Q4 2024 Spectrum Brands Holdings Inc Earnings Call
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Speaker Change: Good day and thank you for standing by welcome to quarter four 2020 for Spectrum Brands Holdings, Inc Earnings Conference call.
Speaker Change: This time, all participants are in a listen only mode. After the speaker's presentation, there will be a question answer session.
Ask a question during the session you will need to press star one one on your telephone you will then hear an automated message advisor. Your hand is raised to withdraw your question. Please press star one to one again please.
Speaker Change: Please be advised that today's conference is being recorded.
Speaker Change: I would now like to hand, the conference over to your Speaker today, Joanne <unk> Senior Vice President and Treasury. Please go ahead.
Speaker Change: T J.
Speaker Change: To spectrum brands Holdings, Q4, and full year 2024 earnings conference call and webcast.
Joanne show Mac senior Vice President of tax and Treasury and I will moderate today's call.
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.
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.
Speaker Change: After opening remarks, we will conduct the Q&A.
Speaker Change: Turning to slides three and four.
Speaker Change: Our comments today include forward looking statements, which are based upon management's current expectations projections and assumptions.
Speaker Change: Are by nature uncertain.
Speaker Change: Actual results may differ materially.
Speaker Change: To that risk spectrum brands encourages you to review the risk factors and cautionary statements outlined in our press release dated November 15th 2024, and our most recent SEC filings and spectrum brands Holdings'. Most recent annual report on Form 10-K, and quarterly reports on Form 10-Q.
Speaker Change: We assume no obligation to update any forward looking statement.
Speaker Change: Also please note we will discuss certain non-GAAP financial measures in this call reconciliations.
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: In response to recent commentary and review, we have updated certain adjustments within our consolidated adjusted EBITDA and adjusted EPS performance metrics.
Speaker Change: As a result prior year results have been recast from what was previously published.
Speaker Change: The updates only affected consolidated numbers and did not impact any business units, but specific metrics.
Speaker Change: In providing comparisons to prior periods, we will use the recast numbers unless otherwise stated.
Speaker Change: Finally, we encourage you to listen to our remarks today alongside was reading spectrum brands press release, and 8-K issued today.
Speaker Change: Our annual report on Form 10-K, once it is filed with the F. C S.
Speaker Change: I see.
David Maura: Now I'll turn the call over to David David.
David David: Hey, Thank you Joanne and good morning, Thank you everybody for joining us today.
David David: Half of our company, our management team and our board of Directors. We are really pleased to share with you our fiscal 'twenty four accomplishments and successes.
David David: For fiscal 'twenty four we kept the promises that we made to ourselves and to you and we delivered and exceeded our annual operating plans on virtually every metric.
David David: We have restored operational momentum through our businesses with best in class operational efficiency fill.
David David: Fill rates being in the mid Ninety's now.
David David: And we have progressed from a weak working capital position to a company with best in class working capital management capabilities today.
Our investments in our businesses have returned our company to revenue growth in the third and fourth quarters of fiscal 'twenty four as we upgrade our capabilities and commercial operations innovation marketing and advertising.
David David: Adjusted EBITDA grew by over 20% in fiscal 'twenty, four and we believe that as the best if not one of the best performances in our entire industry.
David David: Our 20% EBITDA growth was achieved despite an incremental $62 million that we invested into our brands through new R&D marketing and advertising initiatives.
David David: If we turn to our balance sheet, we actually have the strongest balance sheet in our peer group and we ended fiscal 'twenty four with net leverage below 0.6 turns.
David David: This balance sheet strength gives us tremendous operational flexibility.
David David: And frankly strategic Optionality.
David David: We intend to use it to continue to drive organic operating performance and our shareholder value by buying back our shares.
David David: Free cash flow in fiscal 'twenty, four was $177 million.
David David: That was despite over $100 million that we invested to unwind a factoring across our entire company.
David David: I am also excited to share that our largest business unit, our North America Global Pet care company is now running on our S. Four corner ERP platform, which was implemented in the early part of October.
David David: We intend to continue to upgrade talent and build a higher performance culture at spectrum brands, which is the precursor to even better financial performance in the future.
David David: To summarize in fiscal 'twenty four we delivered on our promises we have restored momentum to our operating businesses. We have set standards of excellence and we have laid the foundation for an even more successful future.
David David: Like to say to the troops internally, we've got debt free in 'twenty three so we could achieve a lot more in 'twenty four and now its time to thrive in fiscal 'twenty five.
David David: Let's look at a few highlights and our business units and.
David David: And GPC, our investments drove growth in Adjacencies like cat treats.
David David: Doug in Cat food toppers, and a new species of goldfish.
David David: In spite of the approximately $20 million impact from SKU rationalization.
David David: Gpc's fiscal 'twenty four net sales grew by one 1% and adjusted EBITDA increased by a healthy 13, 4%.
David David: And home and garden, we invested in telling consumers about our new innovation, including our spectra side, one shot and cutter eclipse.
David David: And guess what it paid off spectra side, and hotshot took share this year with net sales, increasing seven 8% and adjusted EBITDA grew by an amazing 25, 2% in.
David David: In H P. C. We invested in our Remington one campaign and a new innovation for the upcoming holiday season, and then driving E Commerce sales.
David David: Organic net sales were relatively flat despite the challenging North America consumer demand in the first half of the year.
David David: And adjusted EBITDA increased an incredible 74, 7%.
David David: I'm really I'm pleased I'm really pleased with the EBITDA.
David David: Growth that we experienced in our appliance unit this year, it's truly remarkable.
We believe that inventory at retail is now generally back to normalized levels and were starting to see the replacement cycle Bill for small kitchen appliances.
David David: On a companywide basis growing knee, but over 20%, while increasing investment in our brands by a further $62 million.
David David: I think is a great testament to the quality of our EBITDA and earnings growth this year.
David David: Our investments paid off not only in fiscal 'twenty four, but we expect them to continue to pay off as we head into fiscal 'twenty five.
Our internal teams and advisors continue to pursue the sale of our <unk> business.
David David: We are actively engaged with multiple interested parties on the M&A side.
David David: With geopolitical factors contributing to a longer timeframe than we originally anticipated.
David David: As a result, we continue to simultaneously pursue our dual track sales spin separation strategy and both trucks remain in motion.
David David: As we do with all transactions, we will evaluate and consider what's in the best interest of our stakeholders at each step along the way.
David David: And as we have done throughout the year, we will continue to provide updates on our earnings calls or sooner. If there is news to share.
David David: As a further sign of confidence in the future performance of our company. We have just increased our quarterly dividend payout by 12% to <unk> 47 per share per quarter earlier this week.
David David: The new quarterly dividend rate represents an annualized dividend yield of 2% based on Wednesday's closing stock price.
David David: As the growth, we will get some motion for our net sales adjusted EBITDA and cash flow and gains momentum. We believe the time was right for us to increase our dividend payout and to share some of our success with our investors.
David David: If I could argue now turn to page seven and the strategic priorities, we have set out for fiscal 'twenty five.
David David: We plan to continue to build on the strong fiscal 'twenty for performance and continue to invest in the future of our businesses.
David David: We plan to invest in our brands to drive long term growth building on the confidence we have gained in fiscal 'twenty. Four we will strategically continue our brand focused investments in fiscal 'twenty five.
David David: Year on year, and we expect to increase investments by a further $10 million to $15 million.
David David: These investments will primarily be primarily be in R&D marketing and advertising to drive profitable top line growth.
David David: As we did in fiscal 'twenty four we will also be prudent in making these investments and we'll gauge their effectiveness along the way.
David David: Investments will be made across all of our businesses and we expect a more consistent rate of spend per quarter.
David David: We plan to invest in our inventory to support sales growth this year and further e-commerce expansion.
David David: E Commerce was a significant source of growth for us in fiscal 'twenty four as we source consumers switch their switch to shifting their buying habits, even more online.
David David: We want to win wherever consumers are buying and shopping.
David David: To further enable our success in serving our ecommerce retailers.
We expect to make strategic investments to increase our inventory levels by approximately $20 million to $25 million to capture incremental growth in sales and to maximize our fill rates.
David David: We plan to invest in innovation to expand in our core categories and enter new Adjacencies.
David David: We have a very strong portfolio of brands, we have a lot of number one positions in their respective categories and through investing in these brands and expanding their reach into current and new Adjacencies, we expect to drive topline growth.
Just picking one example is our recently launched nationalized National AD campaign for our good 'n' fun brand.
David David: <unk> is the number one brand in dog Chews, and we believe we can expand it now into treats food toppers and other adjacencies.
David David: We intend to continue to invest in our operations, we want to continue to drive cost improvement quality and safety.
David David: Our operational improvements this year I mean, one of the most important contributors to our success.
David David: Nothing runs well on a consumer products company. If your operations are functioning at a very high level. So we will continue to support our ops teams to ensure they can deliver for the company.
David David: Maintaining a very strong <unk> process, and focusing more on quality and safety across the entire organization.
David David: We will continue to invest in our operations for further efficiencies also wherever possible, we believe that staying lean and approaching every day with a lean mindset is imperative to sustaining the operational improvements we've worked so hard to achieve.
David David: In a few minutes, you'll hear from Jeremy about how the recent storms in the southeast have increased consumer demand for some of our <unk> products.
David David: Home and garden and beyond that is a home essentials company with a mission to make living better at home I'm really proud to.
To let you know that our teams jumped into action to help those most affected by these storms our donations to affected communities in the Western North Carolina area included spectra Sidewall spin Hornets spray.
David David: Repel insect repellent.
David David: Juvenile mop kits Nature's Miracle pet products and yes, our number one good 'n' fun dog treats.
David David: I am proud of our commitment to making a positive impact in the communities in which we serve.
David David: We can now turn our attention to slide eight and we'll talk about our earnings framework for fiscal 'twenty five.
David David: Sitting here today, we currently expect net sales to grow low single digits compared to fiscal 'twenty four across all three of our business units the investments in innovation and brand building, we made in fiscal 'twenty four it will help drive this top line growth in fiscal 'twenty five, but we continue to expect consumers to be cautious as they face in <unk>.
David David: Certain geopolitical and economic backdrop.
David David: We expect the replacement cycle ever for kitchen appliances to continue to build driving our topline growth.
David David: We generally have assume that retail inventory levels are healthy.
David David: And from an adjusted EBITDA standpoint, we expect adjusted EBITDA to grow mid to high single digits compared to fiscal 'twenty four is adjusted EBITDA, excluding investment income.
David David: The incremental EBITDA is coming from volume growth and cost improvements and it will be partially offset by incremental brand focused investments and inflation, particularly from ocean freight and tariff exclusion exploration headwinds.
David David: For adjusted free cash flow, we're now targeting another strong year with approximately 50% conversion of our adjusted EBITDA.
Our winning playbook has not changed and we continue to be keenly focused on our need to deliver on our commitments to our investors throughout the year, we'll be prudent in making investments in managing challenging economic conditions. We will control, we can control and we'll continue to focus on earning and maintaining our investors' trust and confidence.
Speaker Change: You'll now hear more from Jeremy on the financials and you'll hear updates on additional business unit insights and then I'll join you back to closeout and for Q&A at this time I will turn the call over to you Jeremy.
Speaker Change: Thanks, Dave and good morning, everyone, Let's turn to slide 10 for a review of our Q4 results, we'll start with net sales.
Jeremy Smeltzer: Net sales increased four 5% and excluding the impact of $2 7 million of unfavorable foreign exchange organic net sales increased four 8%.
Jeremy Smeltzer: Organic net sales were higher primarily due to growth in controls in repellents categories, and normalized retailer inventory levels and home and garden.
Jeremy Smeltzer: <unk> in both home and personal care categories for HBC with new Black and Decker listings and continued growth in e-commerce.
And a strategic pull forward of orders and GPC by retailers and preparation for our S. Four Hana ERP implementation.
Jeremy Smeltzer: Gross profit increased $43 $6 million.
Jeremy Smeltzer: And gross margins of 37, 2% increased 420 basis points.
Jeremy Smeltzer: Driven by the favorable impact of cost improvement actions operational efficiencies and inventory actions in the prior year parks.
Jeremy Smeltzer: Partially offset by inflation and ocean freight.
Jeremy Smeltzer: SG&A expense of $263 $9 million increased to 34, 1% of net sales.
Jeremy Smeltzer: Driven by increased innovation marketing and advertising investments in the business.
Jeremy Smeltzer: Operating income increased to $21 9 million.
Jeremy Smeltzer: Our GAAP net income and diluted earnings per share decreased due to lower interest income and higher income tax expense offset by increased operating income and lower interest expense.
Diluted EPS also benefited from the lower share count.
Jeremy Smeltzer: Yes.
Jeremy Smeltzer: Adjusted diluted EPS decreased 13, 4% due to the lower adjusted EBITDA, partially offset by lower interest expense lower income tax expense and lower share count.
Jeremy Smeltzer: The effective tax rate for the quarter was 23, 8%.
Jeremy Smeltzer: Adjusted EBITDA decreased 38, 2%, but.
But excluding investment income adjusted EBITDA declined $12 3 million to $68 9 million driven by the increased brand investments of $26 million.
Jeremy Smeltzer: $12 million more than we initially planned at the beginning of the quarter.
Jeremy Smeltzer: As our top line growth accelerated throughout the period, we made the decision to increase our investments and improved momentum heading into 2025.
Jeremy Smeltzer: Let's turn now to slide 11.
Jeremy Smeltzer: Q4 interest expense of $6 $7 million decreased $14 2 million.
Jeremy Smeltzer: Cash taxes during the quarter of $9 $2 million were $5 3 million higher than last year.
Jeremy Smeltzer: Depreciation and amortization of $25 6 million was $2 1 million higher than the prior year.
Jeremy Smeltzer: And separately share based compensation decreased by $1 1 million.
Jeremy Smeltzer: Cash payments towards restructuring optimization and strategic transaction costs were $8 4 million down from $18 4 million last year.
Jeremy Smeltzer: Moving now to the balance sheet, the company had a cash balance of $369 million.
Jeremy Smeltzer: And approximately $491 million available on our $500 million cash flow revolver.
Jeremy Smeltzer: Debt outstanding was approximately $6 billion <unk>.
Jeremy Smeltzer: Consisting of approximately <unk> 5 billion of senior unsecured notes and $81 $6 million of finance lease obligations.
Jeremy Smeltzer: We ended the quarter with five six turns of net leverage.
Jeremy Smeltzer: Capital expenditures were $13 million in the quarter versus $14 7 million last year.
Jeremy Smeltzer: Turning now to slide 12, an overview of our full year results net and organic sales increased one 5%.
Jeremy Smeltzer: The sales performance was driven by improved inventory health and.
Jeremy Smeltzer: And favorable weather in our home and garden business as well as continued strength in the companion animal category and our global pet care business.
Jeremy Smeltzer: While full year home and personal care net sales were slightly down driven by softness in North America, and small kitchen appliances, particularly in the first half we did return to growth in the second half.
Jeremy Smeltzer: Full year gross profit increased by $185 million and gross margins of 37, 4% increased 570 basis points, largely driven by lower cost inventory and inventory related expenses.
Jeremy Smeltzer: Cost improvement initiatives and our increased volume.
Jeremy Smeltzer: Adjusted EBITDA increased to $371 8 million and excluding investment income adjusted EBITDA increased 20% to $319 2 million.
Jeremy Smeltzer: Primarily driven by the gross margin improvement a reduction in our operating expenses increased volume and favorable interest income.
Speaker Change: As David mentioned adjusted free cash flow was $177 million in spite of headwinds from unwinding all of our global AR factoring programs.
Speaker Change: This represents a nearly 50% conversion of EBITDA.
Speaker Change: During the year, we were able to renegotiate terms with a number of significant suppliers to more closely align our payables and receivable terms.
Maintained a healthy inventory profile fueled by our <unk> process and we actively managed our capex investments.
Speaker Change: Now, let's get into the review of each business unit to provide detail 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 5%.
Speaker Change: Excluding the impact of favorable foreign currency organic net sales increased two 9%.
Speaker Change: Companion animal sales increased by mid single digits offset somewhat by a high single digit declines in aquatics hard goods.
Speaker Change: In North America Companion animal sales grew from strong E Commerce dollar channel and food and drug sales offset by some softness in mass in pet specialty.
Speaker Change: On October 3rd the GPC North American business went live on <unk>, our new ERP system.
Speaker Change: In anticipation of a typical system transaction transition, which includes ordering and shipping blackout periods. During the days, leading up to and after go live GPC partnered with our retail customers to accelerate certain purchases into the period before implementation to ensure the retailers.
Speaker Change: Had sufficient supply.
Speaker Change: This call is approximately $10 million of sales to be realized in the fourth quarter instead of the first quarter of fiscal 'twenty five.
Speaker Change: Our go live was successful and GPC resumed normal operations within days in line with our expectations.
Speaker Change: In EMEA companion animal sales grew this quarter, where we also saw strong ecommerce sales and higher sales for our good boy and dog and cat food products.
Speaker Change: And the Aquatics segment global sales of consumables were up low single digits, but were offset by double digit declines in non consumables, such as tanks and filtration systems.
Speaker Change: We saw sequential softness in global sales compared to last quarter when organic net sales were relatively flat to prior year.
Speaker Change: In addition to continued softening consumer demand.
Speaker Change: <unk> business is being impacted by changes in the commercial landscape as businesses adjust their capital investment plans.
Global E Commerce sales grew mid single digits this quarter coming in at close to 25% of global sales for the quarter and the full year.
Speaker Change: We continue to be excited about the innovation, we launched in fiscal 'twenty for us.
Speaker Change: As you May recall, we identified cat treats as an adjacent category that presented expansion opportunities for the business.
Speaker Change: We entered this emerging category with RMB, OE and good and tasty brands during fiscal 'twenty four.
Speaker Change: We continue to gain momentum in this space.
Speaker Change: Our cat treats have secured several listings that major national chains that will be on shelf and online in fiscal 'twenty five.
Speaker Change: And we are optimistic that we will see healthy sustainable growth in cat treats with our robust innovation pipeline.
Speaker Change: Our Afirma later consumables saw strong growth with the introduction of our new tub free line of day, shedding sprays wipes and easy to use combs with foaming shampoo.
Speaker Change: Leveraging good boys number one UK dog treat position, we entered the wet dog food category this quarter with consumer influenced home faves formulas.
And in the U S. We are in the early stages of launching dog food toppers under the good and tasty and good boy brands.
Speaker Change: We believe we can penetrate this emerging adjacent category by leveraging our R&D capabilities, our supplier relationships and our strong brands.
Speaker Change: We've been selling these items online for just a few weeks and the early results are promising.
Speaker Change: And Aquatics, we had our most successful launch of our glo fish, new species and the GPC history.
Speaker Change: With the launch of our Glo fish Angel fish.
Speaker Change: The entire globe fish brand grew this quarter from the Halo effect of the Angel fish launch.
Speaker Change: We are confident that the innovation investments we made in fiscal 'twenty four put us in a stronger position to start fiscal 'twenty five.
Speaker Change: Adjusted EBITDA of $44 3 million $9 2 million less than last year.
Speaker Change: While Gpc's Q4, gross margins improved by 70 basis points compared to last year and were up 460 basis points for the full year, we invested part of the gross margin improvement and driving growth in the quarter and for next year.
Speaker Change: Throughout the year GPC has sequentially increased its brand focused investments ending with its highest investment level quarter.
Speaker Change: In Q4, GPC almost doubled its level of marketing promotions and brand focused investments compared to last year spending over $12 million more than in 2003.
These investments supported our recently launched and upcoming innovation.
Speaker Change: Address competitive pressures given consumer dynamics and created new assets to support national campaigns launching in fiscal 'twenty five.
Speaker Change: Adjusted EBITDA was also impacted by incremental volumes operational productivity improvements and incremental trade programming.
Speaker Change: For fiscal 'twenty five we expect the positive trends in companion animal consumables categories to continue.
Speaker Change: With pressure in the first quarter from the S. Four on a sales pull forward.
Speaker Change: For the year, we expect consumers to be cautious during challenging economic conditions.
Speaker Change: Many of Gpc's brands, our premium brands and we are seeing the impact of a strained consumer on these brands more than our other businesses.
Speaker Change: We remain cautious about aquatics, especially in hard goods, where demand continues to be soft.
Speaker Change: In total we expect fiscal 'twenty five to grow at a lower rate than our long term target.
Speaker Change: Moving out of home and Garden, which is on slide 14 fourth quarter reported net sales increased seven 7%.
Speaker Change: Double digit sales growth in the controls and repellents categories and low single digit growth in household.
Speaker Change: Largely offset by a decline in the cleaning category.
Speaker Change: Most of our major retail partners stayed in the lawn and garden category longer this year to take advantage of the warmer weather has extended growing season, continuing to allocate promotional space to our categories later into the quarter.
Speaker Change: This drove higher sales volumes and the controls category.
Speaker Change: <unk>, especially strong wasp and Hornet sales and supported our area and personal repellent sales. During this category is highest Pos quarter.
Speaker Change: The storms in the southeast also drove higher consumer demand for personal area and area of pellets.
Speaker Change: While the warmer weather created a natural shift in consumer demand away from the household category since insects remain outdoors longer we were pleased that our sales in this category grew low single digits and continue to take share.
Speaker Change: And cleaning trends have been improving throughout the year and we plan to continue investing in advertising and other brand activation to support this category.
Speaker Change: We continued to see a strong correlation between retailer orders Npls this quarter as retail inventory levels are substantially back to normal.
Speaker Change: E Commerce sales grew mid single digits this quarter and represented high single digit percentage of sales for the full year.
Speaker Change: Throughout fiscal 'twenty for home and garden increased its brand building investments by over 75%.
Speaker Change: With a focus on advertising and marketing to support the rollout of our new innovations.
Speaker Change: We introduced spectrum side, one shot and the new cutter Eclipse model, both of which were successful in driving topline growth and expanding the reach of our brands.
During this past quarter, we created programs targeted to the extended fall season.
Speaker Change: Our continued investments in brand focused marketing and advertising helped drive demand toward our household products during an otherwise challenged fall season for the category helping.
Speaker Change: Helping us take share and wasp and Hornet and herbicides.
Speaker Change: We were proud to see better homes and Gardens magazine recently recognized three spectrum brands products.
Speaker Change: Syed Hotshot and Equallogic among its top Roche killers of 2024.
We are pleased with the top line growth our investments drove in fiscal 'twenty four.
Speaker Change: And are confident that these investments will set up home and garden for continued growth in fiscal 'twenty five.
Speaker Change: This quarter's adjusted EBITDA of $19 million is $2 million lower than last year, and adjusted EBITDA margin declined by 270 basis points.
Speaker Change: The lower EBITDA was driven by a greater than $5 million increase in brand building investments.
Shifts in variable operating costs and other items offset by higher volumes positive pricing and favorable mix.
Speaker Change: This has been a great year for home and garden after a difficult fiscal 'twenty, three resulting from retailer inventory strategies and non optimal weather conditions.
Speaker Change: The business improved dramatically in fiscal 'twenty for <unk>.
Speaker Change: Sales grew seven 8% gross margins increased 530 basis points and adjusted EBITDA increased 25, 2%.
Speaker Change: We are particularly pleased with the consumer reaction to our new innovations and increased investments in advertising and marketing.
Speaker Change: With the exception of certain controls products, which have an early season demand. We believe most retailers ended the season with normalized inventory levels across most of our categories.
Speaker Change: And expect Pos and retailer orders to be relatively aligned in fiscal 'twenty five.
Speaker Change: <unk> inventory later in the season with some softness early in the season due to inventory levels for certain controls products.
Speaker Change: And an anticipated cooler start to the season.
Speaker Change: We continue to work closely with our retail partners to understand consumer demand expectations, and how that translates into our production and shipment plans.
Speaker Change: And finally home and personal care, which is on slide 15.
Speaker Change: Reported net sales increased four 1%.
Speaker Change: Excluding some unfavorable foreign exchange organic net sales increased five 4%.
The sales increase was driven primarily by higher sales volume offset somewhat by promotional investments.
Speaker Change: Both home and personal care categories grew organic net sales by mid single digits.
Speaker Change: Consistent with recent trends e-commerce sales accounted for approximately 25% of <unk> global sales in the quarter and the full year and we had another strong result from Amazon Prime day in early October.
Overall, North American sales declined mid single digits with slightly positive sales in home appliances offset by mid single digit declines in personal care.
Speaker Change: And home appliances, new listings, such as for our Black and Decker ice crush blender.
Speaker Change: And continued strong performance of the Emerald line offset sales declines from two retail bankruptcies.
Speaker Change: We are pleased with the low single digit growth, we are seeing in some of our home product categories.
Speaker Change: Especially in coffee and garment as consumer demand is improving and the replacement cycle for small kitchen appliances continues to build.
Speaker Change: This quarter sales decline in personal care is primarily due to investments we made in transitioning our skus at major retailers combined.
Speaker Change: Combined with the pull forward of some e-commerce sales from Q4 into Q3 for July Prime day.
Speaker Change: We have seen some recent softness in personal care, especially in hair care, which is an important category for Remington.
Speaker Change: As we head into the holiday season, we are generally pleased with retail inventory levels.
Speaker Change: We are in a much better spot, especially from North American Air Fryers, and toaster ovens than they were last year at this time.
Speaker Change: Sales in EMEA grew low double digits in both the home appliance and personal care categories led by growth in small kitchen appliances garment care hair care and shave and groom.
Speaker Change: And sales in Latin America grew mid single digits in both categories.
Speaker Change: Adjusted EBITDA was $19 million this quarter.
Speaker Change: Which is $1 3 million lower than last year, and adjusted EBITDA margin declined by 70 basis points, driven by additional brand focused advertising and promotions, along with higher freight costs and unfavorable mix.
Speaker Change: Partially offset by the higher sales volumes and cost improvement initiatives.
Looking at full year results, we saw improving trends in the global business throughout the year with second half sales sales growth almost fully offsetting declines in the first half.
Speaker Change: We were especially encouraged by the second half sales trends in North America, with new Skus in brick and mortar and outpaced growth in ecommerce sales.
Speaker Change: Hbc's fiscal 'twenty four gross margins improved 690 basis points over last year.
Speaker Change: And adjusted EBITDA increased by almost 75% compared to last year.
Speaker Change: The incremental brand building investments helped communicate our innovation to retailers and consumers from our Remington one launch early in the year and the success of our Remington Baldor.
Speaker Change: To the recent introduction of the power Excel stair Max multi cooker, a first of its kind slow cooker with an automatic paddle to stir in shred on its own.
Speaker Change: <unk> will be on shelves during this holiday season.
Speaker Change: Our black <unk> Decker ice crush Blender is one of our most successful blender launches in recent history.
Speaker Change: With wide shelf placement in both brick and mortar and e-commerce.
As we look forward, we expect the second half global sales trends to continue into fiscal 'twenty five.
Speaker Change: We have new listings in both brick and mortar and e-commerce channels, and we expect the outpaced growth in e-commerce sales to continue.
Speaker Change: Let's turn now to slide 16, and our expectations for 2025.
Speaker Change: We expect net sales to grow low single digits across all three businesses.
Speaker Change: With our brand building investments fueling top line growth and offsetting expected pressures from current geopolitical and economic conditions.
Speaker Change: Adjusted EBITDA, excluding investment income is expected to grow mid to high single digits driven.
Speaker Change: Driven primarily from increased volume and cost improvement initiatives.
Speaker Change: Partially offset by an increase in brand building investments.
Speaker Change: Ocean freight inflation and tariff exclusion exploration headwinds.
Speaker Change: From a phasing perspective, we expect the impacts from increased investments to pressure comparisons to last year more heavily in the first half.
Speaker Change: Free cash flow conversion as a percent of adjusted EBITDA is expected to be around 50%.
Speaker Change: As David mentioned, our focus this year has been getting our operational house in order and increasing our working capital discipline.
Speaker Change: We expect to reach this milestone while increasing investments in inventory to support our e-commerce growth.
Speaker Change: We'll turn now to slide 17.
Depreciation and amortization is expected to be between 115 and $125 million, including stock based compensation of approximately 20% to $25 million.
Speaker Change: Cash payments towards restructuring optimization and strategic transaction costs are expected to be between 30% and $40 million.
Speaker Change: Capital expenditures are expected to be between 50, and $60 million and cash taxes are expected to be between 40% and $45 million.
Speaker Change: Our estimated effective tax rate on.
Speaker Change: From continuing operations is 32%.
Speaker Change: This will be impacted by various quarterly discrete items.
Speaker Change: To end my section I want to thank all of our global team members for their contributions in delivering a strong fiscal 'twenty four I am confident we are set up well to have another successful year in fiscal 'twenty five.
David: Now back to David.
David: Okay. Thank you Jeremy.
David: Again, thanks, everybody for joining us today and happy Friday.
David: Look I'd like to take a few minutes here just to recap the key takeaways and I think those are on slide 19.
David: If you could turn to slide 19, as we closed fiscal 'twenty four and <unk> 25, I'm really proud of the year we've had.
David: I really do want to Echo Jeremy and just just thank all of our outstanding employees for their contributions over the last 12 months.
David: This was a remarkable year. If you remember this time last year, we'd actually projected are our sales would be down.
But investing into our businesses, we actually delivered growth and as we've talked about we returned our company to to strong sales growth both in Q3 and Q4.
David: We invested an upgraded talent innovation marketing and advertising.
David: After facing significant challenges for the years, we've leaned into our competitive advantages we've invested in our brands our businesses and our teams to drive this growth.
David: We've delivered on our promises we built momentum in all of the business units. We've set standards of operational excellence and we've laid the foundation for the future.
David: Most importantly, we did what we said we were going to do and we delivered on our commitments to all of our stakeholders we.
David: We made the important and significant decision to really step up and invest in our front office and our commercial capabilities with the $62 million increase in brand building investment initiatives.
David: We expect to continue to realize the benefit of those investments in the coming year.
David: And we anticipate growing our investment levels as we see only as we see the incremental return.
Speaker Change: As Jeremy said, we expect net sales to grow low single digits. This year and we expect adjusted EBITDA to increase mid to high single digits over the prior year, excluding investment income.
Speaker Change: We expect fiscal 'twenty five to again be a challenging environment, but we believe we actually have the right strategy to succeed.
Speaker Change: While we have some concerns about geopolitical unrest macro economic uncertainty in the overall consumer health.
Speaker Change: Our balance sheet strength, our operational efficiency and a regain sales momentum in all three businesses give us confidence as we face into the future.
Speaker Change: As I've said in my opening remarks, we believe fiscal 'twenty five is our year to thrive to accelerate and to achieve further growth.
Speaker Change: I'll now turn the call back to Joanna and we're really happy to take your questions.
Speaker Change: Thank you David operator, we can go to the question queue now.
Speaker Change: Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again.
Speaker Change: Please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Peter Grom from UBS.
Speaker Change: Yes. Thanks, operator, good morning, everyone. Good morning, Peter David just.
Speaker Change: Hey, Jeremy So David just on the <unk> transaction.
Speaker Change: You mentioned geopolitical events contributing to a longer timeframe.
Speaker Change: Maybe can you just unpack that a bit more and kind of what really changed between.
Speaker Change: Our transpired since August.
Speaker Change: Far more optimistic.
Timeframe.
Speaker Change: And then I guess just within that has the outcome to the election the potential for chair tariffs.
Changed your view on that timeline or maybe the form.
Speaker Change: The HBC separation at all.
Speaker Change: Look I think first.
You got to zoom out and.
Speaker Change: A year ago, we had a business doing $40 million in EBITDA.
Speaker Change: No, it's tough to spin that business or sell it at that.
Speaker Change: Type a lackluster performance and so.
What we really wanted to do is get the company humming again.
Speaker Change: Do different strategy with a new leader with Jim right.
Speaker Change: And look I'm sitting here thrilled today to say, we grew that EBA at a $75 million plus in the last 12 months in we're forecasting increased sales and EBIT growth for the next 12 months, so fundamentals always when you're going to get those fundamentals right.
Speaker Change: And I think you know a lot of heavy lifting under the surface here to deliver that but we're on a good good path yes.
Speaker Change: Yes look there's no question.
Speaker Change: No.
Speaker Change: You don't go through.
Speaker Change: A U S election.
Speaker Change: And in the month of October and then you saw the middle East flare up I mean, those things not just for us, but I think across the M&A Spector.
Speaker Change: Spectrum actually puts people put their pencils down they take their time to see what's going to happen.
Speaker Change: But we are updating you today, we're in talks with two of the buyers who want to continue with us and getting on a plane to go meet one of them here in the next weeks and we will.
Speaker Change: Let you know if we if we get through a good deal there, but we're continuing to progress it and we're going to continue to manage the business for better fundamental performance going forward.
Speaker Change: Super helpful.
Speaker Change: And then just maybe a follow up maybe for Jeremy.
Speaker Change: Last year.
You took a relatively conservative stance as it relates to the guidance I just would be.
Speaker Change: Curious extra kind of embedding some flexibility given the uncertainty that you mentioned looking ahead and then just maybe within that.
Speaker Change: The expectations. It was really helpful to hear some views on top line growth across the three segments. So I'm just really curious if theres some things we should be anticipating.
Speaker Change: Terms of EBIT growth from all three segments as you think about our models for fiscal 'twenty Guide.
Speaker Change: Well I'm going to start and then I'll give it to Jeremy I mean, we tried to give a bunch of little bread crumbs you know in this press release in the rest of it I mean.
Speaker Change: No. The reality is we spent almost $26 million incremental AD spend in Q4.
Speaker Change: So you guys are looking at like a 68 or 69 or $69 million EBIT number for Q4.
Speaker Change: On the surface that disappoints you.
Speaker Change: Which you got to make these investments if you want to take market share. If you want to reignite sales growth and you want to build terminal value in the future and so we are.
Speaker Change: We are seeing very fast returns on some of this investment, particularly the bottom funnel stuff.
Speaker Change: And we expect to get real market share real sales growth and create real shareholder value over the long term from them, but obviously, if you take that huge incremental advertising investment in that box you could argue we could have reported $94 $95 million in EBITDA in the quarter, we just delivered and so we're also.
Speaker Change: And to let you know.
Speaker Change: The health of the earnings here.
Speaker Change: Pretty robust to think you grew EBITDA, 20% in a year and yet you burn burdened it without additional investment.
Speaker Change: I think it speaks pretty highly to the quality of the earnings power of the underlying businesses I'll turn it over to Jeremy, but yes look we huh.
Jeremy Smeltzer: Last year, you're right, we had a conservative view, we obviously did a little bit better than that and we want to continue that track record. So Jeremy over to you, Yes, I think thats, a very fair point and good way to in your comments, David We do want to continue that track record you guys know that we know it's important to our shareholders.
Jeremy Smeltzer: That said you got to think about a lot of variables as we build our full year model.
Jeremy Smeltzer: I think it starts with the top line and what we've said is we expect to grow.
Jeremy Smeltzer: All three business is low single digits.
Jeremy Smeltzer: That's pretty consistent with the last two quarters, so that should give some comfort and confidence why is that I think.
Jeremy Smeltzer: It's a it's a different story by each business I said in my prepared remarks, GPC is predominantly premium brands and it's a more difficult environment for premium brands in this economy. There is no doubt.
Jeremy Smeltzer: So while we think we grow low single digits, it's not where we'd like to be but that's what's happening.
Jeremy Smeltzer: You can think about the <unk> hard goods those are high ticket.
Jeremy Smeltzer: New entrants items and in this economy, that's just difficult for consumers. So we're working on that with our retail partners to try to promote to try to invest a little bit to get more people to the category, but it's a hard decision for consumers right now and we have to recognize that.
Jeremy Smeltzer: And home and Garden, we had an excellent year, 8% growth in 'twenty four.
Jeremy Smeltzer: Value brands right. So it's the right economic environment for those brands.
Jeremy Smeltzer: Is the right environment for trade downs as our consumers.
Jeremy Smeltzer: Things from third party suppliers for their yards in homes and do it themselves. We're right there for them and it's great and so we expect to continue to grow but we have a pretty pretty difficult comp at 8% growth last year, So again low single digits and in the HBC business.
Jeremy Smeltzer: Historically this has been a lower growth category. So I think low single digits makes sense to us we do have some opening price point brands in there, particularly black and decker in the us that is doing well with new skus because of where it's positioned.
Jeremy Smeltzer: And it fits well with many of our retail partners strategies with their consumers as they focus on opening price point. So thats the thought process on the top line and that's where we're headed I think there was a lot of volatility in our spending and brand investments. So you heard David say, we intend to even that out throughout the year to make it easier to model.
Jeremy Smeltzer: Business and quite frankly to keep the content, we're creating in front of our consumers on a consistent basis.
Jeremy Smeltzer: Every month every quarter.
Jeremy Smeltzer: And then.
Jeremy Smeltzer: What do we have to deal with from an expense perspective, we have some ocean freight.
Jeremy Smeltzer: A headwind we talked about.
Jeremy Smeltzer: We think.
Jeremy Smeltzer: The majority of that's behind US based on what we're seeing and we have good contracts for 25, but those dollars are basically already been spent and they are in inventory and theyre going to hit us in Q1 and Q2. So we got to face that on the bottom line and then we mentioned there was a.
Jeremy Smeltzer: Tariff exclusion exemption that expired in June I believe in the HBC business and that's about an $8 million.
Jeremy Smeltzer: Headwind for them so.
Jeremy Smeltzer: We are taking I think a REIT prudent approach to the year.
I think we're cautious on the economy and I'll, probably leave it at that as it relates to how we approached the forecast.
Speaker Change: Awesome. Thank you so much I'll pass it on.
Speaker Change: Thanks Peter.
Speaker Change: Have a good weekend.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Bob <unk> from CJS Securities.
Speaker Change: Good morning, Thanks for taking my questions Hey, Bob.
Speaker Change: Hi.
Obviously, a big theme has been leaning in on investments to drive growth current and future growth and so I was hoping maybe you could dig down a little bit there and talk about it take your words.
Speaker Change: Kind of where the investment is at the top of the funnel where it is at the bottom of the funnel and how you. How you are making those decisions and where you stand now on that that investment spending and how that will change in the future.
Speaker Change: I can take a crack at it I mean.
Speaker Change: You clearly see the.
Speaker Change: The results coming in terms of restoring our sales growth.
Speaker Change: The spend was big and lumpy and we don't want that in fiscal 'twenty. Five. So we wanted to be more consistent there is as Jeremy just commented I think the early spend in the year were mostly bottom funnel really making sure that we've got very high a very quick returns on capital.
Speaker Change: And we wanted to restore the earnings power of the business right. I mean, so look we just grew EBITDAR from I think the $2 <unk> to three almost $3 20, we intend to grow that EBITDA level.
Speaker Change: Higher over the next 12 months.
Speaker Change:
Speaker Change: But we are doing some heavier top funnel stuff now, which does have a longer term payback, but it is important to to build that brand equity.
Speaker Change: To be able to take shelf space to get our retail customers excited about the storytelling, we're doing on some of our new product launches and new Adjacencies.
Speaker Change: We just watch the pet asset.
Speaker Change: Trade 48 hours ago, Forbes 2017 to 22 times EBITDA now they happen to be more in the cat space than we are they tend to be more food related but.
But we see a fantastic opportunity and cat and we wanted to take this good 'n' fun brand, we want to really create a halo around good and tasty doing a lot of testing and learning with our digital.
Counterparts.
Speaker Change: <unk> customers and we're seeing some really exciting early returns there so.
Speaker Change: Want to get us to move bigger and faster. So we can get more of an allocation.
Speaker Change: All of our businesses towards these higher growth markets, which are food.
Speaker Change: And wellness and so.
Speaker Change: That's part of the calculus.
Speaker Change: Jeremy you want to add to that.
Jeremy Smeltzer: Just maybe a little more color so about 10% of that increase was in R&D itself, which is obviously a longer term play Bob.
Speaker Change: Over 50% was in bottom funnel with the vast majority of those dollars focused on E Commerce, where we had an.
Jeremy Smeltzer: An outstanding year.
Part of that frankly is getting our fair share of where our consumers are going particularly in the appliance business, where the market has moved dramatically to online and then in the second half of the year. It is more top of funnel and content creation.
Jeremy Smeltzer: And.
Jeremy Smeltzer: That's really more of a 2025 2026, you're going to start seeing our brands more.
Jeremy Smeltzer: On streaming some on actual cable and sports et cetera network.
Jeremy Smeltzer: But yes, we're going to be positioned very differently 12 months from now with the brand based on the dollars that we're spending now and we are building the mechanisms to track returns on that and we'll be nimble and adjust I'll tell you that.
Jeremy Smeltzer: You know about.
Jeremy Smeltzer: And that 10% that was in R&D is relatively split fairly equally between marketing and advertising, which is kind of an indicator of.
Jeremy Smeltzer: Top of funnel versus bottom funnel.
Speaker Change: Got it okay, great Super helpful color I appreciate that and then just quickly on H PC, obviously, you've discussed the factors and whatnot.
Speaker Change: What will determine the timing right now when will you when would you expect to have greater clarity on the timing of the HPE <unk> separation I should say and is there a scenario, where it's part of spectrum in fiscal 'twenty six.
M&A is fluid as you know it's unpredictable.
No question I kind of hope to have a deal done by now and so we've told you in the release, we do think that leading up to an election and the outcome of that election in middle East stuff is definitely cost US 30, plus days, but we are actively pursuing it.
Speaker Change: And we will update you when we can it's kind of hard to comment beyond that but look again I think the key thing. We're trying to tell you is we're working really hard to make that a much better business.
Speaker Change: And we're getting a lot of good results. So.
Speaker Change: We will continue to look at ways to do the best we can to maximize shareholder value.
Speaker Change: I think look I think really what you should look at too is the fact that we're pulling five turns levered and were getting earnings growth really humming again in pet and home and garden.
Speaker Change: We continue to trade at kind of I think a ridiculous.
Speaker Change: Multiple so there's just lots of upside here is still to be out in the balance sheet gives us that optionality to to make that happen. So I'm very bullish on the outlook for 'twenty five and we'll do our best to optimize value for appliances.
Speaker Change: Super Thanks, so much.
Speaker Change: Thanks, Bob.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Chris Carey from Wells Fargo Securities.
Speaker Change: Hey, good morning, guys.
Speaker Change: Sure.
Speaker Change: Good I wanted to see if you could expand on.
Speaker Change: The underlying health, but.
Speaker Change: The outperformance of the pet business $10 million benefit in the quarter can you just reverse that out in Q1, and then just just from a broader perspective Jeremy highlighted.
Speaker Change: More premium offerings.
Speaker Change: Yeah posing a challenge for consumers I understand some retailers are also pushing private label.
Speaker Change: Maybe if you could just take a step back on.
Speaker Change: The performance and competitive nature in the pet segment.
Speaker Change: How much visibility you have this year and maybe over time.
Speaker Change: That'd be helpful. Just to get some broader thoughts on the business given some of the some of the.
Speaker Change: The moving pieces this year and going into next year.
Speaker Change: Yes, I mean I think.
Speaker Change: I'll start.
Speaker Change: David could add any comments the visibility it's decent if you look at the topline.
Speaker Change: In dollars.
Speaker Change: It's been relatively consistent over the last four quarters.
The timing of the S. Four Hana situation.
Speaker Change: Does impact about $10 million.
But visibility is decent.
Speaker Change: In brick and mortar we're still seeing annual line reviews, you are right. We do have some retailers.
Speaker Change: They're very focused on private label and we're there to support them our brands are still in.
Speaker Change: And those brick and mortar channels, we're still important to them, but as they push consumers are they believe their consumers are pushing themselves more towards private label. It makes it more challenging us for us to reach that mid single digit top line growth that we'd like to be seeing out of the business that said, it's pretty stable and again.
Speaker Change: Seeing growth in Aquatics consumables. The last two quarters is something that we are happy to see but it's just very difficult other than entry level, it's very difficult for consumers right now to make that.
Speaker Change: Call it seven to $800 tick.
Speaker Change: Ticket decision on a large new environment for their homes, given the uncertainty that they are seeing and the higher interest rates and I think we just have to bear with that as they go through 25, it's still an excellent business. It is.
Low growth, it's low capex and it generates very good margins for us and it is a razor razorblade model with the food and filtration additives. So that's that's kind of the environment I am not surprised based on the overall macro environment that low single digit is where we're at we're going to push hard do more.
Speaker Change: All of David's commentary of what we're doing with marketing and advertising, including innovation with new listings and in cat treats in dog and Cat food Toppers I think we're we're moving all the levers that we need to.
Speaker Change: But we are facing a bit of an uphill grind with the economy right now.
Speaker Change: Let me, let me chime in on because you made a good observation on private label et cetera.
Speaker Change: I think if you look at the last 12 months, we are telling you we still had some.
Speaker Change: Revenue in that division that we fired basically with SKU exits and rationalization.
Speaker Change: And just because private label is doing.
Speaker Change: Doing a little bit better now.
Speaker Change: We told you earlier, we have we are a national AD campaign for the first time on our good and fund business couldn't fund was a brand we bought it was like $50 million of revenue when we got it we're doing over quarter $1 billion, just under that brand alone now I want to grow that to have a $1 billion business.
Speaker Change: And to do that you've got to advertise and so there is a decent chunk now top of funnel advertising going there not just to defend the brand against private label, but the storytelling and the content creation about why that product is better than private label and then the Adjacencies. We can go in.
That's really exciting and ill look I'll lean in a little bit with you help you out.
Speaker Change: I mean, we started fiscal 'twenty five in good shape.
October which we just completed actually beat our expectation.
Speaker Change: And we see sales and EBITDA growth in pet this current quarter.
Despite the pull forward. So we're in good shape and we're going to lean in.
Speaker Change: Okay, Great. One one quick follow up on Garden I think one of your competitors was also talking about some lingering inventory exiting the season, just because of how.
Speaker Change: Strong fall lies in how long retailers stuck around did I hear you correctly that you're planning for.
Speaker Change: I guess a bit more cautious.
Speaker Change: Cautious but.
Speaker Change: Perhaps some lower retail ordering in the front half of the fiscal year and garden.
Speaker Change: As they assess as retailers the SaaS the season.
Speaker Change: Is that going to be more of a back half loaded year I just wonder if you could dig a bit deeper into into that comment around late season.
Speaker Change: <unk>.
Speaker Change: That's going to impact the front half year year in guarding thanks, so much.
Speaker Change: Sure Yeah, Chris So yes, I mean other comments are really around what we're hearing from our retail partners on their expectations for the coming season, which we are in constant communications with them on those things and we seem to be hearing a bit of a consensus that theyre expecting a cooler start to the spring next year, which you know.
Speaker Change: I think it's pretty difficult to predict sitting here in mid November but that is a consensus we're hearing from them and hence our comments that hey, maybe it's a bit slower start to ordering from the retailers and don't be surprised if you see that.
Speaker Change: From our perspective, I think we had a.
Speaker Change: Slightly favorable weather season in 2024 to what I'd call a normal weather season, and so I still think with a normal weather season.
Speaker Change: We still grow low single digits as we talked about on this call, but we just wanted to get that out there because we are hearing it from our three largest retailers and they are obviously incredibly important to our overall sales and timing of sales.
Speaker Change: Okay. Thanks, guys.
Speaker Change: Thank you have a good day.
Speaker Change: Thank you.
Speaker Change: I'd now like to turn the conference back over to Joanne Joe Mac for closing remarks.
Speaker Change: Thank you and with that we have reached the top of the hour. So we will conclude our conference call. Thank you to David and Jeremy and on behalf of spectrum brands. Thank you all for your participation.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
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