Q2 2025 Spectrum Brands Holdings Inc Earnings Call
Speaker Change: Good day, and thank you for standing by. Welcome to the Q2 2025 Spectrum Brands holding earnings conference call.
At this time, all participants are in a listen-only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session. To ask the question during this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised.
To withdraw your questions, please press star 1-1 again.
Please please advise that today's conference is being recorded.
Speaker Change: I would now like to hand the conference over to your first speaker today, Joanne Chomak, SBP of Corporate Tax and Treasury.
Speaker Change: Good morning and welcome to Spectrum Brands Holdings Q2 2025 Earnings Conference Call and Webcast. I'm Joanne Chomiak, 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 this live 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.
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 Smeltser, our Chief Financial Officer. After opening remarks, we will conduct the Q&A.
Turning to slides 3 and 4.
Speaker Change: Our comments today include forward-looking statements which are based upon management's current expectations, projections and assumptions, and are by nature uncertain.
Actual results may differ materially.
Speaker Change: Due to that risk, Spectrum Brands encourages you to review the risk factors and cautionary statements outlined in our press release dated May 8th, 2025, our most recent SEC filings, and Spectrum Brands' holdings' most recent annual report on Form 10K, and quarterly reports on Form 10Q.
We assume no obligation to update any forward-looking statements.
Speaker Change: Our statements reflect our expectations regarding tariffs, which are based on currently known and effective tariffs, and do not reflect tariffs that have been announced and delayed or other additional tariffs which could result in additional costs.
Speaker Change: Also, please note that we will discuss certain non-GAAP financial measures in this call. Reconciliation on a GAAP basis for these measures are included in today's press release and 8K filing, which are both available on our website in the Investor Relations section.
Now I'll turn the call over to David Maura. David?
David Maura: Thanks, Joanne, and good morning, everybody. We want to welcome you to our second quarter earnings update. Thanks very much for joining us today. I'm going to start the call with an update on just the global economic market situation and their impact on our company.
David Maura: Then we'll talk about our operating performance and our strategic initiatives. I'll turn the call over to Jeremy after that and he'll provide a lot more details on the financials and operating update, including a discussion on the specific business unit results.
Speaker Change: At this time, if I could have you turn to slide six,
Speaker Change: The world has changed dramatically since we spoke to you last quarter, but despite the volatile tariff situation and related consumer demand uncertainty.
Speaker Change: Given our strong balance sheet and cash flow, our resilient team, and the brands that we have that are important to our retail customers and consumers, I'm actually encouraged by the opportunities I see ahead for our company after we navigate this new tariff environment.
Speaker Change: When we spoke a couple months ago, three months ago, exactly a 10% tariff on Chinese goods had just been announced.
Speaker Change: Tariffs on Goods from Canada and Mexico have also been announced and there were no other reciprocal tariffs in place.
Speaker Change: For perspective, about 20% of our global cogs is sourced from China for the US market, and we have negligible sourcing from Canada and Mexico.
Speaker Change: So at that point, our expectation was that we would offset the fiscal 25 impact of that first round of tariffs within our earnings framework.
Speaker Change: This is not the first time we as a company or Spectrum Brands have faced tariffs, nor inflation and headwinds, and the teams are already in action running our playbook.
Speaker Change: We had notified our suppliers that we were expecting price concessions, we notified our retail partners, price increases, and we were looking for internal cost improvements to cover any leftover costs.
Speaker Change: We're also accelerating planes to move our supply base out of China, prioritizing the SKUs that were facing the highest tariffs.
Speaker Change: We spoke to you about consumer sentiment in certain of our category's weakening as the consumers digest the new international trade environment and the implication it has on prices and inflation.
At this point, the game is changed.
Speaker Change: With the incremental 125% Chinese tariff and our Chinese source goods subject to a tariff of at least 145% in some cases up to 170%.
Speaker Change: We've determined there's no way or no playbook that we can realistically use to cover these incremental cost and continue to source product from China.
Speaker Change: And one of my mantras is that you need to control what you can control. At this point, these are no longer cares. They are simply a barrier to trade. In an our opinion, completely unsustainable.
Speaker Change: As such, we made the tough decision to pause virtually all finished purchase goods from China until the tariff levels declined to an amount where we can maintain our profitability and margins. And we are currently selling our Chinese source products that are already in our inventory and that are already on the water.
Speaker Change: Our teams are, again, hard at work focusing on expediting the move out of China, our sourcing new product development and commercial teams are finding new supply outside of China as we speak and navigating through disruption during the transition time.
Speaker Change: Supply change, supply change changes require time, not only to find the new supplier, but to also go through all the necessary quality checks to ensure we are selling product that meets our high standards.
Speaker Change: The good news here and the good takeaway here is that the transition of our global pet care and our home and garden business will be very quick.
Speaker Change: GPC, or our pet business, has already diversified its global sourcing footprint with major suppliers outside of China, including Vietnam and Cambodia, where we can shift our Chinese product.
Speaker Change: We are also now sourcing products out of Thailand. As another positive development, we have a brand new manufacturing facility from one of our vendors opening in Mexico next month to supply our pet business.
Speaker Change: By the end of the fiscal year, we expect to have sourcing alternatives outside of China for the US market for all but about $20 million of our total GPC purchases.
Speaker Change: This is a phenomenal accomplishment and I'm very grateful to the supply team, chain teams, sourcing teams.
Speaker Change: Home in Gordon only sources a small portion of its products from China.
Speaker Change: And the team has already identified alternative vendors for most of that product and expects to be virtually out of China by the end of this fiscal year. We see a relatively small negligible impact to home and garden season and we expect to be ready for next year.
Speaker Change: Clearly, the home and personal care appliance business is the most challenge business we have. About 40% of HPC's global purchases come into the US.
and nearly all of those were previously Chinese-sourced.
Speaker Change: We already accelerated the move of production for U.S.-bound products out of China last year, when the Section 301 tariff exemption expired, that resulted in a 25% tariff on some of our products.
Speaker Change: Those lines are now already outside of China, and we are expediting the process to move the rest of our U.S. bound products out of China also.
Speaker Change: We are working with established vendors to manufacturing countries such as Indonesia, Vietnam and Thailand and we have scenario planning in place to navigate the tariff environments.
Ensuring that we'll maintain very agile and prepared.
Speaker Change: In fact, we expect by the end of this fiscal year, just a couple of, you know, six months from now, we'll be able to supply approximately 35% of HBC's current U.S. volume from non-Chinese sources with that number climbing to the mid-40s by the end of this calendar year.
Speaker Change: There are some skews that we may not want to move because they're either underperforming.
Speaker Change: Two small ad-complexed eater organization, so the cost and complication of investing and moving them might not make sense.
Realistically, even with the expedited process.
and the likely SKU Rationalization.
Speaker Change: We expect it will take until at least the end of fiscal 26th, potentially in the fiscal 27th, that have sufficient supply outside of China to fill HBC's U.S. demand at current levels.
Speaker Change: Fortunately, and this is the good news, HPC is a global business, and 80% of our profits in this appliance business are generated outside the United States.
Speaker Change: In the meantime, our teams are still focused on all three levers to address profitability. We are negotiating with our vendors to absorb as much of these costs as possible.
Speaker Change: We are currently collaborating with all of our retail partners on pricing adjustments to address the higher cost of supplying from outside of China and the reciprocal tariffs in those countries of origin.
Speaker Change: Our teams are meeting with retailers, coordinating unsupply plans and product availability. Many of these retailers supply their own private labor products from China, so they are very familiar with the challenges of moving supplies.
Speaker Change: We are conducting comprehensive and regular reviews of our operating expenses and curtailing discretionary spend to protect the business moving forward.
Speaker Change: Some of the marketing and advertising spend we're planning for our HPC appliance business has been paused during this transition period.
Speaker Change: We will adjust our mitigation plans as needed, and we will remain agile and responsive as possible.
Speaker Change: With all of that said, I must tell you we are very well positioned to weather these current economic times.
Speaker Change: We closed this quarter with net leverage of just 1.7 turns and we expect our leverage to actually come down by Ian because we are going to generate significant free cash flow in the second half of this year.
Speaker Change: We have one of the strongest balance sheets and lowest leverage positions in our entire peer group and we expect our stable financial position to be a very competitive advantage as we secure new partnerships with vendors and suppliers outside of China.
Speaker Change: These suppliers will be in high demand and some will be able to choose which US companies they want to supply. We believe that they will want to partner with a company that is financially strong and we will make it through these tough economic times and come out stronger when the economy stabilizes.
Speaker Change: Let me be very clear in this point. We have and will continue to prioritize maintaining ample liquidity and our strong balance sheet.
Speaker Change: We are simply not willing to sacrifice our balance sheet to chase short-term earnings or revenue in this volatile cost environment. We're going to be disciplined about the inventory we buy, and we will continuously reassess the cost and demand environment and making any decision that impacts our cash flow and balance sheet.
Speaker Change: Our operations are performing as strong as ever. We have a best-in-class operations team that we've built over the last couple years, and it handles every twist in turn that comes out there with complete confidence and agility.
Speaker Change: Our supply chain teams and planning improvements, SNOP process, are truly one of the core of our successes today.
The team has driven record full rates and service levels.
Speaker Change: Further strengthening our retailer partnerships and ensuring we stay lean on inventory.
Speaker Change: These results are a direct reflection of our supply chain leadership.
Speaker Change: The supply chain investments in development work the team has embarked on over the last few years and I want to personally thank this team again for their dedication to do the hard work and get the results.
Speaker Change: Okay, if we can now turn over to page 7, we're going to talk on our Q2 numbers, second quarter results. In the second quarter, our net sales decreased 6%, however, excluding unfurable FX or organic net sales decreased just 4.6%.
Speaker Change: This was a challenging quarter for our top line, and our expectations for the quarter were higher than results that we ultimately delivered.
Speaker Change: Jeremy will go into specifics on each business unit, but we generally saw deteriorating and softer than expected US consumer sentiment over the course of the quarter, and that impacted category growth.
Speaker Change: US consumers are looking for value as they digest and react to the economic news and the volatility in the marketplace.
Speaker Change: As the quarter ended, we saw some deterioration in consumer sentiment and amea.
Speaker Change: We're excited about the Innovation Pipeline for Home and Garden, where we are introducing a number of new products this season to continue the momentum from last year's
Speaker Change: Our adjusted EBITDA in Q2 was $71.3 million, which is a decline of 24 million compared to last year's results, excluding investment income. Our gross margins decreased 60 basis points over the second quarter of fiscal 24.
Speaker Change: This quarter we saw a consumer confidence weakening and tariff volatility increasing, so we initiated cost saving measures that will save approximately $10 million annually.
Speaker Change: Our businesses were diligent in delivering these cost improvements and operating efficiencies to offset headwinds of inflation and incremental tariffs from last year's exploration of tariff exemptions.
Speaker Change: especially during these times of unprecedented uncertainty, staying lean is imperative and we are committed to refocusing our spend toward top line driving investments. In fact, this quarter we increased our brand focused investments by $3 million as compared to the period last year.
We can now turn over to slide 8 please.
Speaker Change: I'd like to update you all now on our strategic priorities for fiscal 25.
Speaker Change: We have updated our priorities to reflect the new tariff landscape and softening consumer demand environment.
Speaker Change: We are focused on protecting our balance sheet and running the business for free-castle generation for the remainder of fiscal 25. As I have said, we will continue to prioritize maintaining ample liquidity and a strong balance sheet. We will now sacrifice the balance sheet for short-term earnings or to chase revenue in these bulk-of-cost environments.
Speaker Change: To that end, we are targeting free cash flow for the year of approximately $160 million or $6 to $7 per year in free cash flow.
Speaker Change: We are utilizing our supply chain capabilities to focus on transitioning China source products to other sources of supply. As we move our supply out of China, our teams will ensure that our cost basis is the best in class. We have high quality products and our safety standards are not going to be compromised.
Speaker Change: We're focused on cost reduction efforts, including strategically pulling back on some advertising and marketing investments in the short term.
Speaker Change: Jeremy will share with you some of the highlights of the new innovation we're introducing this year, where we are seeing the increased investments we make in new product innovations start to pay off.
Speaker Change: We will continue to invest in NPD and new product innovation to drive future top-line growth.
Speaker Change: We're also preparing our businesses to emerge in this economic uncertainty as a growing stronger company that will be the partner of choice for M&A activity with a strong balance sheet and an optimized cost structure.
Speaker Change: Our investments in innovation are expanding our core categories in driving sales and new adjacencies.
Speaker Change: We believe the strength of our balance puts us in a very unique position to capitalize on the dislocation in our industry and to become the strategic partner of choice, particularly among private equity held companies.
Speaker Change: With asset prices resetting, we believe we are in an ideal position to strengthen our portfolio with a creative acquisitions in pet categories.
Speaker Change: We have a strong track record of growing or acquired pet brands.
Speaker Change: Our goal is to leverage the platform we have and the team we have built to expand into an even more sustainable, consumable pet category company. To help us accomplish this goal, we have brought in a new leader for our global pet division.
Ori Benchai.
Speaker Change: ORI is a seasoned GPC executive having led many multi-billion dollar CPG platforms most recently at Kimberly Clark.
Speaker Change: Ori and I share the common vision of doubling and even tripling the size of our pet asset.
Speaker Change: by expansion both organically and through acquisition into areas such as niche food and treats, the health and wellness segment of the pet care market, in addition to gaining more exposure to the ever growing cat segment.
Speaker Change: We believe that we can position the portfolio more towards power branded, faster turning consumables while adding scale. We also believe that we can become the consolidator of choice in this space but can also end up lifting the multiple of the business longer term.
Speaker Change: The strategic transaction for HPC continues to be delayed by the current tariff landscape and geopolitical factors that are beyond our control.
Speaker Change: While HPC is experting plans to move its U.S. supply base out of China, reduce costs and streamline its business, we now believe it is unlikely we will find a mutually agreeable M&A transaction
Speaker Change: It is also not feasible to spend the business off to shareholders given the fact that it's currently facing the type of tariff and economic side ones that exist today.
Speaker Change: So until there's clarity on tariffs, or we have secured supply chain outside of high tariff countries, we expect to continue to hold and operate the HPC business.
Speaker Change: While we are disappointed in delay in this transaction, Spectrum Brands and Spectrum becoming a pure play, patent, home and garden company, we do believe the HBC business will continue to be and we believe in their HBC business and we will continue to be good stewards of it.
Speaker Change: We have not called off the transaction permanently, however, and in fact, we will continue to seek opportunities to maximize its value.
Speaker Change: I believe given the current financial situations of many of the players in this space,
Speaker Change: that I'm actually optimistic that this situation can accelerate the need for strategic combinations in the appliance base and provide us the opportunity to complete a separation in a more beneficial manner. But this will take some time.
Speaker Change: Now, turning this slide 9, I want to give you an update on sheery purchases.
Speaker Change: During the second quarter, we were purchased to approximately two main shares of our common stock, and we have continued to buy during our pre-earnings quiet period through a $50 million 10b-5-1 plan that we put in place in March.
Speaker Change: You're to date through today. We have purchased approximately 3.2 million shares for $260 million.
Speaker Change: And in total, since the close of the HHI transaction through today, we have returned over $1.28 billion of capital through our shareholders through various shear repurchase programs. And we have repurchased almost 40% of our shear accounts since the closing of that transaction.
Speaker Change: We still have approximately 140 million remaining on this shared repurchase authorization, and we are being disciplined with our shared repurchases to preserve the strong balance that we have and the strength of our liquidity during these challenging economic times.
Speaker Change: With net leverage still well below our long-term target of two to two and a half turns, we have the financial capacity to continue to fund investments into our company, fund growth, and continue to return capital shareholders and pursue acquisitions.
Turning to page 10.
Speaker Change: Given the unprecedented global tariff conditions and the unpredictable nature of global trade negotiations and the softening of US and European consumer demand, at this time we do not believe we have sufficient visibility to continue providing an earnings framework for fiscal 25.
Speaker Change: When U.S. tariffs on Chinese goods escalated in early April , we pivoted our operating model to run our business to maximize free cash flow for the balance of this year and not to chase sales or gap earnings in this current environment.
Speaker Change: To that point, we expect to deliver six to seven dollars per share of free cash flow this fiscal year.
[inaudible]
Speaker Change: Now, before I turn the call over to Jeremy, I want to thank each and every one of our global employees who are pulling together right now as a team, relying on our strengths and leaning into solutions and solutions, to come out on the other side and even stronger company.
Speaker Change: Now I'm going to turn the call to Jeremy. You're going to hear more from him on the financials and you'll get a lot more business use insights over to you, Jeremy.
Jeremy Smeltser: Thanks, David. Good morning, everyone. Let's turn to slide 12 in a review of Q2 results from continuing operations, starting with net sales.
Jeremy Smeltser: Net sales decreased 6%, and excluding the impact of $10.1 million of unfavorable foreign exchange, organic net sales decreased 4.6%. Primarily due to category softness in the North American market for both our global pet care and home and personal care businesses.
Jeremy Smeltser: Gross Profit decreased $20 million and gross margins of 37.5% decreased 60 basis points.
Jeremy Smeltser: largely driven by lower volume, higher trade promotions, unfavorable mix, inflation, and higher tariffs from last year's expiration of exemptions on certain products lines, partially offset my impacts from cost improvement actions and operational efficiencies.
Operating expenses of $233.9 million increased 18.4%.
Jeremy Smeltser: Due to a settlement received last year under a representation and warranty insurance policy related to the TriStar acquisition, an increased investment spend in advertising and marketing, partially offset by reduced trade name impairments and general expense management.
[inaudible]
Jeremy Smeltser: Operating income of $19.5 million decreased by $56 million driven by the gross margin decline and higher operating expenses I mentioned.
Jeremy Smeltser: Gatmet Income and diluted earnings per share both decreased, primarily driven by the lower operating income and lower investment income, partially offset by lower interest expense and the lower share
Jeremy Smeltser: Adjusted EBITDA with $71.3 million, a decrease of $41 million, driven by investment income of $17 million in the prior year, lower volume, reduced gross margins, and increased brand-focused investments.
Jeremy Smeltser: Excluding the prior year investment income, adjusted EBITDA to coin $24 million.
Jeremy Smeltser: Adjusted diluted EPS decreased to 68 cents driven by lower adjusted EBITDA, partially offset by lower interest expense and the reduction in shares outstanding.
Jeremy Smeltser: Turning to slide 13, Q2 interest expense from continuing operations of $7.5 million, decreased $9.4 million due to our lower outstanding debt balance.
Jeremy Smeltser: Cash taxes are in the quarter of $23.9 million, increased $9.5 million from the prior year.
Jeremy Smeltser: Depreciation and amortization of $24.5 million decreased approximately 1 million from last year.
Jeremy Smeltser: Capital expenditures were $9.2 million in the quarter, $3.3 million lower than last year.
Jeremy Smeltser: New Cash payments towards strategic transactions, restructuring related projects, and other unusual non-recurring adjustments were $6.4 million versus $6.6 million last year.
[inaudible]
Jeremy Smeltser: Moving to the balance sheet, we had a quarter end cash balance of $96 million and $408.6 million available on our $500 million cash flow revolver.
Total data outstanding.
Jeremy Smeltser: was approximately $657 million, consisting of borrowings on our cash flow revolver of $83 million, $496 million of senior unsecured notes and $77.8 million of finance laces.
We ended the quarter with $560.99 million of net debt.
Jeremy Smeltser: 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: I will start with Global Pet Care, which is on Slide 14.
Jeremy Smeltser: Reported net sales decreased 7.1%, and excluding unfavorable foreign currency impacts, organic sales decreased 6.3%.
Jeremy Smeltser: Sailor-declined in both the companion animal and aquatic categories.
In companion animal, organic sales were down mid-single digits.
Jeremy Smeltser: North American companion animal sales decline low double digits with softness across all sales channels.
Jeremy Smeltser: North American sales and our categories declined but we generally either held our share which we did in choose and treats our largest category or we grew our share like in Stain and Otter.
Jeremy Smeltser: The North American consumer environment grew increasingly cautious throughout the quarter, especially within the premium segments of our companion animal portfolio.
Jeremy Smeltser: Consumers continue to look for value through smaller pack sizes and lower cost options.
Jeremy Smeltser: In reaction, we expanded targeted price reductions on some of our largest selling excuse to narrow the differential with private label and we invested in consumer engagement and conversion online.
Jeremy Smeltser: These actions were generally successful in stabilizing consumer demand for our premium products.
Jeremy Smeltser: Quarterly e-commerce sales were affected by destocking in the early part of the quarter.
Jeremy Smeltser: Order Patterns Return to More Normalized Levels by the end of the quarter in line with our double-digit POS growth there, and we expect these normalized order patterns to continue in the second half of the year.
Jeremy Smeltser: EMEA Organic Sales grew mid-single digits. Our good boy brand had strong sales this quarter across the region as the team focuses on expanding distribution into continental Europe .
Jeremy Smeltser: In Aquatics, Organic Sales declined mid-single digits compared to last year.
Jeremy Smeltser: The consumer demand environment for both nutrition and hard goods continue to be soft this quarter.
Jeremy Smeltser: Sales declined in each region with North America offsetting some of the category decline with share gains and distribution wins in pet specialty.
Jeremy Smeltser: Our investments in brand-focused innovation, marketing, and advertising are positioning us for future top-line growth.
Jeremy Smeltser: In North America, our good and fun national ad campaign is driving brand awareness and expanding our distribution channels.
Jeremy Smeltser: We are excited to announce the Good & Fun Brand as the first ever halftime sponsor of WNBA games on CBS .
Jeremy Smeltser: Throughout the season, which begins in mid-May, we will have branded graphics during on-court halftime reports, in-game teasers, and custom on-air features.
Jeremy Smeltser: We are on track for the North American launch of a high nutrition wet dog food line by the end of the year following our strategy of first launching the innovation online to gain consumer insight and reviews.
and then later in Brick and Mortar.
Jeremy Smeltser: We are also focused on high nutrition food at EMEA, where we are launching I'm senior cat and sensitive dog digestion products.
Jeremy Smeltser: Our dreambone, collagen and high protein dog treats are hitting stores this quarter.
Jeremy Smeltser: and we recently launched a new delivery system for Nature's Miracle featuring our patented flippin' go technology to enhance user convenience and drive consumer engagement, and we're gearing up for a launch under our Feminator brand with a new program specifically targeted at
Jeremy Smeltser: In Aquatics, we unveiled a new electric green angel fish glow fish at the Global Pet Expo, building on the successful introduction of our first angel fish species under the glow fish brand last year.
Jeremy Smeltser: Adjusted EBITDA of $50 million was $12.3 million lower than last year, primarily driven by lower sales volumes, inflation, incremental trade promotions, an unfavorable mix.
Offset by Operational Productivity Improvements and other favorable variances.
Jeremy Smeltser: GPC also increased its brand building investments in this quarter, continuing to invest behind strategies to drive both short and long-term sales growth for the business.
Jeremy Smeltser: Looking out, we do expect continued cautious consumer behavior and given the premium placement of many of our brands we anticipate continued pressure in North America from consumer trade downs and this difficult and strained consumer environment.
Jeremy Smeltser: We remain cautious about aquatics where demand continues to be soft and does not yet return to pre-pandemic levels.
Jeremy Smeltser: Moving now to Home in Gordon, which is on slide 15, net sales decreased 5.2% on the second quarter, as expected, due to timing shifts into our first quarter, where we grew 28%.
Jeremy Smeltser: Facing of seasonal pre-builds by our largest retail customers was the largest driver of the sales decline this quarter.
Jeremy Smeltser: Retailers continue to build inventory before the start of seasonal consumer demands in an effort to win the first consumer purchases of the season. But as expected, we gave back some of our Q1 over delivery in the second quarter.
Jeremy Smeltser: Most of our sales in the first half of the year are retailer pre-builds to prepare and stage for consumer demand in the seasonal business which for us starts in full in Q3.
Jeremy Smeltser: This quarter's sales were also negatively impacted by $4 to $5 million of sales that were pulled into Q1 in advance of H&G's GoLive on our S4HANA ERP.
Jeremy Smeltser: Sales increased in the household pest and repellent categories this quarter, but were lower in controls and cleaning.
Jeremy Smeltser: After an especially strong Q1, sales and controls were down mid-double digits.
Jeremy Smeltser: repellent sales increased mendable digits and household pest sales increased high single digits.
POS for our household pest with strong mist quarter.
Jeremy Smeltser: Looking at the first half of the year, sales increased in each of our categories other than cleaning, where sales comparisons continue to be affected by the loss of some distribution last year.
Jeremy Smeltser: This is the second season for our Spectricide One Shot product line, our higher performance longest lasting spectricide product.
Jeremy Smeltser: Pre-built orders for this product have been consistent with expectations and in partnership with our key accounts we are executing strong on and off shelf support which is starting to gain momentum in the market.
Jeremy Smeltser: This year we launched a new Spectricide Wasp Cornet and Yellowjacket Trap that has gained high interest and support from all of our key accounts.
Early POS reads on this innovation are well above expectations.
Jeremy Smeltser: In our hotshot brand, we launched a new flying insect trap, our first launch into this segment.
Jeremy Smeltser: In line with our brand strategy, this innovation offers strong benefits and significant value to consumers.
Jeremy Smeltser: We are thrilled that this product was voted as product of the year for best in pest control.
Jeremy Smeltser: At a value price point to competitive products, the flying insect track provides continuous action to attract and capture house flies and fruit flies with a discrete compact design that blends seamlessly into your home with no setup or electricity required.
Speaker Change: Adjusted EBITDA was $26.7 million, compared to $29.2 million last year.
Speaker Change: The decrease in adjusted EBITDA was driven by lower volumes due to the quarterly timing of sales incremental brand building investments, negative mix and inflation offset primarily by cost improvements.
Speaker Change: We continue to expect this season's weather to generally be similar to the 2024 season which we characterize as an overall good season.
Speaker Change: As anticipated, our seasonal POS is starting later than last year because of a slower warm up in key regions
Speaker Change: and as a reminder, typically 75% of our POS is in the second half of the year.
Speaker Change: Our retail partners are prioritizing the lawn and garden category in their stores this season with the allocation of off-shelf space.
Speaker Change: Reponishment orders will be driven by levels of consumer demand within the season, which are dependent on the weather and overall consumer sentiment.
Speaker Change: We expect the category to be competitive and we will continue supporting our innovation and brands through brand-focused investments throughout the year.
and finally, Home in Personal Care, which is slide 16.
Reported net sales decreased 5.1%.
Speaker Change: and excluding unfavorable foreign exchange, organic net sales decreased 2.2%.
Speaker Change: Sales in both the personal care and home appliance businesses were down mid-single digits this quarter.
driven predominantly by softness in North America.
Speaker Change: Continuing recent quarterly trends, HPC's e-commerce sales growth significantly outpaced brick-and-mortar sales.
Speaker Change: In the current quarter, organic net sales and EMEA were relatively flat with mid-single digit growth and personal care, offset by mid-single digit declines and home appliances.
Speaker Change: High inventory levels that certain retailers impacted quarterly reorder patterns for both categories.
Speaker Change: Inventory levels are stabilizing and we expect pre-order patterns to return to normal before the end of the year.
Speaker Change: We have recently seen some of the larger European grocery retailers descale their focus on non grocery items within their stores, negatively affecting our sales to those retailers.
[inaudible]
Speaker Change: European consumer competence has recently become more cautious in the current geopolitical environment.
Speaker Change: But in spite of that, we generally saw growth in hair care settles across the region, while sailed in cooking and garment care were lower.
Speaker Change: North American sales decreased high single digits with declines in both personal fair and home appliances.
Speaker Change: Each business are reduced North American category demand this quarter compared the last year as consumer confidence levels impacted overall category sales.
Speaker Change: Failed for certain skews were also lower as we actively manage their transition out of China-based sourcing.
Speaker Change: Quarterly sales were also negatively impacted by the bankruptcy of a North American retailer.
Speaker Change: In the first quarter, we discussed how we had seen a slowdown in order patterns at a large
Speaker Change: While Reorder Patterns generally returned by the end of the quarter, the timing of this change had a negative impact on quarterly sales.
Speaker Change: Organic net sales in Latin America grew low double digits with strong growth in both categories from distribution wins and strong new product launches in Colombia and Mexico.
Speaker Change: Our investment and innovation, marketing and advertising at HPC are delivering results.
Speaker Change: Building on the commercial success of our Emerald Friend Store air fryer, we introduced a new friend store air fryer that comes with a petastone and further reinforces the function, versatility and value of air friars in modern kitchens.
Speaker Change: We are now selling on TikTok Shop UK, continuing our omnichannel strategy of selling our product wherever our consumers are buying.
Speaker Change: We launched a line of Russell Hobbs floor care products in APEC.
Speaker Change: Our Remington Balder continues to win accolades in the market, having recently been awarded with the best careshaver by GQ Magazine.
Speaker Change: and we recently introduced the new Remington Botanicals line at Walmart.
Speaker Change: We will lean into our Manchester United sponsorship to launch a new haircare line in EMEA, and our Latin American team hosted a Regional Remington Custom Revent to build on the regional brand strength and positioning of Remington.
Speaker Change: This quarter is adjusted EBITDA with $7.3 million, compared to $17.8 million in the prior year.
Speaker Change: He adjusted even the margin was 2.9% compared to 6.6% last year.
Speaker Change: The decline in adjusted EBITDA was driven by lower volumes, higher trade promotions, unfavorable mix, incremental tariffs from last year's expansion, exemption, expiration, and insulation offset by continued cost improvement initiatives, lower brand focused investments, and foreign exchange.
Speaker Change: Our focus in the second half of the year in HPC will be to drive sales and international markets while we sell remaining inventory in the US and maximize cash flow.
Speaker Change: We are actively managing our costs and accelerating our plans to exit Chinese sourcing for the US market.
Speaker Change: We currently expect to have alternative country sourcing for approximately 35% of our products by the end of the fiscal year, doubling during fiscal 2026 to approximately 70%.
Speaker Change: Turning now to slide 17, as David said, given the unprecedented global terror situation.
Speaker Change: The unpredictable nature of global trade negotiations and the softening of US and European consumer demand.
Speaker Change: At this time, we do not have sufficient visibility to continue providing an earnings framework for fiscal 25.
Speaker Change: However, we are expecting to generate approximately $160 million dollars of free cash flow for the year, actively managing our spend and our working capital.
Speaker Change: To end my section, I want to echo David and thank all of our global employees for their hard work in these challenging times.
Now back to David.
David Maura: Hey, thanks, Jeremy, and thanks everybody again for joining us on the call today. Look, let's take a couple of minutes now. Let's just recap some of the takeaways. You can find those on slide 19, I think.
David Maura: Look, a couple of years ago we set out to transform this company and we did it through the vestitures of certain operational assets and we had a couple of goals. The first goal was we wanted to materially deliver the balance sheet and we achieved that goal in fiscal 23.
David Maura: and we repaid $5 billion of debt in the last seven years. This has been a remarkable accomplishment and while we didn't see this current environment happening
David Maura: You know, thank God we took this step and we have this incredibly strong balance sheet today.
David Maura: The second thing we wanted to do was we wanted to fix our operations and we went out, we hired new talent, we implemented best in class as an O.P. process and this is at the core of our operational strategy now.
David Maura: We have among some of the best working capital management and fill rates in our industry today, and that's just a remarkable, remarkable achievement given where we were just three years ago.
David Maura: Our supply chain teams are uniquely situated now to strategically anticipate and quickly react to macroeconomic development, such as the ones we face today.
David Maura: Thirdly, we wanted to return our company to a growth profile, and we increased our investments in innovation, advertising and marketing, and in fact, we did return to top line and bottom line growth last year, fiscal 2024.
David Maura: and we brought a new leadership into the organization with a growth mindset to take our company to the next level.
David Maura: The last thing I wanted to do, the last thing we wanted to do strategically is a board and me personally. We wanted to resume growth through accretive acquisitions in pet and home and garden.
David Maura: However, as I mentioned earlier, there's a silver lining to this current macro situation. We're seeing assets that are attractive to us and they're becoming available at better prices. As such, we see M&A as more likely going forward.
David Maura: We have a lot to be proud of. We have 3,000 global employees who are all pulling together to thrive during these volatile times.
David Maura: Over the past several years, our teams have successfully navigated through tariffs, an unprecedented pandemic, demand surge, and supply chain disruption, record inflation, and then the post-pandemic demand inventory corrections.
David Maura: Our teams have come out stronger because of these challenges because they've faced them together. I'm extremely proud of our operating teams.
David Maura: We know that our brands matter to our retailers and consumers worldwide and as we have talked about in prior economically challenging times, some of our brands can actually perform better when consumers are constrained. We know our business, we know our retailers, we know our customers, we believe in our brands and our teams.
David Maura: is an understatement to say that today we're operating in unprecedented times.
David Maura: But we are quite confident in our ability to succeed. For GPC and home and garden, the Terrificated Challenges will be resolved in just the next few quarters.
David Maura: GPC is moving quickly and redirecting spend within its already broad global supply chain footprint to 9 Chinese-based supply.
David Maura: Home and Garden season will be largely unaffected by the terrorists. HPC has the largest hill to climb because of where it's starting, but our teams are keenly focused on accelerating the plans we had in place to secure supply outside of China for our US marketplace.
David Maura: And our HPC Global Supply Chain Team was in Southeast Asia just a few weeks ago, meeting with our new suppliers and touring new production facilities that are being built in some cases specifically for us and for our HPC business.
David Maura: These are suppliers we have long-term relationships with and who are following the HPC business out of China. We are partnering with them to develop transition plans, get the supply going, and that will take time. But the team is working to playbook, controlling what they can control, being strategic and leaning into our competitive advantages.
David Maura: We anticipate, and this is important, we anticipate having 100% of our home and garden business and all but 20 million dollars of our global pecker business sourced completely out of China by the end of the calendar year. That's remarkable. Again, hacks off to the supply chain team.
David Maura: While our US appliance business is currently being impacted by tariffs, we aim to have approximately 45% of the supply out of China by the end of just this calendar year.
David Maura: and, with over 80% of our HBC earnings coming from our European and Resta World Appliance businesses, we are very well positioned to weather this current tariff storm and emerge a stronger player in the space. There are a lot of competitors in the space that cannot make that statement.
David Maura: We also believe this will accelerate the pace of consolidation in the industry and it's going to give us the opportunity to revisit a merger, spin-off or separation of the business unit at some point.
David Maura: We have a very strong balance sheet and cash flow profile. We have one of the lowest leverage ratios in the pair group. Even this year, in the face of these economic times, our teams are driving continuous working capital improvements.
David Maura: We're simply not going to sacrifice the strong balance sheet for short-term games. Our balance sheet is competitive advantage and we will fiercely protect it because we see opportunities coming our way.
David Maura: With a strong balance sheet and robust liquidity profile and a lot of capital available to us, we are really excited about the opportunities actually that this macroeconomic conditions is likely to bring us.
David Maura: We remain highly focused on building out our pet and home and garden businesses both organically and through acquisitions.
David Maura: and while there will clearly be volatility over the next six months, we estimate that we can generate $6 to $7 of free cash flow per share this year.
David Maura: I am confident we will get through the near-term volatility and emerge a stronger, more focused competitor, and I'm actually excited about the opportunities these towns will bring us in spite of the short-term volatility. We will remain focused on what we can control, we will be nimble and we will protect our house.
David Maura: The future is bright for Spectrum Brands. At this time, let me turn the call back over to to Joanne and we'll take your questions.
Joanne Chomiak: Thank you, David. Operator, we can go to the question Q.
Now.
Joanne Chomiak: Thank you. As a reminder to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced.
Joanne Chomiak: To withdraw your question, please press star one one again. We do ask that you limit yourself to one question and one follow-up.
Please stand by where we compile the Q&A roster.
[inaudible]
Speaker Change: Our first question comes from Bob Labick with CJF Security. Your line is open.
Pete Lucas: Hi, good morning, it's Peter Lukas. Actually, it's Peter Lukas this morning for Bob.
Speaker Change: You guys covered a lot in the prepared remarks. Thank you, Christophel, how do my questions here? But just wanted to see...
Pete Lucas: I guess in terms of from a sourcing perspective, any areas where you see yourself competitively advantage, pursue peers, give them the new landscape or kind of think of it as everybody in the same boat.
David Maura: I'll let Jeremy take the details, but just real brief, I mean...
Speaker Change: Listen, what we're trying to say to everybody today is, it's going to be a little choppy, you know, given the tariff situation over the next six months, but...
Speaker Change: You know, I'm thrilled to be able to talk to you today and say, look, you know, HBC is going to have no China source exposure in six months.
Speaker Change: We'll be down to less than 20 million bucks, you know, coming out of the pet business. And so our appliance business, US is the one that needs the help. And we're going to, you know, have that ramped up pretty aggressively by the end of the year. So
Speaker Change: The fact that we get 80% of the appliance profits internationally, that is a competitive advantage to us as you talk about.
Speaker Change: Just so everyone knows, we priced this based on a worst-case scenario, so we're assuming the 145 to 170 out of China stays.
Speaker Change: Obviously, I view that as completely unsustainable, so maybe there's some good news in the future. We wanted to give you kind of...
Speaker Change: Where we, you know, what we're having to deal with today and show you that we're prepared to tackle it and actually come up, come up better for it. But look, on the front end of these things, Pete, you're always dealing with solving the problem.
on the back end you're not wrong.
Speaker Change: You know, I told that to the team, you always find silver linings on the back end, but I can't tell you who's going to go bust and who's not going to be able to stock the shelf and then they're going to call me and they're going to need a toaster oven or a coffee maker.
Speaker Change: I don't know that yet but you gotta believe that's common and like I said too I really believe it's gonna bring strategic opportunity that'll take a little bit longer but we're just fantastically positioned to deal with this.
Speaker Change: Jeremy, I don't know if you want to talk about that. The only thing I would add is, one, I started kind of the opposite way, asked the question, Pete, and I'll come back to this. One, the good news is, the playing field is level, I think, for everybody.
Speaker Change: We're not disadvantaged anywhere. Where I do think we're advantaged is quite frankly our scale.
Speaker Change: So, you know, if you think about some of our larger brands, Black & Decker is a $400 million brand.
Speaker Change: Good and Phone is over a $250 million dollar brand. That's significant volume for factories that are being set up or expanded outside of China. And I do think that as David said in prepared remarks, we'll likely be at the front of the line as it relates to getting that volume more quickly.
[inaudible]
Extremely helpful, thanks, I'll jump back in the queue.
Thanks, Peter. Have a good day.
Thank you.
Speaker Change: Our next question is from Peter Grom with UBS. Your line is open.
Speaker Change: Thanks operator. Good morning guys. I appreciate all the color on the tariff and I know there's a lot of moving pieces but just
Speaker Change: You know, as we think about the model, is there any way to frame what like the growth impacts could be and then maybe as you think about the kind of mitigation actions like what that figure could be on a on a net basis?
Speaker Change: You know, with about 100 million as we started the year for PET out of China for the U.S. market and roughly 200 million for HPC. So you can do rough math and say, without...
Changing your operating model. What would that?
Speaker Change: Gross Impact, look like, but in reality, as David said, we've stopped ordering from China immediately, we haven't ordered anything for five weeks, so that's not a reality for us.
Speaker Change: So, you know, I think you really have to go business by business as we did in our prepared remarks and say look, you know, a home and garden, we don't really don't expect an impact. There will be some impact as we get to the later part of the year on a growth basis, but we are going to price for it and we don't expect.
Speaker Change: You know, we won't have product to sell all the demand in the U.S. market in Q4. Neither will our retail customers, and neither will most of our competitors. And so that's where it's very difficult in the short term to talk about the net impact.
In addition to that, we are seeing signs of consumers.
Speaker Change: in U.S. especially and now starting in Europe to pull back giving all this uncertainty. That's another reason why I'm very hesitant to give you a short-term net number because I just don't think it's appropriate given the uncertainties, but hopefully that level of color.
Speaker Change: Helps. And the other thing I would say is, look, I know it's difficult for everybody to buy on
Speaker Change: The Guidance, so just give a little bit of color since we're on the public call.
as we sit here today.
Speaker Change: You know, I don't expect a lot to change in our operations sequentially from Q2 to Q3. So I would expect Q3 to look relatively similar to Q2 with the seasonal ramp up in H&G.
Speaker Change: The big question comes in Q4 around how much demand is there out there, how much product do we have? What happens on retail shelves as products start to dwindle in the US market? That's what we'll have to watch.
More closely.
Speaker Change: But as David said, I think we are well positioned. We're super encouraged by where we're going to be with H&G and GPC just at the end of the fiscal year.
Speaker Change: Very quickly, as we ramp up 26, and HPC, not just for us, but for the entire category and for all the US consumers, it's going to be fascinating to watch what happens at this level of tariffs.
Speaker Change: You know, just a couple months ago, we had a hundred million bucks of exposure in our pet business, right? We've got that down to 75 and we'll be down to less than, you know, 29 or less, you know, in six months. So I mean, really mitigating, you know, any impact to pet very quickly.
Speaker Change: You know, home and garden, we have small exposure, but, you know, we're going to price what we can't get out of there now, we're going to be out and now, you know, no exposure to China, you know, entering fiscal 26 so...
Speaker Change: We're really what we're trying to say. We're trying to keep the earnings power right of our two bigger businesses home and garden and pet intact.
Speaker Change: So we can enter into 26, get back to growth and have a really nice year in 26. HPC, the way I'm mitigating that tariff, you know, that Jeremy talked about is I'm just not buying for the US market.
Speaker Change: And, you know, until the administration changes its stance, or we have supply outside of China, we're going to liquidate the US peace, but the beauty is, I'm making 80% of the profits of that business outside of the states. And that's what we're trying to be very clear on today.
Speaker Change: No, that's really helpful, guys. And then David, just a follow-up for you on just kind of the M&A commentary and you touched on it. Passive prices resetting. You're in a place to capitalize on that dislocation. I'm just curious, is this kind of a shift in capital allocation priorities?
Speaker Change: And I asked that in the sense that you, in prior quarters, there just seemed to be a view that the stock, you know, was undervalued, and that buying that stock was kind of the best use to capital. So just curious and commentary suggestive of it.
Speaker Change: Hey, thanks for the question. Look, we're buying the stock as we sit here talking today. The stock's cheap, it's undervalued. I mean, it just is. Look, I want to protect the balance sheet because I think the balance sheet and the liquidity profile is going to afford us amazing opportunities.
Speaker Change: My personal view, we just hired Ori to come in as a new president of PET, just like we converted the PET asset from being mainly an aquatics business to a companion animal treat business. If we can now take that to the second derivative and make it, we have I'm Zupinuba in Europe .
Speaker Change: We're launching food here in the States. We don't have big food presents.
Speaker Change: If we get out of food presence and in niche markets, we're not competing with the big boys. If we can get into cat in a bigger way, if we get into pet health and wellness and become more powerful, good and fun, it's a powerful brand, it was 50 million bucks when we bought it, we're doing 260 million with it now.
We need big, powerful brands, but we need more consumption.
Speaker Change: So, if we can become the enter to the basket, have food in there and really build an amazing food business on our pet supply platform, that's not only going to give amazing growth and synergy in the rest of it, it's going to lift the multiple of that business.
Speaker Change: Very attractive avenue for us as shareholders to make a lot of money over the next three to five years and that's we've looked at tons of deals there too just to be open and we passed on and we're going to be disciplined we're just we're not going to overpay for assets.
Speaker Change: Thank you very much, David. Thank you so much, I'll pass it on.
Thanks, Peter.
Thank you.
Speaker Change: Our next question is from Olivia Tom with Raymond James, Delan Zofin.
Olivia Tom: Great, thank you. You mentioned that for some products are either staying in China or exiting the US business. Can you talk about what percent of your sales are in these products?
Olivia Tom: And then for the production that's moving out of China, are you working with new suppliers that you'll have to onboard and bring up the speed or the same ones that are just moving their operations?
Olivia Tom: And I think you're still hoping for an exit of HVC longer term. How do you think about sort of your willingness to invest significant time, effort to find alternative sourcing for much of that business? Thank you.
Speaker Change: Morning Olivia, I'll do it in reverse order and I had a little trouble on your first question, so if I get it wrong, please restate it so.
Olivia Tom: On HPC, look, we have a strong management team in that business.
Olivia Tom: We have it integrated with our corporate enabling functions, including
Supply Chain En sourcing, and we have-
You know, the desire, the energy, the capability.
Olivia Tom: to tackle this problem inside our four walls, and we'll certainly do that. You know, where we...
Speaker Change: We'll deploy some capital for tooling in new factories, but it's nominal compared to the benefit that it will bring us, and so we are definitely committed to doing that and writing the ship or the business as it relates to the US market, and thankfully as David said, 80% of the profits are outside of the US, so we will do that where we're not focused in acquisitions in that space.
Thank you very much. Thank you.
Speaker Change: The second question, sorry, bear with me. The second question was...
Speaker Change: Oh, what percent of your sales are in the products that you said that you're either exiting or you're staying in China, and are you working with new suppliers?
Speaker Change: Presidents in other countries in Asia and some even in Mexico and some are setting up actually new factories that have already been in process.
Speaker Change: Before this terror situation evolved. So there's not a lot of ramp up with with brand new suppliers though there is a lot of quality work that has to happen in new factories or factories that are expanding outside of China.
Speaker Change: As it relates to the product that we referenced that may not move, what I would say is that's probably as we say here today and this is going to change because we're just a few weeks into this.
Speaker Change: But it's probably 15 to 20% or so of the HPC US.
Related products as we sit here to say it today.
Speaker Change: We're putting those, you know, lower at the bottom of the list. You know, margins are lower. They're smaller skews with less revenue impact, not as impactful as the ones we're prioritizing. So that's really it.
Speaker Change: If I could follow up on free cash flow, can we talk about the building blocks to get to your guide? Obviously you usually regenerate the passenger area for your free cash flow in a second half but would have assumed that there is also some forward buying inventory from your side that's
Speaker Change: Wayne on Results, certainly looking at the working capital use of Geodor Day, it seems to be the case. So, just talk through if you wouldn't mind the building blocks for you to cash flow. Thank you.
Speaker Change: Sure, yeah, we actually didn't do any significant forward buying as it relates to the tariff situation. The build and inventory that you see in the first half of the year.
Speaker Change: It's pretty much entirely focused on the home and garden seasonal build that we do every year and that's mostly internal in our own factory. So we didn't do a lot of that.
Speaker Change: You know, the building blocks, I mean, we obviously have a point of view on profitability for the year, though there's probably more variability in that than there usually would be halfway through the year. And then what we have is a vision of where we can go from a cost. And then what we're going to do is, you know, we're going to have a point of view on what we're going to do.
Management Perspectives, so Managing Our Spin, and also Working Capital.
Speaker Change: You know, as David talked about, when we stopped ordering, particularly in the HPC business for the US market, I mean what that means is that we are selling off the inventory and not replenishing it.
Speaker Change: and as we get to the fourth quarter, we expect to be...
Speaker Change: Collecting a lot of those receivables of sales from Q3 that should benefit us from a receivables perspective in the second half of the year. So that's really...
Speaker Change: That's really how we built that. We have a lot of confidence in it. We really wanted to put it out there as a stake in the ground for our shareholders, quite frankly, to understand where we're at, what we're doing in the valuation of the company.
Understood. Thank you.
Thank you.
Speaker Change: This does conclude our question and answer session. I would now like to turn it back to Joanne Chomiak 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 for your participation this morning.
This does conclude the public program. You may now disconnect.