Q4 2024 Spectrum Brands Holdings Inc Earnings Call

Thomson Reuters StreetEvents11-16

Participants Joanne Chomiak; Senior Vice President, Tax and Treasury; Spectrum Brands Holdings Inc David Maura; Executive Chairman of the Board, Chief Executive Officer; Spectrum Brands Holdings Inc ...

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David Maura; Executive Chairman of the Board, Chief Executive Officer; Spectrum Brands Holdings Inc. Jeremy Smeltser; Chief Financial Officer, Executive Vice President; Spectrum Brands Holdings Inc. Good day, and thank you for standing by. Welcome to quarter-four 2024 Spectrum Brands Holdings, Inc. earnings conference call.  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.","collect":0,"end_time":0,"defaultTopTitle":"yahoo.com","property":["earning"],"viewcount":null,"language":"en","relate_stocks":{"SPB":"Spectrum Brands Holdings"},"translate_title":"2024年第四季度Spectrum Brands Holdings Inc收益看涨期权","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"SPB":1},"content_text":"Participants\nJoanne Chomiak; Senior Vice President, Tax and Treasury; Spectrum Brands Holdings Inc\nDavid Maura; Executive Chairman of the Board, Chief Executive Officer; Spectrum Brands Holdings Inc\nJeremy Smeltser; Chief Financial Officer, Executive Vice President; Spectrum Brands Holdings Inc\nPeter Grom; Analyst; UBS Equities\nRobert Labick; Analyst; CJS Securities\nChris Carey; Analyst; Wells Fargo Securities, LLC\nPresentation\nOperator\n Good day, and thank you for standing by. Welcome to quarter-four 2024 Spectrum Brands Holdings, Inc. earnings conference call. (Operator Instructions) 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.\nJoanne Chomiak\n Thank you, Gigi, and 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 2 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 your remarks, we will conduct the Q&A. Turning to slides 3 and 4. 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 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 unit 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 our annual report on Form 10-K once it is filed with the SEC. Now I'll turn the call over to David. David?\nDavid Maura\n 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 '24 accomplishments and successes. For fiscal '24, 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, [Phil Wright] is being in the mid-90s 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 '24 as we upgrade our capabilities in commercial operations, innovation, marketing, and advertising. Adjusted EBITDA grew by over 20% in fiscal '24, 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 invested into our brands through new R&D, marketing, and advertising initiatives. If we turn to our balance sheet, we actually have the strongest balance sheet in our peer group and we ended fiscal '24 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 '24 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 on our S4/Hana ERP platform which was implemented in the early part of October. We intend to continue to upgrade talent and build a higher performance culture in Spectrum Brands, which is the precursor to even better financial performance in the future. To summarize in fiscal '24, we delivered on our promises; we have restored momentum to our operating businesses; we have set standards of excellence; and we have laid the foundation for an even more successful future. As I like to say to the troops internally, we got debt free in '23, so we could achieve a lot more in '24, and now it's time to thrive in fiscal '25. Let's look at a few highlights in our business units. In GPC, our investments drove growth in adjacencies like cat treats, dog and cat food toppers, and a new species of GloFish. In spite of the approximate $20 million impact from SKU rationalization, GPC's fiscal '24 net sales grew by 1.1% and adjusted EBITDA increased by a healthy 13.4%. In home and garden, we invested in telling consumers about our new innovation, including our Spectracide One-Shot and Cutter Eclipse and guess what, it paid off. Spectracide and Hot Shot took share this year with net sales increasing 7.8% and its adjusted EBITDA grew by an amazing 25.2%. In HPC, we invested in our Remington One campaign and a new innovation for the upcoming holiday season, and in driving e-commerce sales. Organic net sales were relatively flat despite the challenging North America consumer demand in the first half of the year and adjusted EBITDA increased an incredible 74.7%. I'm really pleased with the EBITDA growth that we experienced in our appliance unit this year, it's truly remarkable. We believe that inventory at retail is now generally back to normalized levels and we're starting to see the replacement cycle build for small kitchen appliances. On a company wide basis, growing EBITDA over 20% while increasing investment in our brands by a further $62 million I think is a great testament to the quality of our EBITDA and earnings growth this year. Our investments paid off not only in fiscal '24 but we expect them to continue to pay off as we head into fiscal '25. Our internal teams and advisers continue to pursue the sale of our HPC business and we are actively engaged with multiple interested parties on the M&A side with geopolitical factors contributing to a longer timeframe than we originally anticipated. As a result, we continue to simultaneously pursue our dual track sales in separation strategy and both tracks remain in motion. As we do with all transactions, we will evaluate and consider what's in the best interest of our stakeholders at each step along the way. And as we have done throughout the year, we'll continue to provide updates on our earnings calls or sooner if there's news to share. As a further sign of confidence in the future performance of our company, we have just increased our quarterly dividend payout by 12% to $0.47 per share per quarter earlier this week. The new quarterly dividend rate represents an annualized dividend yield of 2% based on Wednesday's closing stock price. As the growth wheel gets in motion for our net sales, adjusted EBITDA, and cash flow and gains momentum; we believe the time was right for us to increase our dividend payout and to share some of our success with our investors. (inaudible) you now turn to page 7 and the strategic priorities we've set out for fiscal '25. We plan to continue to build on the strong fiscal '24 performance and continue to invest in the future of our businesses. We plan to invest in our brands to drive long-term growth building on the confidence we've gained in fiscal '24, we will strategically continue our brand focused investments in fiscal '25. Year on year, we expect to increase investments by a further $10 million to $15 million. These investments will primarily be in R&D, marketing, and advertising to drive profitable top-line growth. As we did in fiscal '24, we'll also be prudent in making these investments and we'll gauge their effectiveness along the way. Investments will be made across all of our businesses, and we expect a more consistent rate of spend per quarter. We plan to invest in our inventory to support sales growth this year and further e-commerce expansion. E-commerce was a significant source of growth for us in fiscal '24 as we saw consumers switch their -- switch to shifting their buying habits even more online. We want to win wherever consumers are buying and shopping. To further enable our success in serving our e-commerce retailers, we expect to make strategic investments to increase our inventory levels by approximately $20 million to $25 million to capture incremental growth in sales and to maximize our fill rates. We plan to invest in innovation, to expand in our core categories, and to enter new adjacencies. We have a very strong portfolio of brands. We have a lot of number one positions in their respective categories. And through investing in these brands and expanding their reach into current new adjacencies, we expect to drive top-line growth. Just picking one example is our recently launched nationalized -- national ad campaign for our good 'n' fun brand. Good 'n' fun is the number one brand in dog chews and we believe we can expand it now into treats, food toppers, and other adjacencies. We intend to continue to invest in our operations. We want to continue to drive cost improvement, quality, and safety. Our operational improvements this year have been one of the most important contributors to our success. Nothing runs well on a consumer products company if your operations aren't functioning at a very high level. And so we will continue to support our ops teams to ensure they can deliver for the company, maintaining a very strong S&OP process, and focusing more on quality and safety across the entire organization. We will continue to invest in our operations for further efficiencies also wherever possible. We believe that staying lean and approaching every day with a lean mindset is imperative to sustaining the operational improvements we've worked so hard to achieve. In a few minutes, you'll hear from Jeremy about how the recent storms in the southeast have increased consumer demand for some of our H&G products, home and garden and beyond that as a home essentials company with a mission to make living better at home, I'm really proud to let that our teams jumped into action to help those most affected by these storms. Our donations to affected communities in the western North Carolina area included Spectracide wasp and hornet spray, Repel insect repellent, Rejuvenate mop kits, Nature's Miracle pet products, and yes, our number one good 'n' fun dog treats. I'm proud of our commitment to making a positive impact in the communities in which we serve. If we can now turn our attention to slide 8 and we'll talk about our earnings framework for fiscal '25. Sitting here today, we currently expect net sales to grow low-single digits compared to fiscal '24 across all three of our business units. The investments in innovation and brand building we made in fiscal '24 will help drive this top-line growth in fiscal '25 but we continue to expect consumers to be cautious as they face an uncertain geopolitical and economic backdrop. We expect the replacement cycle, however, for kitchen appliances to continue to build, driving our top-line growth. We generally have assumed that retail inventory levels are healthy. And from an adjusted EBITDA standpoint, we expect adjusted EBITDA to grow mid- to high-single digits compared to fiscal '24's adjusted EBITDA excluding investment income. The incremental EBITDA is coming from volume growth and cost improvements and it will be partially offset by incremental brand focused investments and inflation, particularly from ocean freight and tariff exclusion expiration headwinds. For adjusted free cash flow, we're now targeting another strong year with approximately 50% conversion of our adjusted EBITDA. Our winning playbook has not changed and we continue to be keenly focused on our need to deliver on our commitments to our investors. Throughout the year, we'll be prudent in making investments and managing challenging economic conditions. We will control what we can control and we'll continue to focus on earning and maintaining our investors' trust and confidence. You'll now hear more from Jeremy on the financials and you'll hear updates on additional business unit insights and then I'll join you back to close out and for Q&A. At this time, I'll turn the call over to you, Jeremy.\nJeremy Smeltser\n Thanks, David. Good morning, everyone. Let's turn to slide 10 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 repellent categories and normalized retailer inventory levels in home and garden. Strength in both home and personal care categories for HPC with new Black & 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 and ocean freight. SG&A expense of $263.9 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. The 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 heading into 2025. Let's turn now to slide 11. Q4 interest expense of $6.7 million decreased $14.2 million. Cash taxes during the quarter of $9.2 million were $5.3 million higher than last year. Depreciation and amortization of $25.6 million was $2.1 million higher than the prior year. And separately share based compensation decreased by $0.1 million. Cash payments towards restructuring, optimization, and strategic transaction costs were $8.4 million, down from $18.4 million last year. Moving now to the balance sheet. The company had a cash balance of $369 million and approximately $491 million available on our $500 million cash flow revolver. Debt outstanding was approximately $0.6 billion consisting of approximately $0.5 billion of senior unsecured notes and $81.6 million of finance lease obligations. We ended the quarter with 0.56 turns of net leverage. Capital expenditures were $13 million in the quarter versus $14.7 million last year. Turning now to slide 12 and an overview of our full year results. Net and organic sales increased 1.5%. The sales performance was driven by improved inventory health and favorable weather in our home and garden business as well as continued strength in the companion animal category in our global pet care business. While full-year home and personal care net sales were slightly down driven by softness in North American small kitchen appliances, particularly in the first half, we did return to growth in the second half. Full-year gross profit increased by $185 million and gross margins of 37.4% increased 570 basis points, largely driven by lower-cost inventory and inventory related expenses, cost improvement initiatives, and our increased volume. Adjusted EBITDA increased to $371.8 million and excluding investment income, adjusted EBITDA increased 20% to $319.2 million primarily driven by the gross margin improvement, a reduction in operating expenses, increased volume, and favorable interest income. As David mentioned, adjusted free cash flow was $177 million in spite of headwinds from unwinding all of our global AR factoring programs. This represents a nearly 50% conversion of EBITDA. During the year, we were able to renegotiate terms with a number of significant suppliers to more closely align our payables and receivable terms. We maintained a healthy inventory profile fueled by our S&OP process and we actively managed our CapEx investments. Now let's get into the review of each business unit to provide detail on the underlying performance drivers of our operational results. I'll start with Global Pet Care which is on slide 13. Reported net sales increased 3.5%. Excluding the impact of favorable foreign currency, organic net sales increased 2.9%. Companion animal sales increased by mid-single digits, offset somewhat by high-single digit declines in aquatics hard goods. In North America, companion animal sales grew from strong e-commerce, dollar channel, and food and drug sales offset by some softness in mass and pet specialty. On October 3, the GPC North American business went live on S4/Hana, our new ERP system. In anticipation of a typical system transition which includes ordering and shipping blackout periods during the days leading up to and after go-live, GPC partnered with our retail customers to accelerate certain purchases into the period before implementation to ensure the retailers had sufficient supply. This caused approximately $10 million of sales to be realized in the fourth quarter instead of the first quarter of fiscal '25. Our go-live was successful and GPC resumed normal operations within days in line with our expectations. In EMEA, companion animal sales grew this quarter where we also saw strong e-commerce sales and higher sales for our Good Boy and dog and cat food products. In the aquatic segment, global sales of consumables were up low-single digits but were offset by double-digit declines in non-consumables such as tanks and filtration systems. We saw sequential softness in global sales compared to last quarter when organic net sales were relatively flat to prior year. In addition to continued softening consumer demand, our B2B business is being impacted by changes in the commercial landscape as businesses adjust their capital investment plans. Global e-commerce sales grew mid-single digits this quarter coming in at close to 25% of global sales for the quarter and the full year. We continue to be excited about the innovation we launched in fiscal '24. As you may recall, we identified cat treats as an adjacent category that presented expansion opportunities for the business. We entered this emerging category with our [Mihali] and good and tasty brands during fiscal '24 and we continue to gain momentum in this space. Our cat treats have secured several listings at major national chains that will be on shelf and online in fiscal '25 and we are optimistic that we will see healthy, sustainable growth in cat treats with our robust innovation pipeline. Our FURminator consumables saw strong growth with the introduction of our new tub free line of deShedding sprays, wipes, and easy-to-use combs with foaming shampoo. Leveraging Good Boys number one UK dog treat position, we entered the wet dog food category this quarter with consumer influenced HomeFaves formulas. And in the US, we are in the early stages of launching dog food toppers under the good and tasty and Good Boy brands. We believe we can penetrate this emerging adjacent category by leveraging our R&D capabilities, our supplier relationships, and our strong brands. We've been selling these items online for just a few weeks and the early results are promising. In aquatics, we had our most successful launch of a GloFish new species in GPC history with the launch of our GloFish angelfish. The entire GloFish brand grew this quarter from the halo effect of the angelfish launch. We are confident that the innovation investments we made in fiscal '24 put us in a stronger position to start fiscal '25. Adjusted EBITDA of $44.3 million is $9.2 million less than last year. While GPC's Q4 gross margins improved by 70 basis points compared to last year and we're up 460 basis points for the full year, we invested part of the gross margin improvement in driving growth in the quarter and for next year. Throughout the year, GPC has sequentially increased its brand focused investments ending with its highest investment level quarter. In Q4, GPC almost doubled its level of marketing, promotions, and brand focused investments compared to last year spending over $12 million more than in '23. These investments supported our recently launched and upcoming innovation, addressed competitive pressures given consumer dynamics, and created new assets to support national campaigns launching in fiscal '25. Adjusted EBITDA was also impacted by incremental volumes, operational productivity improvements, and incremental trade programming. For fiscal '25, we expect the positive trends in companion animal consumables categories to continue with pressure in the first quarter from the S4/Hana sales pull forward. For the year, we expect consumers to be cautious during challenging economic conditions. Many of GPC's brands are premium brands and we are seeing the impact of a strained consumer on these brands more than our other businesses. We remain cautious about aquatics, especially in hard goods where demand continues to be soft. In total, we expect fiscal '25 to grow at a lower rate than our long-term target. Moving out of home and garden which is on slide 14, fourth quarter reported net sales increased 7.7%. Double-digit sales growth in the controls and repellents categories and low-single digit growth in household were partially offset by a decline in the cleaning category. Most of our major retail partners stayed in the lawn and garden category longer this year to take advantage of the warmer weather's extended growing season, continuing to allocate promotional space to our categories later into the quarter. This drove higher sales volumes in the controls category, including especially strong wasp and hornet sales and supported our area and personal repellent sales during this category's highest POS quarter. The storms in the southeast also drove higher consumer demand for personal and area repellents. While the warmer weather created a natural shift in consumer demand away from the household category since insects remain outdoors longer, we were pleased that our sales in this category grew low-single digits and continued to take share. In cleaning, trends have been improving throughout the year and we plan to continue investing in advertising and other brand activation to support this category. We continue to see a strong correlation between retailer orders and POS this quarter as retail inventory levels are substantially back to normal. E-commerce sales grew mid-single digits this quarter and represented high-single digit percent of sales for the full year. Throughout fiscal '24, home and garden increased its brand building investments by over 75% with a focus on advertising and marketing to support the rollout of our new innovations. We introduced Spectracide One-Shot and the news Cutter Eclipse model, both of which were successful in driving top-line growth and expanding the reach of our brands. During this past quarter, we created programs targeted to the extended fall season. Our continued investments in brand focused marketing and advertising helped drive demand toward our household products during an otherwise challenged fall season for the category, helping us take share in wasp and hornet and herbicides. We were proud to see better homes and gardens magazine recently recognized three Spectrum brands products. Spectracide, Hot Shot, and Ecologic among its top roach killers of 2024. We are pleased with the top-line growth our investments drove in fiscal '24 and are confident that these investments will set up home and garden for continued growth in fiscal '25. This quarter's adjusted EBITDA of $19 million is $2 million lower than last year, an adjusted EBITDA margin declined by 270 basis points. The lower EBITDA was driven by a greater than $5 million increase in brand building investments, shifts in variable operating costs, and other items offset by higher volumes, positive pricing, and favorable mix. This has been a great year for home and garden after a difficult fiscal '23 resulting from retailer inventory strategies and non-optimal weather conditions. The business improved dramatically in fiscal '24. Sales grew 7.8%, gross margins increased 530 basis points, and adjusted EBITDA increased 25.2%. We are particularly pleased with the consumer reaction to our new innovations and increased investments in advertising and marketing. With the exception of certain controls products which have an early season demand, we believe most retailers ended the season with normalized inventory levels across most of our categories and expect POS and retailer orders to be relatively aligned in fiscal '25 building inventory later in the season with some softness early in the season due to inventory levels for certain controls products and an anticipated cooler start to the season. We continue to work closely with our retail partners to understand consumer demand expectations and how that translates into our production and shipment plans. And finally home and personal care, which is on slide, 15. Reported net sales increased 4.1%, excluding some unfavorable foreign exchange, organic net sales increased 5.4%. The sales increase was driven primarily by higher sales volume offset somewhat by promotional investments. Both home and personal care categories grew organic net sales by mid-single digits. Consistent with recent trends, e-commerce sales accounted for approximately 25% of HPC's global sales in the quarter and the full year and we had another strong result from Amazon Prime Day in early October. Overall, North American sales decline mid-single digits with slightly positive sales in home appliances offset by mid-single digit declines in personal care. In home appliances, new listings such as for our Black & Decker ice crush blender and continued strong performance of the [Emerald Line] offset sales declines from two retail bankruptcies. We are pleased with the low-single digit growth we are seeing in some of our home product categories, especially in coffee and garment as consumer demand is improving and the replacement cycle for small kitchen appliances continues to build. This quarter's sales decline in personal care is primarily due to investments we made in transitioning our SKUs at major retailers combined with a pull forward of some e-commerce sales from Q4 into Q3 for July's Prime Day. We have seen some recent softness in personal care, especially in hair care, which is an important category for Remington. As we head into the holiday season, we are generally pleased with retail inventory levels which are in a much better spot, especially for North American air fryers and toaster ovens than they were last year at this time. Sales in EMEA grew low-double digits in both the home appliance and personal care categories led by growth in small kitchen appliances, garment care, hair care, and shave and groom. And sales in Latin America grew mid-single digits in both categories. Adjusted EBITDA was $19 million this quarter which is $1.3 million lower than last year and adjusted EBITDA margin declined by 70 basis points driven by additional brand focused advertising and promotions along with higher freight costs and unfavorable mix partially offset by the higher sales volumes and cost improvement initiatives. Looking at full year results, we saw improving trends in the global business throughout the year with second half sales growth almost fully offsetting declines in the first half. We were especially encouraged by the second half sales trends in North America with new SKUs in brick and mortar and outpaced growth in e-commerce sales. HPC's fiscal '24 gross margins improved 690 basis points over last year and adjusted EBITDA increased by almost 75% compared to last year. The incremental brand building investments help communicate our innovation to retailers and consumers from our Remington One launch early in the year and the success of our Remington Balder to the recent introduction of the PowerXL Stirmax Multi-Cooker, a first-of-its-kind slow cooker with an automatic paddle to stir and shred on its own. The Stirmax will be on shelves during this holiday season. Our Black & Decker ice crush blender is one of our most successful blender launches in recent history with wide shelf placement in both brick and mortar and e-commerce. As we look forward, we expect the second half global sales trends to continue into fiscal '25. We have new listings in both brick and mortar and e-commerce channels and we expect the outpaced growth in e-commerce sales to continue. Let's turn now to slide 16 and our expectations for 2025. We expect net sales to grow low-single digits across all three businesses with our brand building investments, fueling top-line growth and offsetting expected pressures from current geopolitical and economic conditions. Adjusted EBITDA excluding investment income is expected to grow mid- to high-single digits driven primarily from increased volume and cost improvement initiatives, partially offset by an increase in brand building investments, ocean freight inflation, and tariff exclusion expiration headwinds. From a phasing perspective, we expect the impacts from increased investments to pressure comparisons to last year more heavily in the first half. Free cash flow conversion as a percent of adjusted EBITDA is expected to be around 50%. As David mentioned, the focus this year has been getting our operational house in order and increasing our working capital discipline. We expect to reach this milestone while increasing investments and inventory to support our e-commerce growth. We turn now to slide 17. Depreciation and amortization is expected to be between $115 million and $125 million including stock-based compensation of approximately $20 million to $25 million. Cash payments towards restructuring, optimization, and strategic transaction costs are expected to be between $30 million and $40 million. Capital expenditures are expected to be between $50 million and $60 million and cash taxes are expected to be between $40 million and $45 million. 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 in delivering a strong fiscal '24. I am confident we are set up well to have another successful year in fiscal '25. Now back to David.\nDavid Maura\n 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 19. If you could turn to slide 19. As we close fiscal '24 and head into '25, 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 contribution over the last 12 months. This is a remarkable year. If you remember this time, last year, we had actually projected our sales would be down. But investing into our businesses, we actually delivered growth and as we've talked about, we returned our company to strong sales growth both in Q3 and Q4 as we invested 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've 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 going to 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 the 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 '25 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 in the overall consumer health, our balance sheet strength, our operational efficiency, and our regained sales momentum in all three businesses give us confidence as we face into the future. As I've said in my opening remarks, we believe fiscal '25 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.\nJoanne Chomiak\n Thank you, David. Operator, we can go to the question queue now.\nQuestion and Answer Session\nOperator\n (Operator Instructions) Peter Grom, UBS.\nPeter Grom\n So David just on the HBC transaction, you mentioned geopolitical events contributing to a longer timeframe. Maybe, can you just unpack that a bit more and what really changed between or transpired since August where -- if you sounded far more optimistic on the timeframe. And then I guess just within that has the outcome of the election, the potential for share -- tariffs changed your view on that timeline or maybe the form of the HBC separation at all?\nDavid Maura\n Look, I think first you got zoom out and a year ago, we had a business doing $40 million in EBITDA. And it's tough to spin that business out or sell it with that type of lackluster performance. And so 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 to say we grew that [EBIT] at a $75 million plus in the last 12 months. And we're forecasting increased sales and EBITDA of growth for the next 12 months. So fundamentals always win. You got to get those fundamentals right. And I think a lot of heavy lifting under the surface here to deliver that, but we're on a good, good path. Look, there's no question. You don't go through a US election in the month of October, and then you saw the Middle East flare up. I mean, those things not just for us, but I think across the M&A specter, Spectrum actually puts people -- people put their pencils down, they take their time to see, hey, what's going to happen. But we're updating you today. We're in talks with two of the buyers who want to continue with us and I'm getting on a plane to go meet one of them here in the next weeks. And we'll let you know if we get to a good deal there, but we're continuing to progress it and we're going to continue to manage the business for better fundamental performance going forward.\nPeter Grom\n 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 embedding some flexibility given the uncertainty that you mentioned looking ahead. And then just maybe within that any expectations, it was really helpful to hear some views on top-line growth across these three segments, but just would 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 fiscal '25.\nDavid Maura\n Well, I'm going to start it and then I'll give it to Jeremy. I mean, we tried to give a bunch of little breadcrumbs in this press release and the rest of it. I mean the reality is we spent almost $26 million of incremental ad spend in Q4. So you guys are looking at like a $68 million -- or $68.9 million or $69 million EBITDA number for Q4. And I think on the surface that disappoints you, but you've got to make these investments if you want to take market share, if you want to reignite your sales growth, and you want to build terminal value in the future. And so 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 could argue, we could have reported $94 million, $95 million in EBITDA in the quarter we just delivered. And so we're also trying to let you know the health of the earnings here is pretty robust to think you grew EBITDA 20% in a year and yet you burdened it with that additional investment. 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, last year, you're right, we had a conservative view. We obviously did a little bit better than that and we want to continue that track record. So Jeremy, over to you.\nJeremy Smeltser\n Yeah, I think that's a very fair point and good way to end your comments, David. We do want to continue that track record. You guys know that. We know it's important to our shareholders. That said you got to think about a lot of variables as we build a full year model. I think it starts with the top line and what we've said is we expect to grow all three businesses low-single digits, that's pretty consistent with the last two quarters. So that should give some comfort and confidence why is that? I think 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 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, to try to invest a little bit to get more people to the category. But it's a hard decision for consumers right now. And we have to recognize that. In home and garden, we had an excellent year 8% growth in '24. Value brands, right? So it's the right economic environment for those brands. It's the right environment for trade downs as our consumers 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, pretty difficult comp at 8% growth last year. So again, low-single digits. And in the HPC business, historically, this has been a lower growth category. So the low-single digits makes sense to us. We do have some opening price point brands in there, particularly Black & Decker in the US that is doing well with new SKUs because of where it's positioned. And it fits well with many of our retail partners strategies with their consumers as they focus on opening price points. So that's the thought process on the top line and that's where we're headed. I think there was a lot of volatility in the spending and brand investment. So you heard David say we intend to even that out throughout the year to make it easier to model the business and quite frankly; to keep the content we're creating in front of our consumers on a consistent basis every month, every quarter. And then what do we have to deal with from an expense perspective? We have some ocean freight headwind that we talked about. We think the majority of that's behind us based on what we're seeing and we have good contracts for '25. But those dollars have basically already been spent and they're in inventory and they're going to hit us in Q1 and Q2. So we got to face that on the bottom line. And then we mentioned there was a tariff exclusion exemption that expired in June I believe in the HPC business and that's about an $8-million headwind for them. So we are taking, I think a right prudent approach to the year. I think we're cautious on the economy and I'll probably leave it at that as it relates to how we approach the forecast.\nPeter Grom\n Awesome. Thank you both so much. I'll pass it on.\nOperator\n Bob Labick, CJS Securities.\nRobert Labick\n So obviously a big theme has been the 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, take your words where the investment is at the top of the funnel, where it is at the bottom of the funnel, and how you're making those decisions and like where you stand now on that investment spending and how that will change in the future.\nDavid Maura\n I mean, I can take a crack at it. I mean you clearly see the results coming in terms of restoring the sales growth. The spend was big and lumpy and we don't want that in fiscal '25. So we want to be more consistent there as Jeremy just commented. I think the early spend in the year, we're mostly bottom funneled, 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 look, we just grew EBITDA from, I think the 270s to three -- almost 320. We intend to grow that EBITDA level higher over the next 12 months but we are doing some 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, Bob, 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 we want to take this good 'n' fun brand. We want to really create a halo around good and tasty, doing a lot of test and learning with our digital counterparts' retail customers. And we're seeing some really exciting early returns there. So I want to get us to move bigger and faster, so we can get more of an allocation of our businesses towards these higher growth markets which are food, cat, and wellness. That's part of the calculus. Jeremy, you want to add that.\nJeremy Smeltser\n Yeah, 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. Over 50% was in bottom funnel with the vast majority of those dollars focused on e-commerce where we had 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 the market has moved dramatically to online. And then in the second half of the year, it is more top of funnel and content creation. And that's really more of 2025, 2026. You're going to start seeing our brands more on streaming, some on actual cable and sports, et cetera network. Yeah, we're going to be positioned very differently 12 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 about -- beyond that 10% that was in R&D, it was relatively split fairly equally between marketing and advertising, which is an indicator of top of funnel versus bottom funnel.\nRobert Labick\n Got it. Okay. Great. Super helpful color. I appreciate that. And then just quickly on HPC, obviously, you've discussed the factors and whatnot -- what will determine the timing right now? 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 in fiscal '26?\nDavid Maura\n M&A is fluid as you know it's unpredictable. I mean, there's no question, I hope to have a deal done by now. And so we've told in the release we do think that leading up to an election and the outcome of that election and Middle East stuff is definitely cost us 30-plus days. But we're actively pursuing it and we'll update you when we can. It's hard to comment beyond that. But 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 and we're getting a lot of good results. So we'll continue to look at ways to do the best we can to maximize shareholder value. Look, I think 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 a I think a ridiculous multiple. So there's just lots of upside here still to be [add] in the balance sheet gives us that optionality to make that happen. So I'm very bullish on the outlook for '25 and we'll do our best to optimize value for appliances.\nRobert Labick\n Super. Thanks so much.\nOperator\n Chris Carey, Wells Fargo Securities.\nChris Carey\n I wanted to see if you could expand on the underlying health but the 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, Jeremy, is highlighted more premium offerings 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, that'd be helpful just to get some broader thoughts on the business given some of the moving pieces this year and going into next year.\nJeremy Smeltser\n Yeah, I mean, I think -- I'll start and David can add any comments. The visibility, it's decent. If you look at the top line 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 in brick and mortar. We're still seeing annual line reviews. You're right. We do have some retailers that are very focused on the private label and we're there to support them. Our brands are still in those brick-and-mortar channels. We're still important to them. But as they push consumers or they believe their consumers are pushing themselves more towards private label, it makes it more challenging for us to reach that mid-single digit top-line growth that we'd like to be seeing out of the business. That said, it's pretty stable and again seeing growth in aquatics consumables the last two quarters is something that we are happy to see, but it's just very difficult other than entry level, it's very difficult for consumers right now to make that call it $700, $800 ticket decision on a large new environment for their homes given the uncertainty that they're seeing in the higher interest rates. And I think we just have to bear with that as we go through '25, it's still an excellent business. It is well low growth, it's low CapEx, and it generates very good margins for us. And it is a razor-razorblade model with the food and filtration additives. So that's the environment. I'm not surprised based on the overall macro environment that low-single digit is where we're at. We're going to push hard to do more. All of David's commentary on what we're doing with marketing and advertising, including innovation with new listings and 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.\nDavid Maura\n Listen, let me chime in on because you made a good observation on private label, et cetera. I mean, I think if you look at the last 12 months, we're telling you, we still had some revenue in that division that we fired basically with SKU exits and rationalization. And just because private label is doing a little bit better now, look we told you earlier, we have a national ad campaign for the first time on our good 'n' fun business. Good 'n' fun was a brand we bought; it was like $50 million of revenue when we got it. We're doing over a $0.25 billion and just under that brand alone now. I want to grow that to $0.5 billion business. And to do that, you've got to 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 the storytelling and the content creation about why that product is better than private label, and then the adjacencies we can go in. That's really exciting. Look, I'll lean in a little bit with you and help you out. I mean, we started fiscal '25 in good shape. October, which we just completed, actually beat our expectation. And we see sales and EBITDA growth in pet this current quarter despite that pull forward, so we're in good shape and we're going to lean in.\nChris Carey\n 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 want to say cautious but, like perhaps some lower retail ordering in the front half of the fiscal year in garden as they assess -- as retailers assess the season. And so is that going to be more of a back-half loaded year? I just wonder if you could dig a bit deeper into that comment around late season inventories and how it's going to impact the front half of your year in garden. Thanks so much.\nJeremy Smeltser\n Sure. Yeah, Chris. So, we know the comments are really around what we're hearing from our retail partners on their expectations for the coming season, which 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 I think it's pretty difficult to predict sitting here in mid-November, but that is a consensus we're hearing from them and hence our comments that, hey, it may be a bit slower start to ordering from the retailers, and don't be surprised if you see that. From our perspective, I think we had a slightly favorable weather season in 2024 to what I call a 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 we just want to get that out there because we are hearing it from our three largest retailers and they are obviously incredibly important to our overall sales and timing of sales.\nChris Carey\n Okay. Makes sense. Thanks.\nOperator\n Thank you. I would now like to turn the conference back over to Joanne Chomiak for closing remarks.\nJoanne Chomiak\n 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.\nOperator\n This concludes today's conference call. Thank you for participating. 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