Good day, and thank you for standing by. Welcome to the Q4 2024 Spectrum Brands Holdings Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Joanne Chomiak, Senior Vice President and Treasury. Please go ahead.

Thank you, Gigi. Welcome to Spectrum Brands Holdings Q4 and full year 2024 earnings conference call and webcast. I'm Joanne Chomiak, Senior Vice President of Tax and Treasury, and I will moderate today's call. To help you follow our comments, we have placed a slide presentation on the event calendar page in the Investor Relations section of our website at www.spectrumbrands.com. This document will remain there following our call. Starting with slide two of the presentation, our call will be led by David Maura, our Chairman and Chief Executive Officer, and Jeremy Smeltser, our Chief Financial Officer. After opening remarks, we will conduct the Q&A. Turning to slides three and four, our comments today include forward-looking statements, which are based upon management's current expectations, projections, and assumptions and are by nature uncertain.

Actual results may differ materially. Due to that risk, Spectrum Brands encourages you to review the risk factors statements outlined in our press release dated November 15, 2024, and our most recent SEC filings, and Spectrum Brands Holdings' most recent annual report on Form 10-K and quarterly reports on Form 10-Q. We assume no obligation to update any forward-looking statement. Also, please note we will discuss certain non-GAAP financial measures in this call. Reconciliations on a GAAP basis for these measures are included in today's press release and 8-K filing, which are both available on our website in the investor relations section. In response to recent commentary and review, we have updated certain adjustments within our consolidated adjusted EBITDA and adjusted EPS performance metrics.

As a result, prior year results have been recast from what was previously published. The updates only affected consolidated numbers and did not impact any business units that specific metrics. In providing comparisons to prior periods, we will use the recast numbers unless otherwise stated. Finally, we encourage you to listen to our remarks today alongside with reading Spectrum Brands press release and 8-K issued today in your our annual report on Form 10-K once it is filed with the SEC. Now I'll turn the call over to David. David?

Hey. Thank you, Joanne. Good morning. Thank you everybody for joining us today. On behalf of our company, our management team, and our board of directors, we are really pleased to share with you our fiscal 2024 accomplishments and successes. For fiscal 2024, we kept the promises that we made to ourselves and to you. And we delivered and exceeded our annual operating plans on virtually every metric. We have restored operational momentum to our businesses. With best-in-class operational efficiency, fill rates being in the mid-nineties now, and we have progressed from a weak working capital position to a company with best-in-class working capital management capabilities today. Our investments in our businesses have returned our company to revenue growth in the third and fourth quarters of fiscal 2024, as we upgrade our capabilities in commercial operations, innovation, marketing, and advertising. Adjusted EBITDA grew by over 20% fiscal 2024, and we believe that is the best if not one of the best performances in our entire industry. Our 20% EBITDA growth was achieved despite an incremental $62 million that we into our brands, through new R&D marketing and advertising initiatives. We turn to our balance sheet, we actually have the strongest balance sheet in our peer group. And we ended fiscal 2024 with net leverage below 0.6 turns. This balance sheet strength gives us tremendous operational flexibility and, frankly, strategic optionality. We intend to use it to continue to drive our organic operating performance, and our shareholder value by buying back our shares. Free cash flow in fiscal 2024 was $177 million and that was despite over $100 million that we invested to unwind AR factoring across our entire company. I am also excited to share that our largest business unit, our North America Global Pet Care Company, is now running…

Thanks, David. Good morning, everyone. Let's turn to Slide ten for a review of our Q4 results. We'll start with net sales. Net sales increased 4.5% and excluding the impact of $2.7 million of unfavorable foreign exchange, organic net sales increased 4.8%. Organic net sales were higher primarily due to growth in controls and repellents categories and normalized retailer inventory levels in home and garden. Strength in both home and personal care categories for HPC with new Black and Decker listings and continued growth in e-commerce. And a strategic pull forward of orders in GPC by retailers in preparation for our S4 HANA ERP implementation. Gross profit increased $43.6 million and gross margins of 37.2% increased 420 basis points. Driven by the favorable impact of cost improvement actions, operational efficiencies and inventory actions in the prior year, partially offset by inflation in ocean freight. SG&A expense of $253.9 million increased to 34.1% of net sales driven by increased innovation, marketing and advertising investments in the business. Operating income increased to $21.9 million. Our GAAP net income and diluted earnings per share decreased due to lower interest income and higher income tax expense, offset by increased operating income and lower interest expense. Diluted EPS also benefited from the lower share count. Adjusted diluted EPS decreased 13.4% due to the lower adjusted EBITDA partially offset by lower interest expense, lower income tax expense, and lower share count. Effective tax rate for the quarter was 23.8%. Adjusted EBITDA decreased 38.2%. But excluding investment income, adjusted EBITDA declined $12.3 million to $68.9 million driven by the increased brand investments of $26 million, $12 million more than we initially planned at the beginning of the quarter. As our top-line growth accelerated throughout the period, we made the decision to increase our investments and improve momentum…

Our estimated effective tax rate on continuing operations is 32%. This will be impacted by various quarterly discrete items. To end my section, I want to thank all of our global team members for their contributions delivering a strong fiscal 2024. I am confident we are set up well to have another successful year fiscal 2025. Now back to David.

Hey. Thank you, Jeremy. And again, thanks everybody for joining us today. Happy Friday. Look. I'd like to take a few minutes here just to recap the key takeaways, and I think those are on slide nineteen. If you could turn to slide nineteen. As we close this 2024 and heading to 2025, I'm really proud of the year we've had. And I really do want to echo Jeremy and just thank all of our outstanding employees for their contributions over the last twelve months. This was a remarkable year. If you remember this time last year, we actually projected we would be down. But investing into our businesses, we actually delivered growth and as we've talked about, we returned our company to strong sales growth both in Q3 and Q4. As we ingressed it in upgraded talent, innovation, marketing and advertising. After facing significant challenges for the years, we've leaned into our competitive advantages. We've invested in our brands, our businesses, and our teams to drive this growth. We've delivered on our promises. We built momentum in all of the business units. We've set standards of operational excellence. And we've laid the foundation for the future. Most importantly, we did what we said we were gonna do, and we delivered on our commitments to all of our stakeholders. We made the important and significant decision to really step up and invest in our front office and our commercial capabilities with the $62 million increase in brand building investment initiatives. We expect to continue to realize the benefit of those investments in the coming year and we anticipate growing our investment levels as we see only as we see incremental return. As Jeremy said, we expect net sales to grow low single digits this year, and we expect adjusted EBITDA to increase mid to high single digits over the prior year. Excluding investment income. We expect fiscal 2025 to again be a challenging environment. But we believe we actually have the right strategy to succeed. While we have some concerns about geopolitical unrest, macroeconomic uncertainty, and the overall consumer health, our balance sheet strength, our operational efficiency, and our regain sales momentum in all three businesses give us confidence as we face into the future. And as I've said in my opening remarks, we believe fiscal 2025 is our year to thrive to accelerate, and to achieve further growth. I'll now turn the call back to Joanne, and we're really happy to take your questions.

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

Thank you. As a reminder, to ask a question, please press star one one on your keypad. To withdraw your question, please press star one one again. Our first question comes from the line of Peter Grom from UBS.

Yeah. Thanks, operator. Good morning, everyone.

Good morning, Peter.

David, just on the HPC transaction, you mentioned geopolitical events contributing to a longer time frame. Maybe can you just unpack that a bit more and kind of what really changed between or transpired since August where I think you sounded far more optimistic? And then I guess just within that, has the outcome of the election the potential for tariffs change your view on that timeline or maybe the form of the HPC separation at all?

Look. I think, you know, first, you gotta zoom out and, you know, a year ago, we had a business doing $40 million in EBITDA. And no. It's tough to spin that business out or sell it with that type of lackluster performance. And so, you know, what we really wanted to do is get that company humming again with a do different strategy with a new leader with Tim Wright. And look, I'm sitting here thrilled today, you know, to say we grew that EBITDA to $75 million plus in the last twelve months and we're forecasting increased sales and EBITDA growth, you know, for the next twelve months. So fundamentals always win. You gotta get those fundamentals right. And I think, you know, a lot of heavy lifting, you know, under the surface here to deliver that, but we're on a good, good path. Yeah. Look. There's no question. You know, you don't go through a, you know, a US election, you know, in that month of October and then, you know, you saw the Middle East flare up. I mean, those things not just for us, but I think across the M&A spectrum, you know, actually puts, you know, people put their pencils down. They take their time to see, hey, what's gonna happen. But we're updating you today. We're in talks with two of the buyers who wanna continue with us, and I'm getting on a plane to go meet one of them here in the next weeks. And, you know, we'll let you know if we get through a good deal there. But continuing to progress it, and we're gonna continue to manage the business for better fundamental performance going forward.

Super helpful. And then just maybe a follow-up maybe for Jeremy. I mean, look, last year, you took a relatively conservative stance as it relates to the guidance. I just would be curious if you're kind of embedding kind of some flexibility given the uncertainty that you mentioned looking ahead. And then just what maybe within that, you know, any expectations, it was really helpful that they hear some views on top-line growth across the three segments. Just to be curious if there's some things we should be anticipating in terms of EBITDA growth from the three segments as we think about our models for which we got.

Well, I'm gonna start it, then I'll give it to Jeremy. I mean, we tried to give a bunch of little bread crumbs, you know, in this press release and the rest of it. I mean, you know, the reality is we spent almost $26 million, you know, of incremental ad spend in Q4. So, you know, you guys are looking at, like, a $68 or, you know, $68.9 or $69 million EBITDA number for Q4. I think on the surface that disappoints you, but you gotta make these investments, you know, if you wanna take more share, if you wanna reignite your sales growth, and you wanna build terminal value in the future. And so, you know, we are seeing very fast returns on some of this investment, particularly the bottom funnel stuff. And we expect to get real market share, real sales growth, and create real shareholder value over the long term from them. But obviously, if you take that huge incremental advertising investment and add it back, you know, you could argue we could have reported $94, $95 million in EBITDA the quarter we just delivered. And so we're also trying to let you know, you know, the health of the earnings here is pretty robust, you know, to think you grew EBITDA 20% in a year and yet you burned it with that additional investment, you know, I think it speaks pretty highly to the quality of the earnings power and the underlying businesses. I'll turn it over to Jeremy. But yeah. Look. We, you know, last year, you're right. We had a conservative view. We and, you know, we wanna continue that track record. So, Jeremy, over to you.

Yeah. I think that's a very fair point and good way to end your comments, David. You know, we do wanna continue that track record. You guys know that. We know it's important to our shareholders. You know, that said, you gotta think about a lot of variables as we build a full year model. You know, I think it starts with the top line. And what we've said is we expect to grow all three businesses low single digits pretty consistent with the last two quarters. So that should give some comfort and confidence. You know, why is that? I think, you know, it's a different story by each business. Right? I said in my prepared remarks, GPC is predominantly premium brands, and it's a more difficult environment for premium brands in this economy. There's no doubt. So while we think we grow low single digits, it's not where we'd like to be. But that's what's happening. You know, you think about aquatics hard goods, those are high ticket new entrance items. And in this economy, that's just difficult for consumers. So we're working on that with our retail partners to try to promote, try to invest a little bit, to get more people in the category. But it's a hard decision for consumers right now and we have to recognize that. In Home and Garden, you know, we had an excellent year, 8% growth, in 2024. Value brands. Right? So it's the right economic environment for those brands. It's the right environment for trade downs as our consumers, you know, bring things from third party suppliers for their yards and homes and do it themselves. We're right there for them, and it's great. And so we expect to continue to grow, but we have a pretty difficult comp…

Awesome. Thank you both so much. I'll pass it on.

Thanks, Peter. Have a good one.

Thank you. One moment for our next question. Our next question comes from the line of Bob Labick from CJS Securities.

Good morning. Thanks for taking our questions.

Hey, Bob.

So, obviously, a big theme has been leaning in on investments to drive growth. Current and future growth. And so I was hoping maybe you could dig down a little bit there and talk about, you know, take your words, you know, kind of where the investment is at the top of the funnel, where it is at the bottom of the funnel, and how you know, how you're making those decisions and, like, where you stand now on that investment spending and how that will change in the future.

I mean, I can take a crack at it. I mean, you know, you clearly see, you know, the results coming in terms of, you know, restoring the sales growth. You know, the spend, you know, was big and lumped with there as Jeremy just commented. I think, you know, the early spend in the year, we're mostly bottom funneled, you know, really making sure that we got very high, very quick returns on capital. And we wanted to restore the earnings power of the business. Right? I mean, so, you know, look, we just grew EBITDA from, I think, the $270s to almost $320. We tend to grow that EBITDA level, you know, higher over the next twelve months. You know, but we are doing some, you know, heavier top funnel stuff now, which does have a longer term payback. But it is important to build that brand equity to be able to take shelf space, to get our retail customers excited about the storytelling we're doing on some of our new product launches and new adjacencies. I mean, we just watched the pet asset trade 48 hours ago for 17 to 22 times EBITDA. Now they happen to be more in the cat space than we are. They tend to be more food related. But we see a fantastic opportunity in cat. And, you know, we want to take this good and fun brand. We want to really create a halo around good and tasty doing a lot of test and learning with our digital, you know, counterparts. Retail customers, and we're seeing some really exciting early returns there. So, you know, I want to get us to move bigger and faster, so we can get more of an allocation of our businesses toward these higher growth markets, which are food, cat, and wellness. And so, you know, that's part of the calculus. Jeremy, you want to add to that?

Just maybe a little more color. So about 10% of that increase was in R&D itself, which is obviously a longer term play, Bob. You know, over 50% was in bottom funnel with the vast majority of those dollars focused on e-commerce where we had, you know, an outstanding year. But part of that, frankly, is getting our fair share of where our consumers are going, particularly in the appliance business where, you know, the market has moved dramatically to online. And then in second half of the year, it is more top of funnel and content creation. And, you know, that's really more at the 2025, 2026, you're gonna start seeing our brands more on streaming, some on actual cable and sports, etcetera. Network. But, yeah, we're gonna be positioned very differently twelve months from now with these brands based on the dollars that we're spending now, and we're building the mechanisms to track returns on that, and we'll be nimble and adjust. I'll tell you that, you know, about beyond that 10% that was in R&D, you know, it's relatively split fairly equally between marketing and advertising, which is kind of an indicator of top funnel versus bottom funnel.

Got it. Okay. Great. Super helpful, caller. Appreciate that. And then just quickly on the HVAC, HPC. Obviously, you've discussed, you know, the factors and whatnot. What will determine the timing right now? When will you when would you expect to have greater clarity on the timing of the HPC separation, I should say? And is there a scenario where it's part of Spectrum and fiscal 2026?

You know, the M&A is fluid. As you know, it's unpredictable. I mean, you know, there's no question I kind of hope to have a deal done by now. And so we've called in a release. We do think that leading up to an election and the outcome of that election and Middle East stuff is definitely cost us thirty plus days, but, you know, we're actively pursuing it. And, you know, we'll update you when we can. It's kind of hard to comment beyond that, but look, again, I think the key thing we're trying to tell you is we're working really hard to make that a much better business, you know, and we're getting a lot of good results. So, you know, we'll continue to look at ways to do the best we can to maximize shareholder value. You know, I think look, I think, you know, really what you should look at too is, I mean, the fact that we're 0.5 turns levered and we're getting earnings growth really humming again in pet, home, and garden, we continue to trade. It kind of I think you're ridiculous. Multiple. So there's just lots of upside here still to be add in and the balance sheet gives us that optionality to make that happen. So I'm very bullish on the outlook for 2025 and we'll do our best to optimize value for appliances.

Super. Thanks so much.

Thank you. One moment for our next question. Our next question comes from the line of Chris Carey from Wells Fargo Securities.

Hey. Good morning, guys.

Good day. How are you?

Good. I wanted to see if you could expand on the underlying health, but your performance of the pet business, the $10 million benefit in the quarter, should we just reverse that out in Q1? And then just from a broader perspective, you know, Jeremy has highlighted more premium offerings. You're posing a challenge for consumers. I understand the retailers are also pushing private label. Just maybe if you just take a step back on the performance and competitive nature in the pet segment and how much visibility you have this year and maybe over time it that that'd be helpful just to get, you know, some broader thoughts on the business given some of the some of the moving pieces, you know, this year and going into next year.

Yeah. I mean, I think, you know, I'll start, and David could add any comments. The visibility is decent. You know, if you look at the top line, you know, it's in dollars. It's been relatively consistent over the last four quarters. Yeah. This timing of the S4 HANA situation does impact about $10 million. But visibility is decent, you know, in brick and mortar. We're still seeing, you know, annual line reviews. You're right. We do have some retailers. They're very focused on private label, and we're, you know, there to support them. Our brands are still in those brick and mortar channels, we're still important to them, but, you know, as they push consumers or they believe their consumers are pushing themselves more towards private label, it makes it more challenging us for us to reach that, you know, mid-single digit top line growth that we'd like to be seeing out of the business. That said, it's pretty stable, you know. And again, you know, seeing growth in aquatics consumables the last two quarters is something that we, you know, are happy to see. But it's just very difficult, you know, other than entry level, it's very difficult consumers right now to make that, they'll call it $700, $800 either ticket decision on a large new environment for their homes, you know, given the uncertainty that they're seeing in the higher interest rates. And I think we'd have to bear with that as it go through 2025. It's still an excellent business. You know, it is while low growth, it's low cap action. It generates very good margins for us. And it is a razor razor blade model with the food and co additives. So that's, you know, that's kind of the environment. I'm not surprised based on the overall macro environment that, you know, low single digit is where we're at. We're gonna push hard to do more. You know, all of David's commentary on what we're doing with marketing and advertising, including innovation with new listings and in cat treats and dog and cat food toppers, I think we're moving all the levers that we need to but we are facing a bit of an uphill grind with the economy right now.

Listen. Let me chime in on because you made a good observation on private label, except mean, I think if you look at the last twelve months, we're telling you we still had some, you know, revenue in that division that we fired, you know, basically with SKU exits and rationalization. And, you know, just because private label is, you know, doing a little bit better now, look, you know, we told you earlier, we have a national ad campaign for the first time on our Goodnfun business. Goodnfun was a brand we bought. It was like $50 million of revenue when we got it. We're doing over a quarter billion dollars in just under that brand alone now. You know, I wanna grow that to a half a billion dollar business. And, you know, to do that, you know, you've gotta advertise. And so there is a decent chunk now of top funnel advertising going there. Not just to defend that brand against private label, but to storytelling and the content creation about why that product is better than private label and then the adjacencies we can go in. That's really exciting. And I'll and look, I'll lean in a little bit with you and help you out. I mean, we started fiscal 2025 in good shape. You know, October, you know, which we just completed, actually beat our expectation. And we see sales and EBITDA growth in Pet this current quarter. You know, despite that pull forward. So we're in good shape. And we're gonna lean in.

Okay. Great. One quick follow-up on Garden. I think one of your competitors was also talking about some lingering inventory exiting the season just because of how strong fall was and how long retailers stuck around. Did I hear you correctly that you're planning for, I guess, a bit more, I don't know. I don't wanna say cautious, but like, perhaps some lower, you know, retail ordering in the front half of the fiscal year in Garden. As they assess as retailers assess the season. And so is that gonna be more of a back half loaded year? I just wonder if you could dig a bit deeper into that comment around, you know, late season inventories and how it's gonna impact the front half of your year and garden.

Sure. Yeah, Chris. So yeah. I mean, other comments are really around what we're hearing from retail partners on their expectations for the coming season, which, you know, we're in constant communications with them on those things. And we seem to be hearing a bit of a consensus that they're expecting a cooler start to the spring next year, which, you know, I think is pretty difficult to predict sitting here in mid-November, but that is a consensus hearing from them and hence our comments that, hey, it maybe is a bit slower start to ordering from the retailers and, you know, don't be surprised you see that. From our perspective, I think we had a slightly favorable weather season in 2024 to what I calling normal. Weather season. And so I still think with a normal weather season, we still grow. Low single digits as we talked about on this call, but, you know, we just wanna get that out there because we are hearing it from our, you know, three largest retailers, and they are obviously incredibly important to our overall sales and timing of sales.

Okay. Makes sense. Thanks.

Thank you. I would now like to turn the conference back over to Joanne Chomiak for closing remarks.

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