Good day. Thank you for standing by. Welcome to Spectrum Brands Holdings Fourth Quarter 2025 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 device when your hand is raised. Please note, today's conference is being recorded. I will now hand the conference over to your first speaker today, Jen Schultz, Division Vice President, Financial Planning Analysis and Investigations. Please go ahead.

Welcome to Spectrum Brands Holdings Q4 2025 Earnings Conference Call and Webcast. I'm Jen Schultz, Division Vice President of FP&A and Investor, 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 Faisal Cutter, 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 and cautionary statements outlined in our press release dated 11/13/2025, 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 statements. 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 or delayed or other additional tariffs which could result in additional costs. Also, please note that we will discuss certain non-GAAP financial measures in this call. Reconciliations on a GAAP basis for these measures are included in today's press release and 8-Ks filing, which are both available on our website in the Investor Relations section. Now, I'll turn the call over to David Maura.

Good morning. Thank you, Jen. Good morning, everyone. I want to welcome everybody to today's fourth quarter earnings update. I appreciate everybody taking the time to join us today. For today's call, I want to begin with a few big picture opening remarks. First, I'm delighted and thankful to our teams for navigating the most difficult year. And I am excited to let you all know that we believe that the worst of the tariff and economic disruptions to our businesses are now behind us. Secondly, we expect our two highest value businesses, Global Pet Care and Home and Garden, to return to growth in 2026. Our adjusted free cash flow of $171 million or approximately $7 per share beat our own expectations in fiscal 2025, and our strong free cash flow generation will continue into fiscal 2026 and beyond. Fourth, our balance sheet is strong with $124 million in cash at the end of the year, zero drawn on our revolver, and we ended the year with just 1.58 turns of net leverage after returning approximately $375 million to shareholders throughout the year through buybacks and dividends in fiscal 2025. Last, but certainly not least, we are hell-bent on improving the profitability and competitive positioning of our HPC appliance business, and as the headwinds dissipate, we are excited to work towards a strategic solution for this business once again. We are also highly confident that we are well-positioned within our industry to be the consolidator of choice within the pet, and home and garden industries. As we wrap up a very challenging year, navigating through headwinds largely outside of our control, I again want to start this call by simply saying thanks. Thanks to every one of our global team members for battling through tough times, thank you to…

Thank you, David. Turning to slide 11. And a review of our Q4 results from continuing operations. Beginning with our net sales. Net sales decreased 5.2% excluding the impact of $10.5 million of favorable foreign exchange. Organic net sales decreased 6.6% primarily driven by supply constraints as a result of our decision to pause purchases from China for the US market during the third quarter and continued category softness in our global pet care and home and personal care business. These headwinds were partially offset by a delayed start to the season for our home and garden business that benefited current quarter results. Gross profit decreased $31.4 million and gross margins of 35% decreased 220 basis points largely driven by lower volume, unfavorable mix, inflation, and higher tariffs. Partially offset by pricing, cost improvement actions, and favorable effects. Operating expenses of just over $227 million decreased 14.6%, due to lower spend in advertising and marketing, and general expense management in light of category softness. As well as lower restructuring-related project spend. Operating income of $29.4 million increased by $7.5 million due to the lower operating expenses, partially offset by a decline in gross profit. GAAP net income and diluted earnings per share both increased, primarily driven by a one-time tax benefit for the quarter resulting from a tax entity realignment initiative. Lower share count, and higher operating income. Adjusted EBITDA was $63.4 million, a decrease of $5.5 million driven by lower volume and reduced gross margins partially offset by lower operating expenses. Adjusted diluted EPS increased to $2.61 driven by a one-time tax benefit that I referenced earlier. And the reduction in shares outstanding partially offset by lower adjusted EBITDA. Turning to slide 12. Q4 interest expense from continuing operations of $7.9 million increased $1.2 million due to higher average…

Hey. Thanks, Faisal. Let's look at slide 19. Thanks, everybody, for joining us today on the call. Again, I'll take a few minutes just to recap the key takeaways findings on slide 20. Fourth quarter financial results conclude a very challenging year for us. We took decisive actions, as I've mentioned. They were necessary to protect the company and the balance sheet. But it did have short-term impacts on the P&L, and that's reflected in the numbers we reported today. We will continue to be good stewards of the businesses going forward. We'll be disciplined in our actions while utilizing a strong balance sheet. As you know, earlier in the year with all the macroeconomic uncertainty, we made the strategic pivot and started running this business to maximize free cash flow. I'm proud that this decision paid off. We were able to deliver over $170 million or roughly $7 per share in free cash flow to our investors. And these actions are now embedded, quite frankly, in our DNA and we're gonna continue to focus on this going forward. We're really excited to report, quite frankly, that both the global pet care and home and garden businesses, which are two most highly valued businesses, they're going to return, we're expecting them to return to growth in fiscal 2026. We're excited about that. We believe in the categories, and we believe in our teams in these businesses. Our new product development pipeline is strong, and we're gonna continue to focus on launching fewer, bigger, better initiatives. For successful commercialization as we move this company forward. I also continue to be optimistic about the evolving M&A landscape. We expect additional assets to become available at better price points, and with that said, we will remain disciplined in our process as we look…

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

Certainly. Star one one on your telephone and wait for your name to be announced. To withdraw your question, simply press 11 again. Please stand by while we compile the Q&A roster. The first question coming from the line of Chris Carey with Wells Fargo Securities. Your line is now open.

Hi, everyone. Hello. Morning. Can we just get updated thought process around the various options for the HPC business? Both strategic, but also, you know, fundamental as you continue to run the business. I realize you've had comments in the press release and the prepared remarks around still looking for strategic alternatives, but can we just dig a bit deeper into the potential outcomes that you're seeing, you know, weather changing and tariff backdrop evolves those potential outcomes and just any sort of update on how you see the past year?

I mean, the short answer is no because I'm not gonna discuss M&A or opportunities on a live public call. A more broad response to your question would be, it's pretty obvious when you're dealing with $450 million of tariff headwinds that it will sideline a process, with strategic parties for completing a synergistic, you know, merger, if you will. And so we had a very robust process, you know, about a year ago at this time. That got derailed by trade policy out of the United States. We pivoted to run the business to maximize cash. We're taking the fixed expense base of that business down to base deal with the realities of the current economic situation. We've materially diversified the supply chain there, made it more resilient and less reliant on China. We're gonna improve the profitability of appliances in fiscal 2026 as we move the company forward. And we're telling you that as the trade situation becomes less volatile moving forward and macroeconomic headwinds subside, we are excited to resume strategic discussions around finding a strategic solution for the business, which we believe there are many. Frankly, this industry is littered with small competitors that are subscale. Barely profitable, and most of them over-levered, and some of them will go bankrupt. Intend to capitalize on that because we're the strongest player in the space.

Helpful. Thank you. Just on, you know, follow-up on the pet category. You've worked through a period of intense competitive activity including from some large private label competitors. You know, where are we, you know, in the journey of the pet business? And, you know, I think you've sounded a bit more confident about shelf placement and some stabilization and go forward potential and return to growth. So can you just maybe help us understand the journey and how you see the next twelve months?

Yeah. Really happy. Thank you for that question. And, you know, I'll turn it over to Faisal when I'm done for any additional remarks. But look, we are thrilled because we've infused that business with some new talent. It's got some new direction. It's got a higher level of energy to it. The team is embracing a more data-driven consumer insight. I would tell you geographic, category, specific, analysis of that business. In terms of your comment on private label, yeah, we saw some competition there. You know, post-COVID, the entire pet industry has kinda been in a recession. We were able to kinda reset some mods and some shelf space with some major players just a few months ago. We're seeing much better trends now with that done in terms of takeaway, POS, and frankly, shipments been improving pretty consistently. So that's why you hear a much more bullish outlook for the business looking into 2026. But more importantly, you know, there were branded ankle biters that entered into this space. Anybody that had access to, you know, social media and the Chinese product could kinda come in here and nibble at you. We are seeing people go by the wayside. And we are seeing products like Nature's Miracle really take a lot of market share because the product actually works, does what it says, and a lot of competitive products simply does not. So, look, I think it's still early innings. We're making incremental progress, but, you know, we are launching a lot of new product. We are getting a better response from the retail customer and consumers seem to be buying our product at a greater rate. And then quite frankly, I think this is gonna be a fantastic M&A platform. My vision of getting us to $3 billion of revenue and $500 million of EBITDA in PAD is unchanged from the prior call. And in fact, I'm seeing more and more assets come to market at better price. We have missed on a few of them because we simply refuse to overpay. But we will find highly synergistic businesses that complement this platform from both a cost synergy and revenue synergy standpoint. And I'm really looking forward to that opportunity to capitalize on it. Appreciate the question. Faisal, did I miss anything?

Well, I think you've covered it. The only thing I'll add is just if you look at our performance through the year, you kinda see the signs of stabilization and how our Q4 certainly seem to be heading in the right direction for the global pet care business. And we do feel that's the one business that returns to growth faster just based on where the category stands. And to David's point, how our products have recently done in each of the categories that we play in. And we also have expansion opportunities like we referenced in our prepared remarks about expanding into adjacent categories. There. So a lot of opportunity for the global pet care business.

Okay. Thanks, guys.

Thank you. Thank you.

Thank you. Our next question coming from the line of Bob Labick with CJS Securities. Your line is now open.

Good morning. Thanks for taking our questions, and congratulations on solid execution in a obviously, really tough year.

Hey, Bob. How are you doing, man?

We're well. Thank you. Yeah. No. Good. As I said, nice job. It's good to chat again. To start. I know this is a kind of a category and product basis question, so maybe we can dig in a little. And the question is, how much is pricing going up at retail, you know, for your categories, products, etcetera, in kind of in aggregate? And when do you expect to get clarity on consumer acceptance of that? And, you know, how has that been playing out so far?

Yeah. Great question. Look. I'm kinda stunned at how little pricing we actually had to take. You know, I thought, you know, February, March, you know, when I was hardly sleeping, staring at $450 million of challenges that we have to take a lot more pricing than we actually did. But, you know, that resulted in us having to take a lot of internal pain and make some very difficult decisions to remain competitive at shelf. We had to take down, you know, fixed cost salary headcount, and that's not fun to do. You know, it But we've done it, and it's in the past. We'll continue to address the fixed cost structure of the company going forward, strictly corporate overhead, and we're gonna be aggressive on that as we move through 2026 and complete the S/4HANA implementation in Europe. But, you know, again, you know, in my opening remarks, I thanked our supply base. You know, we've worked really hard with our suppliers to remain competitive particularly given the consumer landscape. And our retailers and so it's really those three levers. Right? Working really hard with your vendor base. Frankly, taking out internal costs and being more efficient with what you have and then taking a little bit of price at retail. The greatest price increases came on the durable side on appliances. We were the first to move there, believe it or not. And, you know, I don't think anybody in that space actually knows their numbers. I think you're still figuring out elasticity of demand, particularly in the North America market. I think we took our pain early. And, frankly, I think we're gonna capitalize on that now going forward. But we got our work cut out. I appreciate your comments saying that we executed pretty well. I'm not pleased with the performance yet, but I'm sure looking forward to getting into 2026 and seeing how we do. So appreciate the question. I'll turn it to Faisal if I missed anything.

No. I think you covered everything, and I think I'll just reiterate the point that we took our medicine early for our HPC business. And that's where we saw a lot of the impact of price elasticity, which should play in our favor going forward as the rest of the market kinda come up because I think everyone will have to eventually take price there.

Okay. Great. And then just, you know, for my follow-up, and what do you see as the keys for you? And maybe you addressed it earlier, I guess, with new products a little bit, but maybe dig into, the keys to returning to above category growth over the coming years because I know that's, you know, been how you've operated in the past and generally as a goal. So maybe know, what's it gonna take to get back there? Above category growth in your categories?

No. It's a great question. Look. We still have to do a better job on the commercial side. And that's what we're trying to do here. And that's quite frankly, that's where in the early innings of, I think, in PET, and, hopefully, that story can evolve the narrative that I think it can be, which is, look. We have phenomenal products. We need to do a better job, and it's in process right now. It's what I'm most excited about, about letting the consumer know that. And the most effective way we can do that is by making claims that resonate with the consumer and get a better packaging and communicate that on shelf is always gonna be our better best market. And we've gotta continue to drive digital. We gotta continue to drive social media. And that's omnichannel. And, you know, we are seeing early success there. It's still early innings, but Bob, that's, you know, away from operational excellence. Supply chain management, working capital management, fill rates, all the rest of that we've taken three years getting right. We have still not gotten to the level that I wanna be at from a commercial standpoint. And it's innovation, it's advertising and marketing, and it's really getting efficient returns on that spend. We over the last couple of years, we've allocated a lot more resource to R&D, marketing, advertising. This year, the teams are challenged to figure out hey. Look at all those line items, guys, and get more on the spend you're making and figure out where the deadweight is and get rid of because, you know, it's you gotta do more with less in this market. So we're gonna be more efficient with it. We're gonna get more out of it, but it is an exciting opportunity for us. We're not there yet.

Got it. Super. Alright. Thanks.

Thank you.

Our next question coming from the line of Ian Zaffino with Oppenheimer. Your line is now open.

Hi. Great. Thank you very much. You know, just want to ask you on the tariff side and how you're thinking about it if we move back to a no tariff or kind of a pre-liberation day. Tariff scenario, is there get back to price? Can you keep anything? How do we think about that as because I know you've taken a ton of different actions. And so I want a little color on you know, how it would play out if things do get overturned. Thanks.

Hey, Ian. I can only deal with the facts in front of me. You know, don't mean to be aggressive with the answer, but been a Super Bowl year. I've dealt with, you know, 16 different tariff rates all at, you know, weeks apart. We've been really aggressive in responding to all that. I have no belief that tariffs will go back to zero at all. And, you know, if they do, I'll deal with it then. I really that's how I see it.

Okay. And then, you know, just maybe as a follow-up, looks like aquatics you know, held in, you know, relatively well. And this has really been in kind of a category that's just been, you know, somewhat tough for you guys, especially on the hard good side. You know, are you noticing any changes in the consumer or maybe is has anything driven that? Is that just coming off of a very low base? Maybe any kind of color you could give there. Thanks.

Man, we're the world's largest player in Tetra. We have the best brand. You know? It's recognized without having to advertise. Right? You don't need any awareness. We've got a great product. Frankly, I'm excited about the new leadership in Pet because I think we have a price pack architecture issue. And I think we have a lot of opportunity there. We're doing better in Europe than we have in North America. Kids like to live on these iPhones all day long. You know, they don't like taking care of fish tanks. The hobbyist community has been the install base. Need to do a better job communicating that kids actually love aquariums. Taking care of fish teaches responsibility, and it's actually a very therapeutic thing to do with the family, and it's an enjoyable thing to have in your household. Ori's got a big task in front of him. He's addressing it. But we are the leaders, and we are responsible for changing the narrative in that space. And driving growth no matter what the external environment is. Doing a decent job in Europe. We gotta get a better job going here in North America. Hope to achieve that during fiscal 2026.

Alright. Thank you very much.

Thank you, sir.

Thank you. Now last question are coming from the line of Steve Powers with Deutsche Bank. Your line is now open.

Great. Thank you, David, Faisal, good morning. Couple of cleanups. Last quarter, I think you exited with about $20 to $25 million annualized in tariff headwinds that related to the EU and Southeastern Asian markets that you hadn't mitigated at the time? Just maybe an update on any steps you've taken to address those costs and whether you feel like you have addressed them going into 2026. You know, maybe start there.

No. I think we've eliminated most of them. I think there's two different numbers that we're giving you. Right? We're giving you the gross exposure was $450 million. You know, if that was at $145 out of China plus all the other countries. Right? Then we're giving you an updated one because China rates lower and so apples to apples, that's, like, $70 to $80 million. But we're telling you we've mitigated the vast majority of it. And then we're also telling you that, you know, look, you know, things move around so much, man. I used to have $120 million of exposure out of China just on pet. I think I just told you on this call that my gross exposure on it global purchases for my two most high-value businesses, which is Global Pet and my home and garden business are somewhere between $15 to $20 million by the end of 2026. I mean, we've really worked this thing down to nothing. And, you know, we'll continue to flex it around whether it's Cambodia, Nam, US, where we can do it. But that's where it economically makes sense for us today. Faisal, if I mess the messaging up please clean up what I said.

You're exactly right. And we have for the most part, we've taken most of the actions including pricing actions everywhere. There's a little bit more to do getting into next year, but we'll do that with a combination of, again, cost reductions supply base changes, supplier concessions, as well as pricing. But the majority of it, the vast majority of it is fine.

Perfect. Thank you. And so two other if I could. Just one is just your category growth expectations in '20 relative to your call your own call for low single-digit top-line growth, just you know, how you think, like, end market demand compares to your top-line expectation. And then separately, you know, as you think about rolling out S/4HANA to I think you've mentioned moving that into HPC, David. Just any implication there on your ability to pursue strategic solutions there while that's in flight? You know, just you know, does that delay you know, or cause any impediment to moving strategically as that business as that is project is underway? And then are you able to implement it in such a way that it's sort of modular enough to potentially carve out if a separation is the ultimate solution. Thanks.

No. It's a great question. Appreciate you answering I'll take the second one. Faisal will touch on the first one. Look, the whole goal of S/4HANA is to get those single source truth and quit using, you know, 10 different systems all over the place. And run the company more efficiently and then liquidate, quite frankly, corporate costs. Right? You know, AI, the whole movement's to be more efficient. Period. End of story. We're basically done with that in North America. We still have to get the synergies for it. Europe is rolling that out. You know, HPC is on a bunch of different platforms. You know, it's been a series of acquisitions over twenty years. You know, putting that on a single source of S/4HANA is actually gonna create a lot of efficiencies and create a platform there that enhances the business. It will in no way slow down anything that we have on the table now or in the future for strategic solution. We will pursue that. And if we find something great, we're gonna execute it, and you'll hear about it then. But in the interim, it actually will make that business more valuable to any potential partner in the future because it will have a more dynamic operating infrastructure that can actually be more plug and play, which is, quite frankly, where the industry needs to go. There are way too many subscale players selling product from the same supply chain. There are way too few retailers. That space makes no sense in its current configuration. And, again, I think S/4HANA will be not only a great enhancement to the operating income and efficiency of the company that is in existence today, but will actually enhance it as an M&A partner for future combinations. That's my opinion. Faisal?

I'll just maybe address the category question. So I think the home and garden category remains strong, but it's weather dependent. Like we said, we expect a more normalized weather year next year, and that automatically gives you growth over this year. On the global pet care categories, aquatics, I think we're seeing signs of bottoming out, and it's kind of flattening and turning around. Same with our companion animal area. I think we're starting to see the category stabilize. Our growth is also dependent on just expansion in our own portfolio, including in adjacent categories. As well as just gaining market share. We're actually seeing our products perform and our brands perform better in the marketplace. Home and personal care is the one category that remains under pressure. It will be for both Europe and North America going into next year. We have to see what the market does from a pricing perspective. I think our competitors will come in the market with the price, and then the next few months, we should see all that play out. So that should in the second half of the year, play out to our advantage. But in the short run, that category remains very challenging for us.

Okay. Perfect. Thanks for all that. Appreciate it.

Thank you.

Thank you. And that's all the time we have for the Q&A session. I will now turn the call back over to Jen for any closing remarks.

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

Thank you. Everyone have a good day.

This concludes today's conference call. Thank you for participation. You may now disconnect.