Spectrum Brands Holdings, Inc. (SPB) Q2 2014 Earnings Report, Transcript and Summary

Good morning. My name is Kanise, and I will be your conference operator today. At this time, I would like to welcome everyone to the Spectrum Brands Fiscal 2014 Second Quarter Earnings Conference Call. (Operator Instructions).As a reminder, ladies and gentlemen, this conference is being recorded today, Wednesday, May 7, 2014. Thank you. I would now like to introduce Mr. David Prichard, Vice President of Investor Relations for Spectrum Brands. Mr. Prichard, you may begin your conference.

Yes, good morning, and welcome to Spectrum Brands Holdings fiscal 2014 second quarter earnings conference call and webcast. I'm Dave Prichard, Vice President of Investor Relations for Spectrum Brands, and I'll be your moderator for today's call. Now to help you follow along with our comments this morning, we have placed a slide presentation on the Event Calendar page in the Investor Relations section of our website, which is www.spectrumbrands.com. This document will remain there following the call. If we turn now to Slide 2 of the presentation, our call this morning will be led again by Dave Lumley, our Chief Executive Officer; and Andreas Rouve, Chief Operating Officer and President International; and Tony Genito, our Chief Financial Officer. Dave, Andreas and Tony will deliver opening remarks and then conduct the Q&A session. Let's turn now to Slide 3 and 4, to tell that our comments today include forward-looking statements, including our outlook for fiscal 2014 and beyond. These statements are based upon management's current expectations, projections and assumptions and are by nature uncertain. Actual results may differ materially. Therefore due to that risk, Spectrum Brands encourages you to review the risk factors and the cautionary statements outlined in our press release dated May 7, 2014 and our most recent SEC filings and Spectrum Brands' most recent 10-K. We assume no obligation to update any forward-looking statement. Also, please note we will discuss certain non-GAAP financial measures in the call. Reconciliations on a GAAP basis for these measures are included in this morning's press release and 8-K filing, which are both available on our website in the Investor Relations section. Now for the second quarter of fiscal 2014, Spectrum Brand swung to net income of $33.8 million or $0.64 diluted income per share on average share and common stock equivalents outstanding of $53 million. This compared to a net loss of $41.2 million or $0.79 diluted loss per share on average shares and common stock equivalents outstanding of $52.1 million last year. By segment for the second quarter of fiscal 2014, the global batteries and appliances segment reported net income as adjusted of $35.7 million versus $34.6 million a year ago. The global pets supplies segment reported net income as adjusted of $19.4 million versus $16.4 million in fiscal 2013. The home and garden segment reported net income as adjusted of $22.8 million compared to $20.6 million last year and finally the hardware and home improvement segment reported net income as adjusted of $31.9 million versus $600,000 a year ago. So with that background I am pleased to turn the call over now to our Chief Executive Officer, Dave Lumley.

Thanks, Dave. And thank you all for joining us this morning. Let's turn to Slide 6. We are really please to report our record second quarter. Our seasonally small and most challenging quarter of the year. Combined with our record first quarter we had good first half momentum towards delivering a fifth consecutive year of record performance. The second quarter had many highlights. All divisions contributed. Firstly, all our businesses achieved higher sales and adjusted EBITDA versus last year. Our battery, HHI, personal care and home and garden businesses have especially good results. Internationally, and particularly Europe again was the bright spot. As Andreas will soon discuss. On the cost side, we achieved an all time high fiscal second quarter level of continuous improvement sale, they will be on a similar first quarter record. In short, our Spectrum value model continues to work effectively and continuous to resonate with retailers and consumers in a global economy that remains challenging. Our same or better performance for fewer prices, performance oriented, and value brand Spectrum Brand products are winning today's market place and with today's smart shoppers. Let's move to Slide 7. Spectrum sales increased 3.4% and 4% excluding negative impact to foreign exchange which was primarily in Latin America. This follows similar 3.6% sales increase in the first quarter. We overcame unusually harsh and prolonged winter weather in January and part of February in the U.S. and Canada that hurt retail store traffic and their POS. Most significantly in our case in our HHI and pet businesses. Our adjusted EPS of $0.72 grew strong 64%. Adjusted EBITDA increased 9% nearly three times set of our sales growth. Excluding negative FX impact adjusted EBITDA increased 10%. This is our fourteen consecutive quarter of year-over-year adjusted EBITDA growth. We are pleased to get…

Thank you, Dave, and good morning. It is a pleasure to participate in the quarterly earnings conference call. If we move to Slide 16. We are very pleased with our international performance in the second quarter and also in the first half. We are also very optimistic about the opportunities to drive further sales growth and even more efficiently leveraging our global product portfolio and international sales organization. These remarks contain some references to international growth. Indeed, our international sales net of currency grew 5.4% in the second quarter. Currency had only a modest impact as a stronger EURO and British Pound offset weaknesses in other currencies especially in Latin America. Europe continues to grow, as it did in fiscal 2013 and also in Latin America constant currency sales growth was nearly 5%. Growth in both regions was broad-based and spread across all product categories. Similarly, international sales in the first half grew nearly 4%, net of currency, driven by virtually all categories and regions. Our international expansion is driven by the Spectrum Value Model which truly is a globally effective go-to-market strategy. Our focus has been on a continuous launch of new products and of products with improve benefits and in parallel we continue to provide compelling offers for consumers and our retail partners which help gain additional listings. In addition, we are systematically strengthening our sales organization. Spectrum Brand has currently present in many countries outside North America but previously this had been often linked to only one or two product categories. By launching more of our global products and the addition of HHI's categories we are broadening our footprint and expanding into more countries and at the same time we are pushing for more cross-listings. This approach has been supported by our focus on shared back-office services and is working well. On one side we are strengthens our relationship with existing retailer as we become a more important supplier, on the other side we are controlling the expenses of our sales entities and spreading them over more categories which is making us more competitive. Thank you. And now to Tony for the financial comment.

Well, thank you, Andreas. Good morning, everybody. I want to turn to Slide 18, and I would like to first comment on our gross profit and margins in the second quarter. Our gross profit and margin was $360 million and 35.2% compared to $323 million and 32.7% a year ago. Which include a $26 million increase in cost of goods sold from the sale of the inventory that was revalued in connection with the HHI acquisition? Excluding the revaluation, gross profit margins were unchanged. Second quarter SG&A expenses were flat and operating expenses declined 10% versus last year primarily due to lower acquisition and integration related charges. Second quarter interest expense of $47 million decreased $13 million from $60 million last year primarily as a result of savings from the refinancing of our 9.5% notes last September. 2014 full year interest expense is expected to be in the range of $195 million to $200 million which includes $104 million in the first half of which $11 million was one-time items related to our term loan refinancing in the first quarter. Regarding depreciation and amortization, we expect full year 2014 D&A to approximately $190 million to $200 million, which includes $95 million in the first six months. Our second quarter effective tax rate was 24% compared to an unusual negative tax expense of 246% last year primarily due to positive earnings in this year's second quarter versus a small loss in 2013. Our 2014 effective tax rate is still expected to be 25% to 30%. I would like to highlight a few more key items in our financial statements. Our cash payments for restructuring, acquisition and integration charges for the second quarter of 2014 were $19 million versus $20 million in 2013. Cash interest for the second quarter of 2014 was…

Okay, thanks very much, Dave, Andreas and Tony. Kanise, you may now begin the Q&A session, please.

(Operator Instructions). Your first question comes from Bill Smith with Deutsche Bank. Your line is open.

Tony, congratulation on the retirement, you are a good man, you did a great job.

Well, thank you, Will. I appreciate it.

My pleasure. Can you guys talk about the battery situation or the mark and obviously it was a good quarter way by people's estimate and then clearly maybe not overtly for sale but it is pretty clear that your two big brand and premium competitors are in different states of flux so what do you guys think that means for the category and kind of what your interest level would be in those two assets?

I guess that you want me to answer that. This is Dave Lumley. First of all, we are really pleased with our battery business performance. One of the things that I have explained to all you guys and I know you understand is as you gain share in a competitive battery business and you sell through a lower prices, your sales going to always catch up at first so you can convert all that. We have been converting and we have been doing quite well in most of the channels, we talk a lot about the home center channel and also some key big battery sellers. So we gain that share and we have been through the two year term so there are products selling through so I think same performance is working and resonating. And we tend to sell to our space or better. So I think that's encouraging and that's happening around the world. We have had some new introduction to the on-the-go power for cell phones and that's been doing quite well. In regards to you other point, I think we need to learn more about the announced new structural strategy of one of our competitors and also we heard a lot about the largest competitor comments about that. I could say right now, Will, our view is that one or both of those, if they go that way would represent a good opportunity in the market place for Rayovac and VARTA as the competitors are playing field would be different than it is now. In regards to anything beyond that, time will tell. Let's first we like to concentrate on what we are doing. And we will see what goes on there. But like I said I am most excited about what could be in the market place for us.

Dave, it is fair answer, thank you. Do you think those businesses are self funding by themselves? Do you think the other businesses and portfolio help support the battery business?

Well, I never with the either company but my sense is that when you have this breadth and strength that those two battery companies have to do their own right now that gives them more options than it is faired well.

Okay, great and then follow up item, how inside invitation you kind of (multiple speakers)

The invitation given in the prepared comments.

So why are you guys thinking that your housing start it is going to blow the more formal forecast?

We plan for that, our HHI team has done an excellent job looking forward as you might remember new housing start only that present about 25% of their business with a 6 to 9 months lag but that team did an excellent job, they took the housing forecast only did the plan. And they basically cut it and that's about where it is. So I think they positioned themselves very well for that plus as new products. So we never were jubilant as others were about it. We also what I think you would find Bill that we are more excited about is what's really happening is what I call right throughput, right or upgrading and that's why really do and welcome, coming and -- they done a terrific job on to their lockset so you are right, we never expected to be as rosy as if not but it is still better than it has been. I think that our business is prepared for that we geared up to really take advantage of fix your shaft, fix your adopter,, upgrade your key rollout, our SmartKey where you can re-key the lock and tended to second versus our competitors that you stop to go to store for half an hour or re-key, those are the things that are driving it, so I think you guys should all feel quite well, we planned for this and they are operating well. So we are very pleased with the way they are going.

Your next question comes from (inaudible) Capital. Your line is open. Unidentified Analyst Good morning. Could you give us an update on the synergy plans for HHI beyond the first $10 million and when does that business go on your SAP system?

Sure. That is a terrific question. They had several their own systems, sales plus the -- like breakaway from standard bike and baker and the TSA so we have a very robust SAP plan that will take a couple of years. It is very complicated as you know that SAP with manufacturing a lot, we have begin that. So we are working on that. And Honey it is a good question. We do believe, I don't want to give a number out now but I would say that the opportunity for savings through SAP is continue share services is much bigger than we thought when we posted the $10 million plan. So we will talk more about that in a future. It is something that we excited about. Unidentified Analyst And then I guess on the international expansion, are your shared services and system built up on us -- I know Andreas alluded to this but how do you see the international growth moving from this point done, if you got your structure in place but you are building out your sales force, could you give us some examples of which countries are getting which product line, help us understand where you are and where are you going?

Sure. And it is really quite excited and I think you know better courses have been doing that for a quite while than Andreas. Andreas you want to jump in and talk about some success and where you are going.

Yes, thank you. Yes, I think the idea is we want to take our strength in the retailer relation and if you look for instances at the UK where we are market leader with Russell Hobbs. We are also very strong with Remington but so far relatively weak with Pet also with bank fees so basically we are taking our retailer relations and we are launching those products. And you have many other examples like that even going to Japan where we have a very strong position with aquatics products or if you go to Brazil where we have a strong position with batteries but weak in other categories. So the idea is really this kind of pushing cross selling and you are 100% correct, we just need to add dedicated sales people and marketing people but basically the entire infrastructure from SMP, supply chain, everything is already there to support the business.

Andreas, why don't you give a couple of examples of what you are doing with HHI in couple of regions with padlocks and others?

Yes, basically the HHI international expansion is let me say in Latin America probably a little bit easy because their technologies are more similar to North America, so there again we have a very strong presence, we are present in Latin America in 13 countries with our own sales organization, so we are basically pushing now the entire range of HHI products not only the locks but also plumbing, hardware into those markets. And the similar way we are going for instance in Asia where HHI is actually stronger in batteries and appliances and there we are using now for instance the HHI infrastructure to launch also now batteries and appliances in that part of the world.

And Kana [ph] we can talk to you more off line, we will talk to you about a lot of other success in Asia Pacific with HHI and now we are doing --we put together -- they actually lead in there, in Canada, HHI selling our batteries. But I think what you are going to see here is an infrastructure that an HHI embrace each other, where HHI is much more important than our international network and it was with its previous owner, who have a lot more sales and lot more priorities. So I think you should feel good about where they could go in future and we are doing it right now. Unidentified Analyst And can I just ask one more question. On HHI's sales, it sounded like you did some good planning for it but did the sales come in-- where did sales come in versus your internal expectations and what’s your outlook for full year HHI sale?

Yes, if you look at how they have done in the first six months, they are slightly ahead with our expectations works so that's good news.

Yes, we had a very strong first quarter. And -- the second quarter the first sign leads to the quarter where it negatively affect the weather, now the good news is we saw March month with a significant increase, in fact from a standpoint within from mark-to-mark kind of report months, the March of month was record month for the HHI business from sales aspect ever in their history. So we see that momentum regaining but for the second quarter the sales in the course with HHI were slightly below our expectations only really driven by the nine weeks of bad weather that occurred.

But to answer your question as we have been saying all year, we see HHI's sales on yearly basis going into a high single digit, very low double digit which would be about what we -- when I said about the conservative estimate is what I really did and that's going to be pretty good.

And we said all along that an on going basis, long term we see this business been a slightly faster than the -- what you refer to back in the past as legacy spectrum, when we see it is 1% to 3%, when we see the HHI business probably slightly higher at about 4% or 4% to 6% in that neighborhood.

Your next question comes from Michael Dahl with Credit Suisse. Your line is open.

Thanks. Actually a quick follow on to that comment. This 4% to 6% longer term expectations I guess just given a lot of the moving parts as far as new products expansion and eventually some headwinds from housing again, should we think of the next two to three years that you can do higher than that or just some thoughts on where if we should be in that 4% to 6%, 2015 and 2016 also?

We tend demand these businesses from a conservative sales stand point so that we can take advantage and leverage the upside. This year we are in a high single digit so double digit. Our conservative outlook is 4% to 6% -- our optimistic outlook is high single digits. I think a lot of this is going too depended on whether interest -- where interest rate go right. Where employment go, but it appears as I see speak to our best and top customers at HHI that there is a big demand to retrofit, there is a big demand to upgrade and buy taggages, and HHI is in position of commanding share there so I think that if you are conservative you do you would say if you are optimistic you do with the other range. So you are somewhere in there. Now we have yet to see whether the Kido leads to even more stock sales or Smartkey which I believe it will. And HHI has some very significant plan to other parts of their business international, mass, Tong Lung, with a really great project and cost reductions is going to lead them, promote more. So I would say in that middle to high single digit is our goal.

Got it, thanks and then still on HHI, with the March performance, what's your sense of, how much was inventory restocking or just where we stand from an inventory perspective at retailer? Thanks.

Well, you know the retailers January to end inventory and then you add on the top POS and traffic basically lot of people will put hold and door open its region outside. I mean I understand there is another way thinks about it but that's kind of what happened, so what they are seeing now is that the retailers are adjusted then in January. And now they are seeing a product in March and April and they are back they are kind of bullish on where they are going to go because remember traffic in the home centers is very high. We have seen the same in our home and garden business, we have seen in our battery business and even the large, large retailers are that we are doing our business with see traffic coming back and the pent- up demand. I think one of the things that you remember in our business is we are in a replacement business. And some of them are seasonal. So they are going to buy that, it is just a matter did they buy in February, March or April, or April, May, June. We spend a lot of time in home and garden and a lot of way HHI is true here, oh my god, let's have in this month, let's have in next month. If you look at the 5 and 10 year record there is still below over the year, right. So we are talking about timing I think right now.

Your next question comes from Ian Zaffino with Oppenheimer. Your line is open. 0:43:12.7. Ian Zaffino - Oppenheimer & Co. : Hi, Dave, thank you very much, excellent great quarter. How are doing there? Just slightly big channel of -- more to Europe, I know you kind of highlight that as a strong market for you. Was that a function of the overall market sort of improving over this past quarter or was it really a function of -- you are actually so pushing on that market deeper. Thanks.

It is a good question. Andreas, who is sitting nearly right now so why don't you jump in Andreas.

Yes. Actually I would say the markets are actually improving but it is also very mix category by category, where as prime system market growing that we have to accept the market is still down. So our growth is mostly driven by distribution gains and also launching new products which are helping us to get new lifting and partly also at a higher price point. So it is really more what I mentioned earlier - speak from value model which we are executing very systematically in all markets which is helping us to grow. And also in Europe, please let's not forget I mentioned earlier EURO and Pound was strong but especially in Eastern Europe we were also affected by lot of negative currency impact. Turkish lira, Russian Ruble and so on. And we are nicely overcoming that. Ian Zaffino - Oppenheimer & Co. : So as you look at the appliance businesses as you push deeper to Europe, what's the margin differential in the markets that you are penetrating versus say your U.S. market? It is higher margin I imagine but how much?

I'll jump on that. You answered your question. U.S. appliance market is significantly lower margin with much higher volume and it has been affected much more dramatically by the online sale. The European market and Andreas switch off if you want but usually more featured products, more benefits at higher price and that kind of work better over there. Andreas, if you want to add anything to that?

Yes. I think if you look at cross profit margin then exactly as Dave mentioned we do generate higher margin. But it is also set to a point out that of course with the complexity of the markets with the different trade structure and so on also our SG&A expenses in Europe are higher. So that if you look at the EBITDA margin then we are firmly in a similar range as North America. Ian Zaffino - Oppenheimer & Co. : Right, with the incremental margin that was higher in Europe. Another question the -- just -- you talked about weather but you really haven't sort of defined what the impact was and I know it is difficult to think to get to but if you could just give us status what you think, trying might have been hurt by weather.

Well, this is just opinion because we have so many different businesses in a different retails to different strategy. But I would say in general it is hurt HHI and it hurt businesses in North America in a low single digit if you ask. It just did as people ready to spot us, but again we are seeing that quickly turnaround once they get back into the store. So I think if you look at your models, if you were to look at POS, it did impact the quarter for all companies including the retailers especially for two industry three months in a low single digit. Now there is recovery and you'll probably see disproportionate sale through now in May and June which is but normal happening. Again, we are not in the ice-cream business. If you don't sell the cone in the hot weather it is gone. For the most part retailer going to come up, pets going to get hungry, pets still get hungry, doors have to be fixed, toast is burn up so I think that we are going to see a pretty good quarter now compared to last year.

Your next question comes from Bob Labick with CJS Securities. Your line is open.

Good morning. I want to also congratulate Andreas on his new position and then Tony on his announcement and all the contribution he has made for Spectrum.

Thank you, Bob. I appreciate that.

Absolutely. So I guess for Dave. Knowing that you won't find anyone obviously as smart person or as handsome Tony, what are you looking for in his successor?

Well, we have an active succession program. We have an active search out; we are looking internally and externally. But I think we are looking for man with same attributes that you just talked about with Tony. Someone who understands our model, someone who has got great integrity and understand our business and dealing with all of you. I think also someone with strong accounting background, someone who has been in the public market place. Tony is directly and significantly involved in recruiting of the new CFO. I don't think that he still have serious answer, Tony (Multiple Speakers) Yes, I don't think they have to deal and wait less as much as Tony, that's made the search easier. But with Tony is business as usual. He is completely committed at least through the end of the year, we will not make a change and so we are all completely satisfied with his, have my word on that, Tony, Andreas Rouve will be very involved, our principal shareholders has been significantly supportive in this and doing everything they can to help us and our Board is saying obviously we would like it Tony would not to leave but those of who you around the number he was hardly get here and where few years past promise but nevertheless in summary someone who has the public company background, someone who understands how to work with all of you but global and scope someone who wants to be in that or not meddle with conference, who can embrace our model and has the respect in the culture where we are and of course why are we public company or control company so someone who can work in that environment as well. So it is a challenge, no doubt but a terrific opportunity.

No question.

We are $4.5 billion profitable company now when Tony and normally it is our industry, we had some other challenges, and we will inherent as far as we are but again we have a very strong supportive Board, very strong supportive controlling shareholders and we are involved in it.

And this is Tony. I would appreciate the comments but I would say that the most important thing that Dave has said is that it is business as usual for -- I am here at least through the end of the year I am going to be in and assisting with the recruiting, the transition, finding and signing and 10-K this year, we've got eight months, we have got -- make the remainder of the year, we've got great momentum from the first half as you guys can see. And we are very excited about the remaining year but that's our focus is to get it done as we say.

Great, thank you for that color. That was excellent. Jumping over to the new product pipeline and the launches you discuss. Can you give us just a little bit of color overall on the expected P&L benefit? Is it accelerating sales? Is it higher margin? How is that act come about? And then just part two that, do you have enough of a pipeline to sustain this innovation in the years to come? What's the product cycle going forward?

Yes, well, you want a global statement or you want in certain division of business.

As details as you are willing to be?

Well, business is today have vitality rate, you like to try to come out with 15% or 35% a year of new products or new versions of products, or improve products and new products provide cost improve opportunities, pricing opportunities and I get retailers and consumers excited specially who are with us today where consumers they go into a store, week two and nothing new there, they are disappointed as the internet provide something new everyday, every hour. So depending on the business we are in, we aim for that 15% to 35%. Now within that our success rate has been hot in most cases we are the number two brand for business so we have room to go right, we have opportunities to grow as geographically. Physically if you were to study over the last five years, our EBITDA percentage as a company our gross margin rate, you will see it steadily improving and that's combination of cost improvement and new products. So that would give you a good track record and what to expect probably in the next five years. We do not manage program that are home run, we do not enter joint fat businesses and hope that this going to take us to the top because they typically go down just to start. So that will be a good grammar for you. Now look at our businesses, if you were to look at most of our businesses are 18% EBITDA businesses or higher. And they steady improve and appliances have been the most dramatic improvement. If you were to go back, way back, we have done in middle single digit as a company. And now they are in the double digits. And that's good grammar what you can do with this new global new products. So I think that a company that can improve its overall gross margin percentage one, two, three, hundred basis points so he is doing quite well on today's world because there is not lot of pricing. And it is nice when you see how these people announcing prices. But most pricing announces they get a quarter over a third of it and they are all dance pretty good. So really happens that new products so to your point if you study our five years and look forward and I think you could see more of us as it would go. Is that helped you?

Yes, very much, sir. Thank you.

Your next question comes from Kevin Grundy with Jefferies. Your line is open.

Nice starting. Good morning, guys. So first Dave can we start on the pet business and understanding that the weather has been difficult over the past couple of quarters but even looking back to the back half of last year, I don't think growth for that business has been quite what you hoped it would be. Can you give us kind of stated union with that business, how much is drag from aquatics macros etcetera and what gives you confidence here in the back half of the year, things are going to get better.

Sure, good question. And you are right, so the back half of last year come in also a really, really poor time season, aquatics started with decline over the year ago, aquatics is driven on a few things. First and foremost how many fish are being sold in tanks in store? And less stores over the last year have done that. In fact they have gone the other way. We cover that by investing in low cost tank, we won of this we got start. And it started to improve it but still store traffic is down and there is less fish in the store as it was tanks. That starts people in the pet section, really affects the cost, okay. Plus over the last year we learned a lot of people view that more discretionary than replacement all right. And in our case we were little late on key products in aquatics all right. That it is our fault. But we wanted to get it right. A lot of these products have to be approved in the fiscal area by numerous governments and they have to be valid and we have to get those right. Why we feel good on the back half? We have done that. We have new tanks, the new fish, and very exciting products like time release. We have very unique stuff inside the tank that's coming right. Our glow fish is growing now; we have all the appropriate things in aquatics. But aquatic also involves reptile and that is something that is growing and we are entering that. But the good news is we secured all these for the second half. These are hope, so we know it is going to go up. We have also, since we provide a lot of fish tanks and make them commercially, we secured new listing and not as only two or three people that drive that North America, two or three people who drive that in Europe and we have those orders. And we are making it. So they are in the aquatics, only 12% of people are in aquatics, I might know who are in cats and dogs,

It is too obvious

It is too obvious, so as we drive that, we also, it is the long answer, are reengaging with the small pet owners who have fish tank and we are going out of our way to invest with them and make it easier for them to not only bring fish in, in our type of tanks but to do more business because if they are that they drive the interest. I think about bike shop or boat beer and all that. So finally we feel lot better about that. Now make no mistakes about it, aquatics a tough business right now. It has been a long time since the -- right. And Nemo, And finding Nemo, Jeez, we need to find Nemo, we have been begging this Nemo to, but I think that from the mainland if we look at our share gains and our cost improvement we can feel better about our product long term. Now, if we are excited as companion and which we have great growth but the margins are less, it is more competitive, a lot more people. A lot of things happen in that area. There is, again we secured major listing in Ohio, Chicken Jerky, Natural's Miracle, we are with the category experts in there, the two big pet retailers. We secured that business. So short of major store traffic or appeal us downturn of major proportion, it is going to go up in the back half. Finally, our acquisition of -- which has done tremendous, we again were late and getting out the right new products for that and this is feverishly done a boded group of people, if you ever charge terminator brush and stallion brush which is I doubt I will never going to get it up. In fact, I appreciate volume today but there can't be doubt in their company , and they were expanding brand and new categories, so it took a little while to get it right just like, that's how our other businesses but we are there now. And that's why we feel better about it. And you are right, there are high expectations for these businesses and we are committed to doing them.

And then thanks for that. And then we shift back to batteries which you touched on a little bit before. But the number was very strong obviously in the quarter, I think it kind of probably be what everyone had modeled, was there any shipment benefits with that? I guess sort of feel back the on -- was there any shipment benefit in the quarter which is going to reverse now in the back half? I can't imagine you guys thinking you are going to do 7% kind of growth in the back half of the year so color on the back half would be helpful. And then lastly I know Dave if you are feeling Neilson over obsessed with U.S. scan a data but obviously a huge discrepancy between what are seeing in the track data versus what you guys printed today. So a color there would be helpful.

Okay. We are very optimistic about back half. We didn't have any abnormal shipments. Those were POS self through, they are not the new distribution we got last winter; it is deciding to make the changes and those channels I talked about. And at least I get it back, okay, we also have secured major win at a huge retailer that you are going to see later this quarter which will take us up in the back half because Rayovac proved itself, Rayovac has to prove itself over, over, and over again with retailers. And we have been through that cycle now for the last two years. And we are optimistic about the back half. With major competitor, okay, this is in business for us that we make excuses for, we recommend this business, and I think the retailers have grasp that whether we are in private label, branded or inherent business we are more likely to. So we invest in these businesses, we bring out -- we have perhaps at last call, we have really new product launches coming and outcome. So I don't think that you are going to see let up go in the back half. And I think we are going to do pretty good. And we never had given up in the battery business. It is our infrastructure worldwide, it allows to bring all this out, in fact because HHI is so strong in the hardware and home and garden so it helping our batteries. So by first and some of the other markets as they feel padlock, so I am bullish on it that you could be in the business that's quite down. I think you are going to see some rough behavior pretty soon but actually it started already but that's not the same. And so I think that I am consciously optimistic that our battery business was actually growing throughout the year.

So mid single digit Dave, not to put words in your mouth, is that sort of reasonable for the back half of the year?

That will be very nice

On average

Okay, your next question comes from Jim Chartier with Monness, Crespi. Your line is open. Jim Chartier - Monness, Crespi, Hardt & Co., Inc.: My question, hi, so you guys expecting incremental $5 million of taxes this year. Are there any offset in terms of better than -- a major kind of keeping your full cash flow guidance unchanged, anything better than expected to offset that. And then why wouldn't the normalized tax rate go up if the reason for taxes this year is due to better international process.

Well, to the first question, I mean with our cash flow obviously a slight increase in cash taxes and there is LIBOR expense, the capital spending, where that is what we originally had in our internal plan versus over actually coming out. We are still making all the investments that we need to make and our working capital assumption and of course our EBITDA growth. So there is a lot of leverage there, Jim, but that's -- the slight increase in cash back it has no impact on our cash flow guidance for the year. Your second question, could you just repeat that again, Jim, I am sorry. Jim Chartier - Monness, Crespi, Hardt & Co., Inc.: It sounds like you are kind of reiterating your longer term cash tax $55 million to $60 million.

Right, I know you said what the impact that is on why that did not impact our effective tax rate for this year. Jim Chartier - Monness, Crespi, Hardt & Co., Inc.: No, I am curious the reasons that tax are higher this year because international profits are higher. Why would that impact?

That's a slight increase, the real driver of why the cash taxes are so much higher this year is really the timing of those payments in Germany vis-à-vis we made -- we are making two payments in Germany this year versus year or less one month payment in Germany than we did last year. And that's just the timing issue. And the other issue is that we had some audit adjustments from 2007 to 2010 period, that we are making those payments this year. So that's why the cash taxes this year are going to be I'll say an anomaly and then going forward we believe that they normalize run rate should be $55 million to $60 million as we said earlier. Jim Chartier - Monness, Crespi, Hardt & Co., Inc.: And then you talked about the sequential improvement in POS in March, have you seen that it continue or accelerated into April?

This Dave Lumley. Yes, and most of our businesses specially those in the home center. Jim Chartier - Monness, Crespi, Hardt & Co., Inc.: Okay, great and then international, you talked about bringing more categories into different countries. I guess the question why are you doing now? Did you not have the infrastructure system in the past? And then longer term, should international grow faster than North America?

This is Dave Lumley. International has been growing faster than North America for us for quite some time because it is entering new market especially Eastern Europe. We bring out products internationally on to the platform when we have better output strategy, we have the right products ready to go, and we do not want to overwhelm the system, so if you went back and say this we are very confident. We brought Remington out. And then over time we brought pets and then Russell Hobbs, that's behind us. But we hadn't taken pet like the Latin America yet because we weren't-- we didn't feel big enough opportunity for that, we see that now. Then as Tony said lots of -- now we have the HHI. So you guys picked the right product with the right support at the right time. So this kind of sequential that will --

A great example of that Jim would be Russell Hobbs. When we launched those products which were not in, virtually in Western Europe when we acquired the businesses, two countries that they are in, they didn't have the big footprint, but we launched into Western European and then into Eastern Europe, I mean a classic example would be we did not go to each country and take a complete stable products and just throw them into the country and say good luck. We looked at each individual country, what were the key products, what really moves the needle so if you can focus, we have already 20 roll, if you are going to have 20% of the products generate 80% of the sales and profit, let's focus on that, that's exactly what we have been doing, as they said, that's just we do it in a very strategic way and we want to make sure we do it right and that's basically we have been doing this, that over time though and it continuous to be success for us.

I think we have one question left Kanise, still in the queue.

And your last question comes from (inaudible) with Deutsche Bank. Your line is open. Unidentified Analyst You guys are taking down memory lane; there were all the acquisitions over the year.

Quite correct, you were there with us.

So the retail distribution gains that you guys are talking about, do you feel that that's coming at the expense of private label or are you taking this away from some of your branded competitors in and against that's across your categories not just batteries. Where are you -- who are you replacing there?

Two things. It is Dave Lumley. One is the combination, okay. And two is when we look at just Nielson data which is really a few drug driven data, it of course skews to those who spend a lot of time in using drug, most of our strength -- okay let me-- if you were to look at the top 10 battery sellers in America, food and drug added together is in the bottom half, okay. The big one is we should expect, I wonder that is Nielson but the other four or five are not. So that's why you see that skew. So I would say it is a combination of branded business and private label. You can simply look at the results of one of our competitors and see what's going on there; the other one doesn't report anything, okay. So you can extrapolate that but clearly the other two strengths are more in food and drug and mass and they are in the other but those are good companies, they are good brands. So again they are going through announced changes and what their companies are emphasizing. In our case we are committed to the battery business and investing in long term so I think that's why it is so hard to look at these things differently. We've probably stated that we believe our market share and you added all together is 17% to 18% of our client, that's higher in the general category. Everyone focuses on our client which is important as well 55% of sales but the other thing actually expense -- better so we sell all those and those guys are sold industrial channels and they are sold in lot of other places. The other thing that we are seeing is that there are numerous opportunities to sell battery to other devices or newer devices specially cell phones and cameras because when you are on construction site you can't throughout the end of your car off that, okay it got so much part, when you are at a concert, when you are a college kid, you got to have power and they will do anything for it. So I think that's a big area of opportunity for us. So that answers your question

Yes, it is. When you guys talk about the pathway to $400 million of free cash flow before any growth of the business and suddenly implying another $50 million of cost savings, you can realize within the year, are there any kind of big buckets or kind of one off easy steps are there or is this kind of continual improvement, we will get a little bit incrementally over the time period.

Basically it right from $350 million to $400 million of cash flow -- before factoring in growth of business sure and basically we are going to be paying down debt this year so you are going to get interest saving would be one bucket. Lower taxes as I just talked about in the previous question from Jim, we are going to be more normalized this is better anomaly this year so we have some significant savings there. And lower A&I cash distribution again, now we have implemented initiatives, those initiatives have been announced, implemented and what we are seeing is the window or wind down of the cash tail of those charges. So when you factor just those three items in you basically come to about $50 million which again not saying we are not going to grow but so many mentioning one which is why we do say you are not their growth, no, I am saying before we even factor in growth our $350 million of cash flow that was generated this year and is apples-to-apples $400 million and then we grow from there.

All right, sounds good, look forward to seeing you guys, take care.

With that I think we have concluded our call for today. I certainly want to thank Dave, Andreas from Italy and Tony this morning and behalf of Spectrum Brand, all of us here we want to thank all of you for participating in our fiscal 2014 second quarter and first half earnings call. And have a good day. Thanks again.