased primarily driven by the higher operating income higher investment income lower interest expense and a lower share count.
Speaker Change: Adjusted EBITDA was $106 3 million, an increase of seven 9% or $7 $8 million over last year, driven by improved gross margins and investment income of $13 million.
Speaker Change: Offsetting by almost $23 million in increased brand focused investments.
Speaker Change: Adjusted EBITDA, excluding investment income was $93 6 million.
Speaker Change: Adjusted diluted EPS increased by 17 to $1 10.
Speaker Change: Driven by higher adjusted EBITDA and the reduction in shares outstanding.
Speaker Change: During the third quarter, we returned $142 million to shareholders through our share repurchase program and reduced our outstanding shares by approximately 5% or $1 6 million shares.
Speaker Change: Our current share count is approximately 32% lower than it was prior to the closure of the <unk> transaction.
Speaker Change: Turning to slide 12, Q3 interest expense from continuing operations of $15 $7 million decreased $14 $6 million.
Speaker Change: Due to our lower outstanding debt balance.
Speaker Change: Cash taxes during the quarter of $4 $4 million were $5 $5 million lower than last year.
Speaker Change: Depreciation and amortization of $25 $2 million was $2 6 million higher than last year and separately share based compensation was flat.
Speaker Change: Capital expenditures were $10 1 million in Q3 down from $18 $4 million last year.
Speaker Change: And cash payments towards strategic transactions restructuring related projects and other unusual nonrecurring adjustments were $10 5 million versus $10 $3 million last year.
Speaker Change: Moving to the balance sheet, we had a quarter end cash balance of $158 million plus $149 million in short term investments and $490 million available on our $500 million cash flow revolver.
Speaker Change: Total debt outstanding was approximately $578 million.
Speaker Change: Consisting of $496 million of senior unsecured notes and $82 million of finance leases.
Speaker Change: We ended the quarter with $272 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.
Speaker Change: I'll start with global Pet care, which is on slide 13.
Speaker Change: Reported net sales increased three 6% and excluding unfavorable foreign currency organic sales increased four 1% organic.
Speaker Change: Organic companion animal sales increased in the mid single digits, while organic aquatic sales were flat to last year with growth in aquatics consumables offset by continued softness in new environments and equipment.
Speaker Change: GPC sales in North America, and EMEA grew this quarter North American companion animal sales grew from strong performance in the e-commerce, and food and drug channels offset by some softness in mass and dollar channels.
Speaker Change: Companion animal sales in EMEA also benefited from strength in e-commerce and growth in our good boy brand.
Speaker Change: The decline in North American aquatic sales is tempering and aquatic sales continue to grow in EMEA.
Speaker Change: Excuse me with good performance in PON nutrition products this quarter.
Speaker Change: Aiding our consumable sales.
Speaker Change: Global GPC E Commerce sales increased by double digits, continuing the recent trends and consumer behaviors moving to online buying for pet products.
Speaker Change: E Commerce sales were in the mid 20% of Gpc's global sales this quarter.
Speaker Change: And year to date.
Speaker Change: On the innovation front, we recently launched good and tasty dog treats in the U S. Further expanding our presence in the nearly $5 billion U S pet treat market.
Speaker Change: The early results are promising with good and tasty already demonstrating a positive halo effect from our well established good 'n' fun brand driving increased brand awareness and household penetration.
Speaker Change: This demonstrates the power of our multi branded portfolio and our ability to leverage brand synergies for both core and adjacent category growth.
Speaker Change: We are also seeing encouraging early traction in our <unk> consumables segment with our new tub free grooming offerings in the pet specialty channel.
Speaker Change: This innovative format is resonating with consumers opening up new avenues for growth in the pet grooming category.
Speaker Change: We also entered the fast growing adjacent category of wet dog food in the UK This quarter with the launch of good boy home phase securing listings and major retailers and promoting natural meaty recipes across the range.
Speaker Change: This was the second best adjusted EBITDA quarter ever for GPC after posting the highest adjusted EBITDA or EBITDA quarter ever in the second quarter of this year.
Speaker Change: Adjusted EBITDA for GPC grew by $3 1 million to $56 7 million.
Speaker Change: Primarily driven by higher sales volume of.
Speaker Change: A favorable comparison to last year's higher input costs operational productivity improvements and favorable mix.
Speaker Change: Partially offset by unfavorable FX.
Speaker Change: <unk> also significantly increased its brand building investments this quarter.
Speaker Change: This is the sixth consecutive quarter of year over year growth for GPC and fifth consecutive quarter, where the GPC business delivered adjusted EBITDA of over $50 million, giving us confidence that our model of investing in innovation to drive growth as a market leader is working.
Speaker Change: The commercial investments, we are making in brand advertising trade promotions and new innovation launches are supporting our sales growth.
Speaker Change: Let's move now to home <unk> Garden, which is on slide 14.
Speaker Change: Net and organic sales increased 13, 1% in the third quarter, driven primarily by higher volumes.
Speaker Change: Double digit sales growth in the controls and household categories and mid single digit growth in repellents were partially offset by declines in cleaning.
Speaker Change: This year's weather trends have been more constructive than last year.
Speaker Change: Weather conditions for our controls products generally improved in key regions throughout the quarter with improved temperatures and precipitation levels, providing favorable weather conditions and driving foot traffic at our large retail partners.
Speaker Change: Retailers also allocated off shelf and promotional space to our categories are ahead of last year, helping drive sales volumes.
Speaker Change: Continuing this season's trend we saw a strong correlation between Pos and retailer orders and we believe retail inventory levels are substantially back to normal.
Speaker Change: We are particularly pleased with the impact our increased brand building investments are having on our sales.
Speaker Change: Our spectrum <unk> brand continued to increase sales ahead of category this quarter gaining share in controls.
Speaker Change: Sales growth in household was led by our Hotshot brand, where hotshot is performing well in the household categories, where we compete.
Speaker Change: Qatar area Repellents led to sales growth in our wood pellets category and.
Speaker Change: <unk> E Commerce sales grew by mid double digits and represent a low double digit percent of sales in the quarter and high single digit percent of sales year to date.
Speaker Change: We are supporting this season's new products and innovations with increased media investment to drive topline growth.
Speaker Change: This quarter, the <unk> business invested over three times more in advertising than last year communicating our product's superior value to results driven consumers.
Speaker Change: We are supporting the season with full funnel advertising activating TV digital social media and Influencer investments to build both awareness of our products and their effectiveness and drive sales conversion.
Speaker Change: This approach has driven sales and category growth of our spectrum <unk> products.
Speaker Change: And as we head into the highest sales season for repellents, we will activate the same strategy for our cutter eclipse zoned mosquito repellent.
Speaker Change: Adjusted EBITDA increased by 12, 2% to $43 3 million.
Speaker Change: The increase in adjusted EBITDA was primarily driven by higher sales.
Speaker Change: Cost improvement initiatives and pricing offset partially by a significant increase in brand building investments.
Speaker Change: And finally home and personal care, which is on slide 15.
Speaker Change: Reported net sales increased three 5% and excluding unfavorable foreign exchange organic net sales increased six 1% from the increased sales volume.
Speaker Change: The organic net sales increase was driven by mid double digit growth in global personal care sales and modest organic sales growth in global home appliances.
Speaker Change: E Commerce performance was particularly strong for HPT this quarter growing by over 33% from our record Prime day in both North America and EMEA.
Speaker Change: E Commerce sales accounted for over 25% of <unk> global sales in the quarter and year to date.
Speaker Change: North American sales increased high single digits with growth in both the personal care and home appliance categories.
Speaker Change: We are encouraged to see north American consumer demand for small kitchen appliances starting to grow.
Speaker Change: Sales of the Emerald the gassy French door Air Fryer continued to be strong and grow compared to last year.
Speaker Change: And we have seen new listings in both e-commerce and brick and mortar in Q3 with more expected in Q4.
Speaker Change: Yes.
Speaker Change: Sales in EMEA grew mid single digits with growth in personal care from strong hair care and shave and groom sales offset by a decline in home appliance sales.
Speaker Change: Sales in Latam posted single digit growth led by personal care with flat sales and home appliances.
Speaker Change: Our Remington one products are performing particularly well internationally and are reacting to the brand focused investments we are making there.
Speaker Change: Remington, one dry and style hair dryer and Remington one curling straight styler, one the Australian Glass color Award 2024 for best New hair, dryer and best New multiyear styler.
Speaker Change: Remington outperform two key competitors to win this award that recognizes the best new products launched across skin hair and beauty categories.
Speaker Change: Commercially our Remington Baldor Pro head Shaver continues to perform well and was recently named the number one head chamber in the U S. According to <unk>.
Speaker Change: We are investing behind a power excel relaunch in the fourth quarter and have secured new Q4 listings for our new innovative power EXL Star Max which is a self starting slow cooker and our expanding international distribution of the power Excel brand supported by marketing and advertising investments.
Speaker Change: Adjusted EBITDA was $11 8 million in the quarter compared to $11 4 million last year.
Speaker Change: Adjusted EBITDA margin was flat to last year at four 1% driven by higher sales volume lower inventory related expenses, a favorable favorable comparison to last year's higher input costs and the continued benefit of cost improvement initiatives offset primarily by higher brand focused <unk>.
Speaker Change: Vestments unfavorable mix and pricing.
Speaker Change: Now I will turn to slide 16, and our expectations for 2024.
Speaker Change: Consistent with our prior earnings framework, we expect fiscal 'twenty for net sales to be relatively flat to fiscal 2023.
Speaker Change: Driven by higher demand in our home and garden business offset primarily by the lower consumer demand and the small kitchen appliance category, we experienced in the first half of the year.
Speaker Change: That EBITDA, excluding investment income is expected to grow approximately 20% driven primarily by higher sales volumes and lower cost inventory as compared to fiscal 'twenty three offset by the increased investments in our brands and people.
Speaker Change: Turning now to slide 17.
Speaker Change: Appreciation and amortization is expected to be between 115 and $125 million <unk>.
Speaker Change: Including stock based compensation of approximately $15 million to $20 million.
Speaker Change: Cash payments towards restructuring optimization and strategic transaction costs are expected to be approximately $50 million.
Speaker Change: Capital expenditures are now expected to be between 45, and $55 million and cash taxes are expected to be $35 million to $40 million.
Speaker Change: 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 Maura: Now back to David.
David Maura: Thank you Jeremy.
David Maura: Thanks, everybody for joining us on today's call.
David Maura: Look let's take a couple of minutes here to recap just a few of our key takeaways and I think you can find these on slide 19.
Speaker Change: Look to sum it up we had a good quarter our strategy of leaning into our strengths to fuel growth is working we.
Speaker Change: We started the year plan to increase brand and innovation focused investments by an incremental $40 million to $50 million and the team started the year slowly being judicious in their spend making sure. They were focused on getting the right strategies, making sure that the investments we're going to get a return on them and be able to drive profitable top line growth.
Speaker Change: This quarter. The team has really jumped in activating almost $23 million more in investments than last year.
Speaker Change: Our results are just the evidence of the strategy is working.
Speaker Change: For us to spend $23 million more in advertising and innovation and still grow EBIT. This quarter speaks to the quality of the earnings power of our company, we delivered topline growth driven by volume increases in each one of our businesses and we fueled our sales momentum in E Commerce, where our teams have been focused a significant portion of the.
Speaker Change: Investments, we've been making.
Speaker Change: While home and Garden results were certainly helped by more favorable weather condition.
Speaker Change: A healthier retail inventory levels and our investments were critical in helping us win at shelf and win with the consumer and we took category share for our key brands and our products are.
Speaker Change: Our global Pet care business continues its strong companion animal sales in our home and personal care business had a record Prime day in both North America and EMEA.
Speaker Change: These results could not be achieved without the right leadership and the right teams in the businesses and our operating team with these these results could also not be achieved without a healthy balance sheet.
Speaker Change: As I said in my opening remarks, we're on a journey back to winning in this quarter as just another mile marker on that journey.
Speaker Change: Has it been watching the Olympics I'm sure all of you have over the past couple of weeks I've truly been inspired by the journey. Some of these athletes who have taken to get to the pinnacle of their careers.
Speaker Change: Clearly got the right coaches teams resources, the opportunities and the determination to win and if something doesn't go right during training they make the necessary adjustments.
Speaker Change: <unk> been building up our teams we've been upgrading our talent, we're leaning into resources and we're starting to capitalize on the opportunities we have to win.
Speaker Change: We believe we have the right coaches teams and the determination now we will be making adjustments along the way to our continued winning journey and while we're in the early stages, we are gaining momentum.
Speaker Change: Look we do remain cautious about the things that we cannot control like the uncertain geopolitical situation the macroeconomic environment rising ocean freight rates and the uncertainty of the consumer health.
Speaker Change: We'll continue to focus on controlling what we can control and staying as healthy as possible to be nimble and weather. The headwinds that we will face ahead. Our balance sheet is strong our operations are now efficient and performing and we will continue to invest in our brands and our people to drive growth.
Speaker Change: I am excited about our continued momentum at this time I would like to turn the call back over to Joanne and we'll open the lineup and we will take your questions Joanne back to you. Thank you David operator, we can go to the questions now.
Joanne Shomock: Certainly and our first question comes from the line of Bob <unk> from CJS Securities. Your question. Please.
Speaker Change: Hi, Good morning, it's Pete Lucas for Bob.
Pete Lucas: I guess just talking about HP see once that separated what's the heavy lifting that's left is there further portfolio optimization to be made in pet or home and garden.
Speaker Change: And you had talked very briefly about some extensions to categories are adjacent categories is that a factor and if so where so.
Speaker Change: Yes.
Speaker Change: Look I think our bankers and our investors believe as I do.
Speaker Change: Our sale merger separation of the appliance unit.
Speaker Change: We will cause the multiple uplift on our remaining company.
Speaker Change: And.
Speaker Change: As I said in my opening remarks, we spent about five years here do in asset sales.
Speaker Change: We paid off over $5 billion of debt and.
Speaker Change: We're the lowest levered credit in the space now and.
Speaker Change: After getting the balance sheet checks, we really turned our attention to get our operations right.
Speaker Change: Brought in a whole new team built a new <unk> process got our fill rates up and so we really feel like we're getting some operating momentum.
Speaker Change: Strategically there was a transaction yesterday in the pet space the traded for 13 times on a business that has a lot less scale than ours and half of our EBITDA margin structure.
Speaker Change: So we continue to be perplexed as to why our shares trade, where they do we continue to believe they're materially undervalued and that's why we continue to shrink the flow, but no. After we separate the HBC business through either a sale merger or spin.
Speaker Change: We will look to grow organically and inorganically.
Speaker Change: And build back scale.
Speaker Change: But we want to we want to put some up but we want to put some more wins on the board.
Speaker Change: And on the adjacency side I think.
Speaker Change: Where you've seen US go in the last 18 months is really trying to expand on our strength in companion animal choose over to the trade side, where we've been smaller so we focus first on our cat tree.
Speaker Change: Treat launch we've now recently launched in dog treats.
Speaker Change: Sure.
Speaker Change: In EMEA.
Speaker Change: We are in the food space with our <unk> brand, we think theres opportunity in North America as well.
Speaker Change: Particularly for fresh wet food, that's a strong growth category really globally, we think theres opportunities for our brands to play in those spaces to so those are the areas we're focused on for the future.
Speaker Change: And last one for me just in terms of the increased marketing spend that you talked about you talked about $23 million with a focus on home and garden can you kind of give us a little more detail in terms of the breakdown between home and garden and pet.
Speaker Change: The categories that it was focused on there and where you're looking to put it to work going forward.
Speaker Change: I'll, maybe let Jeremy take that I'm not.
Jeremy Smeltzer: Not all Super thrilled about breaking out every penny of spin and where it goes but I can tell you what I'm proud of is.
Jeremy Smeltzer: To increase our advertising spend $23 million in a single quarter, and then be able to grow EBITDA $10 million on top of that $10 million plus.
Speaker Change: That's something that investors should pay attention to I think that shows real quality and strength of the earnings power of this company that we're putting back on the map here.
David Maura: Yes, I agree David.
David Maura: And again, we will we're not going to get into specific details because it's going to change quarter to quarter to quarter. You know <unk> is a seasonal business HBC has some seasonality.
David Maura: So it will be higher in quarters, where we have significant new product launches what I'll say for this quarter is that for <unk> was probably getting close to half of the $23 million.
David Maura: By GPC and HBC is a little bit behind that but.
David Maura: Actually think you'll see that shift in the second half of the calendar year, where HCC had heads into its stronger holiday season will ramp up a little bit.
David Maura: And as of <unk> and its lower.
David Maura: Seasonal selling season will ramp that down a little bit it will be fluid.
Speaker Change: Great helpful. Thanks, I'll jump back in the queue.
Speaker Change: Thank you thanks for your questions.
David Maura: Thank you.
Speaker Change: Next question.
Ian Zaffino: Comes from the line of Ian Zaffino from Oppenheimer. Your question. Please.
Ian Zaffino: Okay, Great wanted to just touch on pet a little bit here.
Ian Zaffino: It sounds like harvest coming back can you, maybe tell us how hardware compare kit consumables or vice versa.
Speaker Change: They both did compare to each other.
Speaker Change: And maybe also when you talk about the online sales.
Speaker Change: What categories and what's doing best.
Speaker Change: <unk>.
Ian Zaffino: Thanks.
Jeremy Smeltzer: And then I'll, let Jeremy take the specifics, but I mean listen the durable side is still tough, but we had a good pond season in Europe, and fish food and growing filtration media good good business replacement.
Jeremy Smeltzer: Hi, churn consumables doing well so.
Jeremy Smeltzer: That business was negative for a long time, and it's just nice to see aquatic stabilized. Despite continued pressure on the higher price durable tanks et cetera.
Jeremy Smeltzer: And we continue to get kind of mid single digit growth in our sweet spot which is.
Jeremy Smeltzer: Our chews business and so.
Jeremy Smeltzer: We're just going to continue to invest there we continue to drive growth.
Jeremy Smeltzer: Definitely see the business migrating more towards E Commerce, and we've got a great team. There that is investing heavily in digital advertising and content creation and Theres a lot more upside there we only get after it but we see big time Adjacencies. We believe we have the right to win we have some big powerful brands like good 'n' fun, we believe good and tasty.
Speaker Change: He can get into cat treats and dog toppers.
Jeremy Smeltzer: A lot of other adjacencies that are very big categories.
Jeremy Smeltzer: Where we think we can we can be a player. So if we can move the needle on some of those things going into 'twenty five 'twenty six.
Jeremy Smeltzer: I think we can have a pretty exciting pet story here. So that's that's the focus.
Jeremy Smeltzer: I'll turn it to Jeremy if I, Miss something or he wants to give more specifics.
Jeremy Smeltzer: A lot to add I mean, it's exciting to see the visit both this business and HBC and over 25% E Commerce year to date I mean, that's obviously a trend that's not going to reverse the good news is we have really good capabilities globally commercially as well as operationally to Phil from an e-commerce perspective, and our <unk>.
Speaker Change: Margins are relatively consistent across brick and mortar and e-commerce, which is another strength for us I think naturally the strength in E. Commerce has really followed our normal category.
Speaker Change: Sizes, so choose and now with up and coming treat as being the biggest category, where you see consumers move to <unk>.
Jeremy Smeltzer: Online purchase even a recurring purchase of monthly delivery across our E Commerce retail partners in that business that we collectively love to see and it's a great convenience for our consumers and we hope to see continue to grow.
Speaker Change: Okay. Thank you and then also just did.
Speaker Change: Where do we get to your question or did we answer it yes.
Jeremy Smeltzer: Yes.
Speaker Change: Perfect answer I can ask one more on the on the M&A kind of adjacency front is.
Speaker Change: What are you thinking as far as.
Speaker Change: Adjacency, just given kind of where are we on the macro side.
Speaker Change: How are you thinking about multiples in that space and then how you're thinking about maybe integration risk. Because you guys are kind of humming along really nicely here now operations seem to be doing very well.
Jeremy Smeltzer: Obviously any type of M&A would look maybe to start better not to start that as you kind of think about all of those factors.
Jeremy Smeltzer: Thanks.
Speaker Change: The first thing you do is unlocked a lot of value of appliances right and so.
Speaker Change: That's the hot launch.
Jeremy Smeltzer: <unk>.
Speaker Change: I think going forward. If you looked at the amount of revenue, we have sold off to pay down $5 billion of debt.
Speaker Change: We need to regain some scale and we like the pet space and we like the home and garden space and so we will be active there, but you're 100% right. Our next deal has to be a slam dunk, it's got to be something in our wheelhouse. It's got to have hard synergies and it's got to have growth and we can't overpay for it.
Speaker Change: So.
Speaker Change: We're just going to take our time, it's an election year, we see a lot of geopolitical risks, we see a lot of economic uncertainty.
Speaker Change: We don't feel like we need to run out and do anything right now.
Speaker Change: But there are a lot of assets being marketed.
Jeremy Smeltzer: We are being targeted because everyone knows our balance sheet helps delever them.
Jeremy Smeltzer: And so we're seeing tons and tons of acquisition opportunities.
Jeremy Smeltzer: And we're going through all but.
Jeremy Smeltzer: I don't have anything to report right now other than we're focused on maximizing the value outcome of appliances.
Speaker Change: Okay. Thank you very much.
Speaker Change: Ian.
Ian Zaffino: Thank you.
Speaker Change: And our next question.
Speaker Change: It comes from the line of Peter Grom from UBS. Your question. Please.
Jeremy Smeltzer: Thanks, operator, and good morning, everyone, Hey, Peter two quick ones for me.
Jeremy Smeltzer: Hey, Jeremy how are you doing.
Jeremy Smeltzer: Yes.
Speaker Change: So I guess just on the.
Speaker Change: <unk>, it's more of a housekeeping you mentioned an updated <unk> or before then are we to interpret that as we're going to have the final decision between now and say mid November as to how the separation occurs or is that just at a broad based comment and then just second I was hoping to just get some color on the implied <unk> guidance from the sales of <unk>.
Speaker Change: EBITDA perspective, a little bit of a step down in terms of topline growth and margin progression maybe versus what we've seen.
Speaker Change: Can you maybe just unpack the drivers of that are you seeing.
Speaker Change: We just being conservative just given the uncertainties.
Speaker Change: Uncertainties out there or is there something that you're seeing quarter to date, that's really driving that.
Speaker Change: <unk>.
Speaker Change: Yeah look I'll take the first.
Speaker Change: Now I'll give Jeremy the second.
Jeremy Smeltzer: Look.
Speaker Change: We've got multiple bids from financial players strategic players on this appliance asset.
Jeremy Smeltzer: And we've got a spin path and so we've just got to work through all those options and see where we come out and.
Speaker Change: I just can't comment on it any further than that.
Jeremy Smeltzer: But.
Jeremy Smeltzer: Let's see where we are in.
Jeremy Smeltzer: Youre right I put in our press release that will update you on it.
Jeremy Smeltzer: By the fourth quarter, but it might be sooner.
Jeremy Smeltzer: But that's where we are there's a lot of interest in the asset.
Peter: Yes, and on the second question, Peter So a couple of things.
Peter: One as I said earlier, what happens to us sequentially in our fiscal Q4 is that seasonally HBC starts to ramp up and seasonally home and garden.
Jeremy Smeltzer: Starts to ramp down a bit and that has.
Jeremy Smeltzer: A natural reduction in our sequential EBITDA margin on a blended basis, because as you know home and garden is quite a bit higher from an EBITDA margin perspective in HBC nothing else really happening there than that and then what I would say on the topline.
Jeremy Smeltzer: <unk>.
Jeremy Smeltzer: We held the topline flat for the year, we do still expect growth in the fourth quarter on the top line.
Jeremy Smeltzer: However, we do expect it to moderate which shouldn't surprise you because if you look at what happened last year from Q3 to Q4, we saw growth, particularly in global pet care. So we're really not seeing seeing much of a change sequentially its really about the comps to last year.
Jeremy Smeltzer: And we feel it's the right number to put out there.
Holly: Start the early part of the whole Holly.
Holly: Holiday season for HP.
Speaker Change: <unk> HBC and for home and garden.
Speaker Change: We're off to a good start in the fourth quarter July was good, but whether will drive how long that season lasse at retail Pos which will impact how long, we see retailer replenishment orders and Thats still something that has to develop over the next seven to eight weeks.
Speaker Change: Awesome. Thank you Bob I'll pass it on.
Speaker Change: Thank you.
Speaker Change: Thank you.
Chris <unk>: And our next question comes from the line of Chris <unk> from Wells Fargo Securities. Your question. Please.
Chris Carey: Hey, good morning, guys.
Chris Carey: I wanted to ask about free cash flow.
Chris Carey: Yes.
Speaker Change: Can you just characterize.
Speaker Change: Heightened about Virgin.
Speaker Change: So far this year, perhaps the expectation in the near term David you mentioned building some inventory into Q4, and maybe just medium term thoughts on.
Speaker Change: Kind of how cash conversion should be trending going forward and then a follow up.
Speaker Change: And I'll, let Jeremy comment on it I will tell you. It look we've heard so much strategic.
Jeremy Smeltzer: Strategic activity right I mean, if you go back to.
Speaker Change: Sell in batteries and auto care and HII.
Speaker Change: The debt Paydown.
Speaker Change: And then I wanted the balance sheet to be squeaky squeaky clean as we fixed operations and so we got off all factoring programs everything.
Speaker Change: Im just telling you I mean, our earnings quality is starting to get amazingly. Good our balance sheet is phenomenal and I'm not just talking about our leverage ratios I'm talking about how we manage payables receivables et cetera.
Speaker Change: We're really starting to run a best in class organization here, but that consumed a lot of cash paying back what in the past and every company does it.
Speaker Change: Factored receivables to get cash sooner than I got off all that and we put a lot of money and that.
Speaker Change: We put a lot of money in the Capex.
Speaker Change: But obviously with materially paying down debt I can tell you as I look into 'twenty five.
Speaker Change: Youre going to see a big drop in interest expense, we're going to do our best to manage taxes, we're going to continue to work tight on working cap, we can continually going to want to fund the dividend, but we keep shrinking to float and so that amount of money goes down capex.
Jeremy Smeltzer: Capex as Capex and then all the money I put into getting rid of factoring programs goes away. So ill, let Jeremy talk Big picture, but you should see free cash flow will get a lot better at this company as we get into fiscal 'twenty five.
Jeremy Smeltzer: Yes, I agree with everything that David said I've been Super pleased I mean net cash from operating activities continuing ops year to date is at 178 million before capex.
Jeremy Smeltzer: That is quite a bit higher than I expected as we started the year really driven by working capital and EBITDA frankly.
Speaker Change: In the first three quarters of the year, we unwound factoring to the tune of circa I think about $80 million give or take and in Q4, we have another $35 million to $40 million that will unwind, but despite that the cash flow has been positive and good so I feel really good heading into 'twenty five.
Speaker Change: Certainly less.
Speaker Change: Really no unusual items that I can think of as I head into it. So I think it's going to be strong I usually model.
Speaker Change: Free cash conversion for the business in the 40% to 50% range of EBITDA I think that's a fair place to model it will be more specific as we get to November.
Speaker Change: Okay.
Speaker Change: On this.
Speaker Change: Step up in inventory.
Speaker Change: Preparing to execute on your sales.
Speaker Change: Initiatives.
Speaker Change: Is that is that expected to have.
Speaker Change: At Otis full impact on your margin profile as well I think there.
Jason: There was a comment about Jason capability on.
Jason: Inventory carrying cost in the quarter.
Speaker Change: Perhaps this is just.
Speaker Change: Flagging, a dynamic as opposed to something that ultimately material one way or the other that's it for me.
Speaker Change: Yes, good question.
Speaker Change: It's not going to have an impact on margins negatively. We are we are right sized from a DC perspective, we're in a really good place and we can certainly handle the.
Speaker Change: The incremental inventory that we mentioned in the prepared remarks, that's really about two things it's about having the right. It enough inventory for HTC to deliver on holiday sale needs into retail, which are as I said earlier sequentially. Those those demands go up.
Speaker Change: And then the other is the strength in E. Commerce. It does have an impact on our need for a little bit more inventory because as you know the consumer.
Speaker Change: Have a much wider choice from a SKU perspective on e-commerce than they do in brick and mortar and so.
Speaker Change: Over time, we're going to carry a little bit more inventory to service that not not noticeable to our Dcs. Our operation is just really more of a call out on working capital and that's because as we've seen the blended.
Jason: Fill rates in the mid Ninety's, even moving a little bit into the high 90, especially at home and garden.
Jason: Whats underlying that is high high.
Jason: More high 90% margins in brick and mortars fill rates in brick and mortar and usually low ninety's and E com because it's such a balance of filling that wider variety of consumers choose and so this is really just about turning the dials to.
Jason: To get even better from an S&P perspective to get those fill rates to help drive growth higher as we move into 'twenty five let me jump in I mean look.
Jason: <unk>.
Speaker Change: A couple of years ago, we had fill rates in <unk> and our inventory was bloated I mean, all of the big levers. We've moved I told you earlier I mean, we took almost $400 million of inventory in this company.
Speaker Change: So we've really cleaned that up what we're talking about in Q4 is very marginal just I'm just letting you know we're going to add a little bit of inventory because we're trying to grow the business again in topline growth requires a little bit of inventory.
Jason: There's nothing to really read into that but in other words the magnitude.
Jason: We have been still a ton of discipline and we've done that and that's behind us.
Speaker Change: Okay. Thanks, guys.
Speaker Change: Thank you.
Speaker Change: And our next question comes from the line.
Speaker Change: Steve powers from Deutsche Bank. Your question. Please.
Steve Powers: Okay. Thanks.
Steve Powers: Yes.
Steve Powers: A couple of technical ones for me one is a follow up on Chris's cash flow.
Speaker Change: I may have missed it in your answer but it looks like there was a pretty big outflow from discontinued ops. This quarter I guess, just any color on what that might have been and if we should view that as kind of a onetime thing or does any.
Speaker Change: Prospects are something similar repeating.
Speaker Change: No definitely a one time thing and Theres always trailing things and divestitures there can be final tax judgments and settlements they can be final purchase price allocation adjustments, but.
Speaker Change: Given that we're now over a year out.
Speaker Change: That settles down settles down quite a bit.
Speaker Change: Okay great.
Speaker Change: And then yes.
Speaker Change: If I did the math right bridging.
Speaker Change: Bridging from.
Speaker Change: GAAP to adjusted EPS.
Speaker Change: Thank you.
Speaker Change: Even though it is because it looks like there's a pretty big tax headwinds.
Speaker Change: This quarter on adjusted earnings just curious as to again what that was.
Steve Powers: Any implications for the future in terms of yes, thats, a great call out great color Steve.
Speaker Change: So in this quarter, the implied tax rate and the adjusted EPS is about 43%.
Speaker Change: And those of you who followed US closely on EPS you know we've used 25% as a standard normalized effective tax rate for adjusted EPS purposes for the last few years.
Speaker Change: Recently, we received from the SEC commentary that that indicated we should change that practice and we should let unusual items flow through the tax rate and so in particular in this quarter, you've got things like return to provision and a couple of <unk>.
Speaker Change: Tax rate changes globally that impacted it and when you get a share count as low as ours is now.
Speaker Change: That moves the needle pretty quickly so just in other words.
Speaker Change: If you did the math the old way, we probably would have had.
Speaker Change: Another 40 or so.
Julian: In earnings per share on an adjusted basis, which is probably what's reflected in most of the sell side models. So julians ready to talk everybody through that today and tomorrow and the calls that she has set up but that is a change and so.
Speaker Change: Unfortunately.
Speaker Change: Now the reality is our true underlying normalized rate is 25% on a global basis. There are always things when you run a global business like this with as many countries in legal entities, we have that pop up as the year progresses, and we're probably going to see more.
Speaker Change: Surprises like this in the adjusted earnings per share due to taxes and so we will build an approach as we get into Q4 and next year that that will be able to communicate more clearly on that this was an adjustment that happened relatively late in the quarter. I. Appreciate you asking the question I was getting a couple of E mails earlier and I didn't have it.
Speaker Change: Addressed in my prepared remarks, so that makes sense Steve.
Steve Powers: It makes perfect sense I appreciate it thank.
Speaker Change: Thank you very much.
Speaker Change: Alright, thank you.
Speaker Change: This does conclude the question and answer session of today's program I'd like to hand, the program back to <unk>.
Julien: Julien <unk> for any further remarks.
Speaker Change: Thank you Jonathan and with that we have reached the top of the hours that we will conclude our conference call. Thanks, everybody and Jeremy.
Speaker Change: The second Brian. Thank you all for your participation and have a good day everyone.
Speaker Change: Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
David Maura: Our flywheel, starting with our strong balance sheet, the strongest in the history of our company, is now in motion. We now have the right leadership and talent in our operations team to deliver improvements in supply chain management, working capital management, inventory management, and fill rates; all of these are now being used to fuel the commercial growth aspirations we have for our company. Today, I'm happy to let you know that this quarter marks another mile marker on our winning journey.
David Maura: Inventory turns are up to 4.2 times, and they've improved 40 basis points. We intend now to actually build inventory levels this quarter to support our home and personal care holiday season, and we will increase safety stock now to support our global pet care global growth strategy. We continue to realize the benefit of having less inventory on the balance, which is helping contribute to our improved gross margins and adjusted EBITDA by reducing the costs that come with carrying higher inventory levels and low fill rates.
David Maura: We have some big, powerful brands like Good and Fun. We believe Good and Tasty can get into cat treats and dog toys and a lot of other adjacencies that are very big categories where we think we can be a player. So if we can move the needle on some of those things, you know, going into 25-26, I think we can have a pretty exciting pet story here. So that's the focus. I'll turn it to Jeremy if I miss something or he wants to give more specifics. Yeah, I mean, not a lot to add.
David Maura: I mean, it's exciting to see both this business and HPC at over 25 percent. Lee Commerce, Year to Day. It's obviously a trend that's not going to reverse.