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spectrum brands holdings\'s (spb) ceo andreas rouvé on q3 2017 results - earnings call transcript
by：DIgao
2020-06-29
Spectrum brand Holdings Limited(NYSE:SPB)
Third Quarter 2017 Earnings conference call at 9: 00 a. m. on July 27, 2017
Sandreas rové, Vice President, Corporate Communications-
Director and CEO Douglas Martin-
EVP & cfoanalyst Jason Gere-
Capital market
Security expert Khan-
Joseph Alberto Belo, Capital partner-
Raymond James & zafino Association
Christopher Carey-Oppenheimer
Bank of America-Merrill Lynch
Good morning.
My name is Jennifer and I will be your conference operator today.
At that time, you are welcome to participate in the third quarter earnings conference of the Spectrum brand in fiscal 2017. [
Operation instructions]
Ladies and gentlemen, as a reminder, this meeting is being recorded today, Thursday, July 27. Thank you.
I \'d like to introduce sir now.
David Pritchard, the vice president\'s brand of investor relations spectrum. Mr.
Prichard, you can start your meeting.
David PrichardGood morning and welcome brand Corporate Finance 2017 Third Quarter Earnings Call and Webcast.
I am Dave Prichard, vice president of Spectrum brand investor relations, and I will be the host of today\'s conference call.
Now, to help you keep track of our comments, we put a slide on the Event Calendar page in the Investor Relations section of our website. spectrumbrands. com.
This document will remain there after we call.
So if we start with slide 2 of the presentation, you can see that our call will be led by our chief executive, Andres Ruwe;
And our chief financial officer, Doug Martin.
Andres and Doug will make opening remarks and then have a Q &.
So if we go to slide 3 and slide 4 now, our comments today include forwarding
Including our outlook for fiscal 2017 and beyond.
These statements are based on current expectations, forecasts and assumptions of management and are inherently uncertain.
The actual results may vary a lot.
Due to this risk, Spectrum Brands encourage you to review the risk factors and warning statements outlined in our July 27, 2017 press release, as well as our recent SEC documents and the most recent 10-K.
We have no obligation to update any forwarding-
Statement.
Also, please note that we will discuss some non-
In this call, GAAP financial indicators.
The GAAP reconciliation of these measures is included in today\'s press release, 8-
K filing, both files can be found in the Investor Relations section on our website.
With that in mind, I am now happy to transfer the call to our chief executive, Andreas Ruwe.
Thanks to Dave and everyone for joining.
Steering slide 6.
Our performance in the third quarter does not represent strong basic health conditions in our category and our positive outlook.
Sales are affected by external and internal headwinds, which also hit us.
All major retailers in the United StatesS.
Improved inventory management system to enable them to extract inventory as needed.
It has had a significant impact on our seasonal home and garden and our global care business ---
Global auto care business due to delayed purchases by retailers.
We estimate that the impact of this delay will be close to $25 million or $1.
Our 9% in the third quarter
However, this is a matter of time as retailers ran out of stock of seasonal products in the second half of last year.
As a result, we saw in July that orders and growth in our home and garden sectors were strong due to reduced retailer inventory.
At the same time, our home and garden and global car care business were affected by adverse weather compared to last year, and consumer demand declined in last June.
The good news is that our POS grew in July compared to last year, and with the launch of several products, both home and garden and global auto care have gained or taken market share.
Turning to slide 7, the second driver of the sales shortage is internal.
We are in the middle of two major transformation projects that will enable us to operate more effectively in the future by consolidating our entire US marketS.
Hardware and Home Improvement distribution in Kansas, as well as our car care manufacturing and distribution in Ohio.
Both facilities are up and running.
However, during the transition from the old facility to the new facility, we did encounter temporary supply chain challenges, which had an impact on our third quarter sales of about $24 million or $1. 8%.
Both projects are on schedule and we have made good progress in cleaning up orders much higher than usual in the fourth quarter.
In addition, our pet sales were affected by our voluntary safety recall of certain rawhide dog chews, which resulted in a reduction in sales of about $11 million or 0. 8%.
We have corrected manufacturing issues, re-started production and will start stocking for retailers in August.
The currency has finally begun to turn positive, but we still face some headwinds in the third quarter, accounting for $12 million, or 0.
The decline of 9% came mainly from the devaluation of the pound in last June. Another company
Related issues affecting our sales are non-strategic low-cost plan exit
The margin business is mainly in our pet and hardware and home improvement department. The amount is $10 million, that is, 0. 7%.
While this obviously reduces our sales, it has a direct benefit to our EBITDA.
In addition to these temporary disadvantages, sales in the third quarter increased by more than 1%.
When it comes to slide 8, we have many highlights in the third quarter.
Global Battery and appliances reported strong organic EBITDA growth and profit expansion as we were able to implement price increases such as European appliances. Also our e-
Business continues to maintain a strong double
As we continue to increase our investment with our retail partners and expand our digital marketing resources to drive digital growth in the third quarter, especially our innovation and higher growth --Pricing products.
We have also invested more in new product development and marketing to support important releases such as our armor full wash and wax wipes, black flags and natural wonders.
We continue to increase sales experts and seek blank opportunities in more categories, channels and countries.
In the third quarter, we also closed two pet acquisitions, PetMatrix and GloFish, both of which are strong strategic fit for our pet sector, with immediate growth and increased profits.
We will leverage their product and market strengths as well as our global infrastructure to expand their reach, just as we expand our pet and family gardens in Latin America, global automotive care in Europe and hearing aid batteries in Asia.
All in all, we are confident in the future, we continue to invest in our innovation pipeline and increase resources to pursue many of our blank space opportunities, even when we face strong headwinds, it is also tempting to cut these investments.
We continue to anticipate that reported sales growth will exceed growth in most categories and reiterate our adjusted free cash flow guidance for fiscal 2017.
To highlight our confidence, we completed a major stock repurchase of $63 million and $0. 166 billion in nine months in the third quarter.
Let me also introduce you to our discussion with HRG.
According to the exploration strategic alternative announced by HRG on last November, our Board of Directors has set up an independent special committee of directors, which has engaged independent financial and legal advisers.
The Commission is having a preliminary discussion with HRG on its street strategy transaction, which the Commission expects will benefit shareholders of all Spectrum Brands.
Of course, we cannot guarantee that any transaction will come from discussions with HRG, until we consider that further disclosure is appropriate or required, we do not intend to make further comments or provide an update on the subject.
Now let me hand it over to Doug in order to do a financial review and performance detail for us by product category.
Good morning, Douglas Martin, Andreas.
Go to slide 10 and let\'s review the results of Q3 starting with net sales.
Net sales for the third quarter were $1.
3 billion fell by 4.
Compared with last year, 2%.
Excluding the negative impact of $12 million in foreign currency and $7 in acquisition sales.
2 million, organic sales fell by 3. 9%.
This decline also includes the negative impact of the planned unprofitable business exit of approximately $10 million, the start-up delivery delay of HHI and GAC operations of approximately $24 million during the quarterS.
At the beginning of June, The rawhide dog chew recall was estimated at $11 million and the retail inventory reduction plan was about $25 million.
Reported gross profit margin 36.
3% decreased by 270 basis points from 39% last year, mainly due to adverse combinations, low operational efficiency, negative effects of skin recalls and increased restructuring activities, as well as negative effects of foreign exchange
SG & fee reported is $285.
3 million, or 21.
9% of sales, $295.
9 million last year, or 21. 7%.
Reported operating profit margin 12.
1% fell 310 basis points from 15.
The previous year was 2%.
Earnings per share were reported to be diluted by $1 in the third quarter.
An increase of 31 dec compared to $1.
71. last year, partly offset by lower interest payments, mainly due to a decrease in volume.
Adjusted earnings per share are $1. 71 decreased 1. 2% versus $1.
73. last year, mainly due to the decrease in quantity, the decline in productivity and the negative effects of foreign exchange, was partially offset by the decrease in interest expenditure and the decrease in non-issuance of shares.
Q3 declaration rate 23.
9% from 29.
4%, mainly due to the federal tax credit application confirmed in the quarter in previous years.
Turn to slide 11.
Our measures to improve working capital, not just the year of absolute improvement-over-
There have been systematic improvements throughout the year to reduce the seasonality of working capital, but progress continues.
In the first nine months of fiscal 2017, we achieved positive adjusted free cash flow of $0. 114 billion, an increase of $56 million over last year, driven mainly by working capital and lower cash interest.
Interest expenditure for the third quarter was $52.
$4 million decreased by 7.
Driven by our 5 million euro earnings, it\'s up 4% from last year.
Re-pricing of denominated bonds and US Treasury bonds issued in last SeptemberS.
Fixed-term loans in October and April were partially offset by interest-related acquisitions and stock buybacks.
Cash interest payments of $42 million were $25 million less than last year.
The current tax was $10 million, compared to $7 million last year.
Depreciation, amortization and share
Compensation for the quarter was $55 million, compared to $61 million last year.
Cash Payments for acquisitions, consolidation, restructuring and related expenses were $3 million and $13 million respectively, compared to $10 million and $3 million respectively last year.
Starting with slide 12 of global automotive care, our operations have achieved results.
Net sales for the third quarter were $155.
2 down 8 million.
Driven by Volkswagen and auto retailers going to stock, it grew 5% last year and is expected to be nearly $8 million in the quarter compared to last year, plus cool and humid weather conditions.
This slowed the flow of the store, hurt the POS, partially offset by the successful launch of all our armor washes and wax wipes, which contributed to significant incremental sales and strength during the quarterA 6.
EBITDA fell 5% to $50 after adjustment.
7 million, so the margin is reduced by 140 basis points to 32 basis points.
5%, this is due to the reduction in the number of refrigerants, the continuous expansion of input costs and the increase in planned marketing costs to support the release of new products.
The issue of temporary transport start-up at GAC\'s new Dayton plant also affected third-quarter results, including sales of about $4 million.
Overall, Dayton facility integration is on schedule and will achieve meaningful cost savings and improved working capital in fiscal 2018.
GAC continues to accelerate organic growth by increasing cross-investment.
Sales, revenue sharing and neighboring expansion in the USS.
Increase its vitality through higher investment in new product development and international growth.
We continue to expect that, even with the pace of innovation and international expansion, GAC will report an adjusted EBITDA profit margin of more than 30%.
Go to slide 13, hardware and home improvements, release to 1.
Net sales fell 2% in the third quarter to $324. 7 million.
HHI\'s first quarterly peak profit decline since its acquisition at the end of 2012 was due to US-related temporary operations start-up issuesS.
The distribution center integration project we started in April has had a negative impact on sales of about $20 million, while planning to withdraw from unprofitable business in Mexico, this has had a negative impact on the growth of about 1% in the previous quarters.
EBITDA fell 4 after adjustment. 6% to $62.
2 million, the reported profit margin fell by 60 basis points to 19 basis points.
2%, reflecting the adverse product mix and the start-up cost of the facility.
As we continue to improve DC efficiency, sales growth is expected to resume in the fourth quarter. HHI\'s core U. S.
Commercial and residential safety, builder\'s hardware and plumbing remain healthy and growing with the support of strong new equipment-
Strong roadmap for new products, stable innovation every quarter, and a major home construction channel that will benefit 2018 people in the near future.
Q3 New Product Introduction includes 【indiscernible]
Smart Lock, modern smart lock, Baldwin evolution, new Kwikset San Clemente series and several new Pfister product lines.
In continuous improvement, HHI continues to steadily advance its global transformation plan, which began last year, which will increase production capacity and revenue.
Purchase, coordinate lock assembly and improve automation by Fiscal Year-end 2018.
This move will consolidate HHI as low-
Manufacturer of cost industry
Pets worldwide, slide 14;
Net sales for the third quarter were $189.
9 million fell 8.
3%, organic income decreased by 10.
5%, excluding negative foreign exchange of $2.
7 million and $7 in acquisition sales. 2 million.
EBITDA fell 4 after the report was adjusted.
2%, excluding negative EBITDA related to foreign exchange and acquisition, the organically Adjusted EBITDA is $34.
5 million fell by 8. 5%.
However, the reported adjusted EBITDA profit margin increased by 80 basis points to 19%, confirming that operational and process improvements in the business continued to be effective.
Sales in Europe and the United States have declined. S.
In Europe, revenue declined mainly due to a sharp decline in sales of dog and cat food in Europe, mainly due to the acceleration of the withdrawal of the pet food customer fee agreement, which totaled $4. 7 million. In the U. S.
Revenue declined due to falling categories and weak pet professional channels, as well as low returns planned to withdraw last year
Profit private label rawhide and dried chicken business.
Overall, these planned exits had a negative impact on sales of about 2. 7%.
In addition, in June 10, pets began to voluntarily recall certain rawhide dog bites.
The negative impact of the third quarter recall on pet is estimated at $11 million and is expected to continue to have an impact in July.
To this end, we recorded a one-time non-recurring fee of $24.
9 million, or $0.
Pre-tax $42 per share for this recall, mainly including inventory
Cost of product return and other related costs.
As Andreas mentioned, these factories have now resumed production and restockedS.
Retailers are expected to open soon.
Move to the family and garden of Slide 15.
Net sales for the third quarter were $192.
4 million fell 9.
2%, the Adjusted EBITDA is $59.
5 million fell by 11. 2%.
The EBITDA margin fell 70 basis points to 30. 9%.
The lower result is by system quality and do-it-
The estimated $17 million retailer inventory management plan compared to last year, adverse weather is limited POS and customer replenishment orders, compared with last year\'s strong rejection of orders due to Zika virus concerns, there was no repetition in 2017.
Q3 category POS mix, home up, outdoor control down, insect repellent down double digits;
All of this is in line with the actual results of the family and the garden.
While Home & Garden\'s POS performance is mixed, it is encouraging to know that the business has gained market share in all three categories.
The introduction of the black flag in the outdoor control category and our hot shoot integrated bug pest management system have all been successfully launched this year.
Given the growth of market share, stable innovation and the distribution of excellent resale service teams, Home & Garden is working to restore the highest and lowest levels of growth in the fourth quarter.
The trend in July is encouraging so far, and we are optimistic that
Margin business can end fiscal 2017 in a positive situation and resume growth in the fourth quarter and next year.
It is slide 16 now to personal care;
Net sales for the third quarter were $110.
9 million fell 4.
2%, organic income decreased by 2.
2%, excluding negative foreign exchange of $2. 3 million.
Growth in Latin America has been offset by the US economic downturn. S.
Revenue in Europe is largely due to price increases implemented in Europe, an increase in competitors\' promotions, and weakness in major categories in the United StatesS.
And the Volkswagen POS is slow. In the U. S.
According to ScanData, the overall category through May fell by 8%, and our business fell by about half.
One highlight of this quarter is double
Digital growth in e-commerce
Business with the Enterprise already has an important existence.
Although reported sales shortages and organic Adjusted EBITDA grow with a reported profit margin increase of 160 basis points, this increase is driven by a favorable combination, lower operating costs and ongoing
Looking forward to the fourth quarter, Remington continues to focus on the launch of new products in the United States. S.
While shaving, dressing and hair care and expanding distribution, Europe continues to grow strongly in the e-commerce sector. commerce.
Before the important Christmas holiday, Remington launched a series of new products in North America and Europe. In the U. S.
Major new products include durablade, vintage hair dryer, traditional shaving line and new shortcut pro hair clipper.
In Europe, the new products include the Kerins, durablade and Lux intense pulse light hair removal products that protect the hair care series.
Now let\'s go to the small household appliances on slide 17;
Net sales for the third quarter were $145.
4 million fell by 3. 8%.
Negative foreign exchange excluding $3.
7 million, organic income fell by 1. 3%. Higher U. S.
Revenue from e-commerce growth
Business and mass channels, in the face of flat categories, the decline in revenue from continued Brexit in Europe and Latin America was offset --
Related weakness in our large Russell Hobbs brand UK business, discounts from competitors and exit from unprofitable businesses.
Despite the low income, the reported organic Adjusted EBITDA has increased and the reported margin has increased by 250 basis points.
The strong growth in profits has benefited from the savings of continuous improvement, good combination and unified spending.
The small home appliance program continues to expand its portfolio and distribution points around the world, focusing on blank space opportunities and ongoing e-commerce
Business growth, business income accounted for a large proportion of its income.
Innovation in cooking and beverages highlights the release of key products in the fourth quarter, which is probably the most exciting product in the United States. S.
The launch is the iconic Russell Hobbs United States. K.
Brands and families of electronic products
Business channels.
This is our higher quality and higher quality profit line in the United States. S.
Than our existing home appliance market.
In Europe, new product launches include fashion [indiscernible]
There is also an elegant breakfast collection and Duraco impact iron.
Finally, the global battery, which is slide 18.
Net sales for the third quarter were $184.
8 million, down 1. 2%. Excluding $2.
4 million of negative foreign exchange, organic sales are flat.
Similarly, strong growth in Europe, mainly alkaline and hearing aid batteries and Latin America, was offset by a decline in US salesS.
Despite the continued strength of fusion, we have the highest performance alkaline batteries.
As pricing pressures and increased commodity costs exceed offset cost savings, the organic Adjusted EBITDA has fallen by single digits and profit margins have declined.
Despite a shortage in the third quarter, global batteries have achieved strong organic sales and adjusted EBITDA growth in the first nine months.
Finally, the global battery is expected to achieve another year of strong savings of continuous improvement, which will help offset the negative impact of foreign exchange and the increase in commodity costs.
Move to the balance sheet on slide 19;
We are in strong liquidity at the end of the third quarter, and we have more than $0. 385 billion of available funds on our $0. 7 billion cash flow revolver, with a cash balance of $0. 11 billion and outstanding debt16 billion.
Since we acquired PetMatrix in June and bought back shares totaling $0. 166 billion in nine months, we now expect the leverage at the end of fiscal 2017 to be slightly higher than in fiscal 3 or so. 9x last year.
As mentioned earlier, the adjusted free cash flow for the first nine months was $0. 114 billion-
By contrast, the previous year was $58 million, reflecting progress made in substantially improving working capital management and reducing some seasonal fluctuations in the working capital cycle.
Capital expenditure for the third quarter was $27 million, compared to $21 million in the previous year.
In the quarter, we bought back more than 487,000 ordinary shares for $62.
Average $9 million or $129 per share.
Turn to slide 20 and review our 2017 guide;
We expect net sales in most categories to be higher than the category rate, partially offset by the expected negative impact of foreign exchange around 70 to 90 basis points.
We expect the adjusted free cash flow to be between $0. 575 billion and $0. 59 billion.
Interest expenditure for the full year is expected to be between $0. 205 billion and $0. 215 billion, including approximately $15 million in non-cash items.
Cash interest is expected to be paid between $0. 18 billion and $0. 19 billion.
Depreciation and amortization for 0. 23 billion is expected to be between $0. 24 billion and $2017, including amortization and inventory of approximately $40 million to $45 million
Based on compensation.
Our effective tax rate of 2017 is expected to be between 30% and 35%, and we still remember that we use a 35% tax rate for adjusted income.
The current tax is now expected to be about $40 million to $50 million, and we do not expect the United States to be an important country. S.
As we continue to use the net operating loss carry-over, federal cash taxpayers for the next few years.
Cash Payments for acquisitions, consolidation, restructuring and related costs are expected to be between $45 million and $55 million, and capital costs are expected to be between $0. 105 billion and $0. 115 billion, including extended expenditures from 2016.
These incremental investments will support footprint optimization, vertical integration improvement, technology and innovation, and are expected to increase the company\'s profit structure and organic sales growth rate.
Thanks, now go back to Dave\'s Q &.
Thank you so much to Andreas and Doug.
With this, operator, you can start Q & A now. Question-and-
[Answer]
Operation instructions]
Our first question comes from Jason Gere of KeyBanc Capital Markets.
The first big issue, Jason GereI thought, is that I know you\'re talking about sales throughout the year and obviously we \'ve seen a lot
Sales of organic products have been affected in the past few quarters.
But what you\'re saying is-
A category was added above.
So I was wondering if you could give a little background to the category you see growing?
Obviously I\'m trying to figure out if you think organic sales are going to be flat this year because I know there really is such a benefit in the fourth quarter?
So just wondering maybe if you could talk a little bit about what category growth is, then how should we think about having some background in the next few quarters?
Douglas Martinez--
This is Doug, Jason.
As you pointed out in this quarter, it\'s a bit volatile in terms of the quarterto-quarter.
But, for example, electrical appliances have been declining this year, and we are doing better than the sluggish environment in Europe and the United States. S.
The same is true for personal care categories.
Family and garden business, we expect this to be a category for low singles-
In fact, we expect to drop a bit this year when you think of insect repellent.
But beyond that, the core category will grow slightly and we will do better.
We did better--
From the perspective of sharing
So when you go through the portfolio, our expectations are still the same and it is important that this is the expectation of overtime for the company.
Jason, I want me to jump in, too.
We have to keep in mind that we are facing a special 2016, where we have had a very early spring and retailers have withdrawn very early due to Zika virus concerns.
For example, the world\'s largest retailer pulled their demand for the whole year in the second quarter.
Then they continue to bleed all year round.
Now, we are facing a much lower situation in the fourth quarter of last year.
For example, the same is true if you are looking for it in our hardware and home improvement department.
There, we expect the market to grow roughly to three categories. 5%.
Yes, category growth is very healthy and we believe we can grow faster as we continue to win new distribution channels and grow very quickly, e-locks for example.
So once these distribution activity challenges are overcome and we clear the backlog in the fourth quarter, we should be in a very good position. Jason GereOkay.
And then, Doug, can you comment--
What do we think of the fourth quarter trading day?
So I think the understanding last quarter was that we\'re going to get some of those times --
Through things.
Between the third and fourth quarters, many are weather-related or what retailers are doing.
But I think, I think the fourth quarter will definitely be better than the third, but I think, in terms of some of the issues that we saw in the third quarter, I\'m just thinking, how should we moderate our expectations for the fourth quarter?
So maybe, if you could provide it on the trading day, I might give us a bit of a background on what we think about the fourth quarter?
Douglas Martins
We also set this out on a conference call in the first quarter.
Unlike the fourth quarter of last year, we have a greater impact.
We have another day in the fourth quarter of this year.
We lost a day all day and we got the benefit of others earlier this year. Jason GereOkay.
Then the second question, then I get off the bus.
I think, when you think-a lot of the --
I think the topic of this industry is now about the growth of private labels, Amazon\'s push, and Aldi came to the United States.
I think this has been very successful in the past when you think of spectrum value propositions, just because you have excellent quality, lower price points and success, can you talk about what categories? As far as this is concerned, what you see may affect the strategy of the future?
I know Wal-Mart last quarter. -
There are some open price you see and they should start running.
So, just wondering, maybe in context, if you can talk about some other players, I think they\'re pushing the low end of the spectrum without pun?
Yes, Andreas.
I think if you look at the private label, it\'s fair to say that all categories are affected by that.
As I mentioned before, hardware and home improvement, all the big retailers and home improvement centers have also completed their products in terms of private labels.
So I think it\'s a trend, and what we have to accept is that it\'s going to be a global long-term trend. term trend.
However, we have several strategies,-
How we use it.
First, we have a clear commitment to a multi-channel strategy, including that we also offer private labels.
Now, for example, if you look at our European business, a large part of that business comes from the supply of private labels.
So, to some extent, we benefit from a change in the private label.
For example, we mentioned earlier that in terms of our hardware and home decoration, we have made a clear commitment to be the lowest cost dollar producer in the world.
So we also have a big win in the private tag section.
Second, how do we take advantage of it, we are driving more innovation and higher features --
Pricing products, especially online products.
For example, our e-commerce growth in the first quarter
Business in the United StatesS.
40%, this is mainly a higher feature, higher
Therefore, we are creating very healthy profits, for example, this is also a favorable EBITDA profit combination you see in the electrical business, we won the victory at the high end, but at the low end, on the OPP side there are also some challenges, but it is still a positive impact on EBITDA at the end of the day.
Operator your next question is from Bob Labick line for CJS Securities.
Robert rabbucky is just following up.
The end of the last answer.
For a long time, we have been discussing the category reset for store traffic.
On the other hand, it must be online.
So I hope you can look into your online strategy further?
How do you connect with consumers?
How do you measure this, the implementation process, and the opportunities for future spectrum online?
We believe that online shopping is the core channel of consumer shopping.
This will be a different categoryby-category.
For example, there are categories such as home appliances or personal care, and we expect the share of this category to be within 25%.
So a core sales channel, then there will be other categories, more impulsive, lower-value products, compared with the value of the product, the transportation cost is not attractive for online distribution, battery, for example.
However, we now take network channels as an important opportunity, so we have a dedicated sales team that focuses on all major online retailers, not only the largest online retailers, it also includes all other retailers, including home improvement retailers, home improvement channels, and we are working closely with them to drive our sales.
For example, we have a gold Day deal if you take a look.
We have a list of the best-selling items that have grown significantly over the past year --over-
We are also strengthening our internal resources.
Our number has increased by more than 30%. over-
In the year of the digital field, increase our online content and carry out more promotional activities online.
In addition, some SKUs are provided, which are aimed at online to avoid channel conflicts, which is a huge challenge to some extent.
Robert rabbi, that\'s great.
Then follow up on this.
Years ago, marketing was successful in spectrum and everything else, but can you talk more about how this has changed?
How did you decide?
Where did the marketing funds go?
How much is offline?
Online and so on, what is the cost of talking about the whole ad in marketing?
Andrea, in-year-Serhs
I think that if I start with this, advertising is still the value model of the spectrum, which is our guiding principle in the later period.
Due Date, really focus on POS, do not do any advertising.
I think this is a model that fits perfectly--
Very suitable for battery category with lower value, a bit difficult to distinguish between products.
Therefore, this is appropriate.
However, as we pursue more innovative products such as our armor, wash and wax wipe, we are rolling out a new technology that does not exist at all and we have to tell consumers.
So we invested $5 million in the release and support of these categories, which shows very good results.
This is the best-selling product of its kind.
So, yes, we are vigorously strengthening advertising to support the launch of our innovative, more functional products.
Now about the marketing investment between digital and entityand-
I don\'t think the mortar is either.
It must be both.
You must contact the consumer --
Because at the end of the day, this is still the vast majority of the sales of our products --
But consumers are also looking for information online.
Therefore, strengthening content improvement is the key.
I mentioned earlier that we grew more than 40% in the e-commerce quarter
Business in the United StatesS.
I can tell you that we have grown by more than 100% in our battery business.
So there are very strong methods in all of our categories.
Your next question comes from the relationship between Majid Khan and Tourbillon capital.
Majid KhanAndreas, I am a little confused about the answer to the first question, it seems that all of your categories are growing or falling by 1 on average.
5%, you have dropped nearly 2% this year.
So, in order to do better than this category, you have to launch a plus 4% comp in the fourth quarter, is that your guidance?
The key is that we do not give forward-looking guidance on sales.
But if you look at our backlog in Washington. . .
Majid KhanI what you just said ---
You said, you will defeat the category and--
Add 4% in order to beat the category you have to do?
Andreas rovéi just wanted to start explaining.
If you look at our DC backlog of over $24 million, if you look at our--
In the fourth quarter of last year, retailers ran out of seasonal home and garden products.
So if you take a look and compare our sales in the fourth quarter of f\'16 and f\'15, you will find that our sales in the fourth quarter of last year have dropped significantly.
So we will achieve low growth in the fourth quarter.
Therefore, we are very confident about the growth opportunities in the fourth quarter. Majid KhanRight.
So, to be clear, you \'ve lost $50 million in sales this quarter and you expect to be pushed to the next quarter, which is 4% in itself.
If I take it all out
As you said, there was an organic increase of 1% this quarter.
So if this trend continues, your organic growth rate for the next quarter should increase by another 5%.
Sounds like--
What seems to be your communication?
Douglas Martin, who we directed, was very clear.
We are very, very specific in guiding cash flow in one scope, and we now expect to grow most of our categories for most of the time to come. Majid KhanOkay.
I\'m not sure which math is going to add 5%, why are you guys so shy about math? All right. We\'ll move on.
Can you guys talk about the cost savings from the Dayton merger?
Douglas Martins
We did not specify the savings in Dayton.
This is actually a combination of several things we have done since we bought the company.
We merge first. -
We had a DC project last year.
They put everything in a place in Ohio.
So this year we moved Garland, Texas, Washington to Ohio, and then we moved manufacturing and R & D to Dayton.
We broke ground about 13 months ago and from a production point of view we did start running and we still have a production line to introduce but the situation there is very good.
I would like to say that DC is running better and better every day and is now about 98%.
So it\'s in good shape.
Although we do not specifically disclose what the cost savings are, it is more than 3-
Annual returns, and significant reduction in inventory benefits associated with them.
So while it has a better impact on our quarter than the negative, it is a very attractive product.
We do this every time these projects come up. Majid KhanNo.
You have a good history of success in this regard.
Just a simple question about stock repurchase.
When you guys buy back a bunch of stocks this quarter, you must know it\'s a bad print view?
There is still room for you to authorize the repo of more stuff, I just wanted to know if you intend to be actively involved?
Douglas martinwell, it was very, very clear, and frankly, we didn\'t know it was going to be a bad news, because we had a plan after we quit last quarter and received revenue calls and entered this quarter.
So our point is that as we move into the last quarter, given our expectations for cash flow and the future for this year, we feel that our stock is undervalued and we still believe that.
Currently, we have used content that is authorized under that particular plan.
What we have--
The available capacity of the $0. 5 billion plan approved by the board in January.
So it depends on whether we have--
We believe that the implementation of the new plan is open. Go ahead.
Majid KhanI in the mirror-
Thanks, Doug.
How was July?
Andreas rové is very powerful.
There are two reasons;
A, we know, and, compared to the fourth quarter, in our sales guidance, this problem occurs earlier and the weather is always unpredictable.
So we had a really cool June in June, so the POS is very low.
However, it has picked up significantly in July and we saw a very strong POS in July.
Given that the retailer\'s inventory is very low, they have to withdraw now and have to re-order.
So we see strong sales, especially in our seasonal category.
Similarly, we have made good progress in cleaning up the backlog in HHI and auto care, because efficiency is constantly improving every day now, so we are doing better and better in this regard.
David prichard we have a lot of other people having problems so can we take them with us if we have time?
The next question is the lines of Joe Altobello and Raymond James.
Joseph AltobelloI just wanted to review the whole concept of retail inventory reduction, and I got it this time ---
This is the first home and garden season, and in particular some changes have been implemented by some large retailers.
So is fiscal 2017 or 17 the right way to think? This will be a step-by-step feature this year, and the impact will be much smaller next year?
Or is this something we have to deal with on an important basis in the next few quarters and years?
Andreas rovéi believes this is indeed a step forward this year.
As I mentioned before, 16 years is also unusual in terms of the quarterly phase.
So if you compare \"17\" to \"15\" or even \"14\", you will find that the effect will not be so significant.
So they\'re more-
Let me say, back to a normal state where they improved their system and all the major retailers worked with us to speed up replenishment orders.
So they can pull these products as needed.
The biggest impact is our seasonal category, which, as you can imagine, is like a bell curve in which their inventory increases with the arrival of the peak season, they run out of stock at the end of the peak season.
In this case, they never agreed so.
So, however, they don\'t need to run out of it as they did last year.
So yes, we almost see this as one time, and if you compare it to \"16\" instead of long-term normal.
Nevertheless, all categories are affected.
This means that we see a decrease in inventory in all categories, just not as material.
The significant impact on these two seasonal categories is that you actually have more or less a quarterly staging because last year they ran out of stock in our fourth quarter and the first quarter of the next fiscal year.
So we should see a very good pick-up in these two quarters.
Joseph Alberto belowayThat\'s helpful.
And two quick ones.
The impact of the recall on the fourth quarter\'s finances sounds like it will not resume shipping until August.
So what about the annual total sales of PetMatrix and GloFish?
Andreas rovéi believes that in the recall, due to the fact that we are replenishing our inventory, we may have another month\'s sales error in July.
We expect sales to be within the $5 million range.
So if you look at the negative impact of our $11 million per year --to-
Date, about $5 million in the middle.
Sales in June and product returns of about $5 million.
So that\'s what we expected in the fourth quarter.
Joseph Alberto beloway
Yes, sorry, Doug is doing the second part.
Douglas Martin Petter matrix business performance for 75 years
Wide variety, very, very good growth, very high profit margin and much smaller GloFish.
We will give you more information about the future.
It\'s a different model, so it\'s--
And less than $10 million.
Your next question comes from the lines of Ian zafino and Oppenheimer.
Ian ZaffinoI just wanted to get some insight into the GAC.
I know that the weather at home and in the garden is usually covered and I think you mentioned that.
Will you see similar trends in the GAC as well?
Or is this just a loss of sales?
Then I will follow up.
The influence of Andres Ruwe may not be as strong as that of the family and garden.
So we did see some recovery, but maybe not that much.
Because the point is that if you don\'t have a car wash or a car wash in June, then your car wash in July will not be twice as much as it is now.
So yes, we saw a good pick-up on POS.
We see good sales but may not be fully recovered.
The impact will therefore be slightly less obvious. Ian in Gaddafi apart
Then just in the fourth quarter, will there be an additional cost for the integration of the HHI release and the GAC release?
Or, are these expenses paid to go against the wind?
Douglas Martin for the combined, but mostly HHI, because it started late and you\'ll see some ongoing costs in the restructuring as we continue to complete those mergers.
So we are still moving along the East Coast and West Coast DC and on stage.
So you will see this continue. Ian in Gaddafi apart
The last question is, do you say the order is much higher than usual and what are the special advantages?
Is this just a purchase?
Or what drives it all, just fast?
Yes, Andreas.
Basically, we have orders on hand and cannot ship them in time.
So basically, there is a slight delay in the delivery of these orders.
Douglas Martin is mainly related to the upgrading of HHI and distribution facilities.
Your next question comes from Olivia tang of Bank of America.
Christopher Carlyle, this is Chris Carey from Olivia.
You earned quite a bit in the third quarter of pet trading, and your stock buyback also earned.
Can you tell us about your recent situation?
Leverage target?
Then I will follow up.
Douglas Martinez
They have not changed.
When we continue to be comfortable in these 3.
In the range of 5% to 4%, we are willing to go beyond that when good opportunities arise.
In the last quarter, we did have three acquisition opportunities, PetMatrix and GloFish, and then we acquired a minority stake in a business called Shaser, and the rest was--
This is what we are looking forward.
There are more than $0. 3 billion in total.
As I mentioned earlier, given our expected cash flow performance, we think the stock is undervalued.
So we tend to buy back shares.
While this brings us to a high-end level of 3 to 4 times, even a little higher than we did at this time of year, we were very comfortable there.
Okay, Christopher careyok.
Then I think, more broadly, you do quite a bit of work on improving the operations in your portfolio.
Pet is with your management team, but it looks like the business is still a few quarters away from growth, top growth, and personal care equipment is still a bit challenging.
In order to improve your profitability, you have obviously withdrawn from some businesses.
So, I guess, what do you think is the schedule for additional plans, like how long do these plans last?
How does this affect our ability to return to the market for more meaningful transactions, especially in the upcoming leveraged transactions this quarter?
Let me answer first part of your question about pet growth.
As we have already mentioned, we are withdrawing from the European cat and dog food business which will continue--
It may not affect our sales until next year.
Therefore, we will withdraw from the remaining part of the business in fiscal 18.
This is expected to have an impact of about $30 million on our global pet business as we withdraw from the European fee agreement for dog food and cat food.
Now, if you look at the rest of the pet industry, we actually do a very good job.
Let me call it more commodity products, we have been purchasing in part from China, some retailers in China, they decided to go to China to purchase directly.
So we are losing money on lower prices and trading products in the OPP category, but we are growing very well in the core category.
We are speeding up the pace of innovation. for example, with the miracle of nature, our development is very rapid and very successful. In addition, our international outreach in Latin America in the rest of the world has also shown good progress.
So we believe that pets are long-lasting.
Long-term growth drivers.
Yes, we have some negative mixed effects this year. -
Sorry, some positive mixed effects from low
Our core business and growth followed by dog food and cat food.
Now in terms of personal care, we mentioned earlier that there has also been a change in the mass channel, and these retailers have again put pressure on their own brand OPP.
There, of course, we will be challenged within the scope of some open price products.
However, in products with higher prices, the more characteristic products, the better our growth will be.
That\'s why we\'re launching more innovations in the United States. S.
Including Europe and AsiaPacific.
So we \'ve also seen very positive trends, and you \'ve also seen this quarter, for example EBITDA profit margins, and despite some challenges at the top line, it\'s already good
Your next question comes from the line Kara Casera at JPMorgan Chase.
If I miss this in the first place, Kara Cassella and I are sorry.
But did you comment? -
You mentioned pets. -
There is a particularly weak channel in pet business.
Is this a pet specialty? Or is it --okay.
Yes, Andreas. The U. S.
Purchasing directly from China, pet professional is an inevitable trend to promote local brands.
There are certain challenges.
But, again, in this channel, we have successfully launched more innovative and better products, which are developing well.
However, in the opening price of some products, they decided to purchase directly from China.
Kara casserak
Have you ever said how much of your business today is a private label, not a pet, but an overall one? Andreas rouvino.
This is really a category. by-
Very different categories.
So the real biggest private brand is the battery, which is largely driven by Europe.
We see this trend in the United States. S.
Earlier, the increase in discounts on the US sideS.
But in other categories, especially if you talk about more featured products like electrical appliances, yes, it happens in the OPP area but not in products with higher functionality and higher prices
This applies to almost all categories.
Kara casserak
Have you quantified last year\'s push for Zika sales, and have you said how much is there in the next quarter?
Douglas Martino
We did not comment on this.
This is one--
As Andreas mentioned, we-
For some retailers, they want as many insect repellent as possible.
Then what we see is a lot of retail inventory, which was sold off last year, even in the first quarter of this year, for the rest of our fiscal year.
Now that some of the family\'s Pantry has been exhausted, so--
Or in the second quarter.
So this is where we are-
That\'s why we think it would be useful to see 2015 at the end of this year than the 2017 we think is more normal.
Carla casserak. great. And one other; on the --have you --
Can you tell us your sales online? only channel?
Andres ruveis--
This is really a category. by-
Very different categories.
So if you push small appliances to the extreme, I would say, we\'re in a high doubledigit area.
If you go to other categories such as global car care or battery, we are in low orderdigit area.
Pets are in between safety, plumbing and both because there you have more featured products, higher products
Expensive products, like heavy pet products, it is a convenience to ship to your home.
So it\'s really a category. by-
Very different categories.
We have three to four minutes left.
So we can have a really quick Q & A before closing the phone in 60 minutes.
The operator and the last question we had in line came from the team at Majid Khan and Tourbillon Capital.
Majid Hann was quick and obviously, despite the first-line pressure this quarter, you guys did a good job in terms of profits.
I\'m just wondering, given what\'s going on in reverse, if I hear from this category, your profit for the next quarter is going to get messed up?
Do you think it\'s down or down?
Douglas Martin we will not guide it on this level as we do on the sales line.
We want--
We reiterate the guidance in cash.
Your observations are noted and directed, and they make sense.
We have encountered some one-time problems in HHI, Home & Garden, RR-in the third quarter-
At our top
Margin business.
We also note that other categories, including pets, expanded their profit margins during the quarter, including electrical appliances and personal care.
Although our goal is clear, we want to continue to invest in the growth of the entire business.
So if we don\'t increase our profit margins, we have the opportunity to reinvest in accelerated growth, and we will make choices.
Therefore, we would like to moderately expand EBITDA profits within these parameters.
Again, this yearon-
20 to 50 basis points for overtime work is our range.
Majid KhanGot.
The last question.
I think it\'s great that you set up a special committee.
This is a great corporate governance.
I just want to know that you have a few votes when you do Russell Hobbs deals.
Do you also intend to comply with the agreement in this transaction?
Douglas martinwell, we don\'t. -
We don\'t know what the trade fair looks like.
Now that we have talked about it, we have a framework.
With these agreements, as you know, we will follow the correct agreement to protect all our shareholders,-
We are still very early in the process.
There is a lot of due diligence and other work to be done.
Majid KhanGot.
I just want to know, I know, you mentioned this very early, but from the precedent you have seen, for example, in the DSW retail business, goldman Sachs actually made very good comments on the progress of some of these transactions.
Do you have any views on what discount is appropriate in such a transaction? Is NOLs a suitable consideration, I think in the case of Goldman Sachs, they say no, etc?
Douglas Martinez
What I want to say is that we just reiterate that we are too early and there is too much due diligence to do, so it is too early to comment on any type of valuation issue.
These options will, of course, be made by the special committee.
With this, we are at our best.
So let\'s finish the call now.
Of course I want to thank Andreas and Doug.
All of us on behalf of the Spectrum brand thank you for attending our earnings call for fiscal 2017 for the third quarter.
Have a good day. Thank you.
Thank you for your participation.
This is the end of today\'s conference call, and you can now disconnect.
Third Quarter 2017 Earnings conference call at 9: 00 a. m. on July 27, 2017
Sandreas rové, Vice President, Corporate Communications-
Director and CEO Douglas Martin-
EVP & cfoanalyst Jason Gere-
Capital market
Security expert Khan-
Joseph Alberto Belo, Capital partner-
Raymond James & zafino Association
Christopher Carey-Oppenheimer
Bank of America-Merrill Lynch
Good morning.
My name is Jennifer and I will be your conference operator today.
At that time, you are welcome to participate in the third quarter earnings conference of the Spectrum brand in fiscal 2017. [
Operation instructions]
Ladies and gentlemen, as a reminder, this meeting is being recorded today, Thursday, July 27. Thank you.
I \'d like to introduce sir now.
David Pritchard, the vice president\'s brand of investor relations spectrum. Mr.
Prichard, you can start your meeting.
David PrichardGood morning and welcome brand Corporate Finance 2017 Third Quarter Earnings Call and Webcast.
I am Dave Prichard, vice president of Spectrum brand investor relations, and I will be the host of today\'s conference call.
Now, to help you keep track of our comments, we put a slide on the Event Calendar page in the Investor Relations section of our website. spectrumbrands. com.
This document will remain there after we call.
So if we start with slide 2 of the presentation, you can see that our call will be led by our chief executive, Andres Ruwe;
And our chief financial officer, Doug Martin.
Andres and Doug will make opening remarks and then have a Q &.
So if we go to slide 3 and slide 4 now, our comments today include forwarding
Including our outlook for fiscal 2017 and beyond.
These statements are based on current expectations, forecasts and assumptions of management and are inherently uncertain.
The actual results may vary a lot.
Due to this risk, Spectrum Brands encourage you to review the risk factors and warning statements outlined in our July 27, 2017 press release, as well as our recent SEC documents and the most recent 10-K.
We have no obligation to update any forwarding-
Statement.
Also, please note that we will discuss some non-
In this call, GAAP financial indicators.
The GAAP reconciliation of these measures is included in today\'s press release, 8-
K filing, both files can be found in the Investor Relations section on our website.
With that in mind, I am now happy to transfer the call to our chief executive, Andreas Ruwe.
Thanks to Dave and everyone for joining.
Steering slide 6.
Our performance in the third quarter does not represent strong basic health conditions in our category and our positive outlook.
Sales are affected by external and internal headwinds, which also hit us.
All major retailers in the United StatesS.
Improved inventory management system to enable them to extract inventory as needed.
It has had a significant impact on our seasonal home and garden and our global care business ---
Global auto care business due to delayed purchases by retailers.
We estimate that the impact of this delay will be close to $25 million or $1.
Our 9% in the third quarter
However, this is a matter of time as retailers ran out of stock of seasonal products in the second half of last year.
As a result, we saw in July that orders and growth in our home and garden sectors were strong due to reduced retailer inventory.
At the same time, our home and garden and global car care business were affected by adverse weather compared to last year, and consumer demand declined in last June.
The good news is that our POS grew in July compared to last year, and with the launch of several products, both home and garden and global auto care have gained or taken market share.
Turning to slide 7, the second driver of the sales shortage is internal.
We are in the middle of two major transformation projects that will enable us to operate more effectively in the future by consolidating our entire US marketS.
Hardware and Home Improvement distribution in Kansas, as well as our car care manufacturing and distribution in Ohio.
Both facilities are up and running.
However, during the transition from the old facility to the new facility, we did encounter temporary supply chain challenges, which had an impact on our third quarter sales of about $24 million or $1. 8%.
Both projects are on schedule and we have made good progress in cleaning up orders much higher than usual in the fourth quarter.
In addition, our pet sales were affected by our voluntary safety recall of certain rawhide dog chews, which resulted in a reduction in sales of about $11 million or 0. 8%.
We have corrected manufacturing issues, re-started production and will start stocking for retailers in August.
The currency has finally begun to turn positive, but we still face some headwinds in the third quarter, accounting for $12 million, or 0.
The decline of 9% came mainly from the devaluation of the pound in last June. Another company
Related issues affecting our sales are non-strategic low-cost plan exit
The margin business is mainly in our pet and hardware and home improvement department. The amount is $10 million, that is, 0. 7%.
While this obviously reduces our sales, it has a direct benefit to our EBITDA.
In addition to these temporary disadvantages, sales in the third quarter increased by more than 1%.
When it comes to slide 8, we have many highlights in the third quarter.
Global Battery and appliances reported strong organic EBITDA growth and profit expansion as we were able to implement price increases such as European appliances. Also our e-
Business continues to maintain a strong double
As we continue to increase our investment with our retail partners and expand our digital marketing resources to drive digital growth in the third quarter, especially our innovation and higher growth --Pricing products.
We have also invested more in new product development and marketing to support important releases such as our armor full wash and wax wipes, black flags and natural wonders.
We continue to increase sales experts and seek blank opportunities in more categories, channels and countries.
In the third quarter, we also closed two pet acquisitions, PetMatrix and GloFish, both of which are strong strategic fit for our pet sector, with immediate growth and increased profits.
We will leverage their product and market strengths as well as our global infrastructure to expand their reach, just as we expand our pet and family gardens in Latin America, global automotive care in Europe and hearing aid batteries in Asia.
All in all, we are confident in the future, we continue to invest in our innovation pipeline and increase resources to pursue many of our blank space opportunities, even when we face strong headwinds, it is also tempting to cut these investments.
We continue to anticipate that reported sales growth will exceed growth in most categories and reiterate our adjusted free cash flow guidance for fiscal 2017.
To highlight our confidence, we completed a major stock repurchase of $63 million and $0. 166 billion in nine months in the third quarter.
Let me also introduce you to our discussion with HRG.
According to the exploration strategic alternative announced by HRG on last November, our Board of Directors has set up an independent special committee of directors, which has engaged independent financial and legal advisers.
The Commission is having a preliminary discussion with HRG on its street strategy transaction, which the Commission expects will benefit shareholders of all Spectrum Brands.
Of course, we cannot guarantee that any transaction will come from discussions with HRG, until we consider that further disclosure is appropriate or required, we do not intend to make further comments or provide an update on the subject.
Now let me hand it over to Doug in order to do a financial review and performance detail for us by product category.
Good morning, Douglas Martin, Andreas.
Go to slide 10 and let\'s review the results of Q3 starting with net sales.
Net sales for the third quarter were $1.
3 billion fell by 4.
Compared with last year, 2%.
Excluding the negative impact of $12 million in foreign currency and $7 in acquisition sales.
2 million, organic sales fell by 3. 9%.
This decline also includes the negative impact of the planned unprofitable business exit of approximately $10 million, the start-up delivery delay of HHI and GAC operations of approximately $24 million during the quarterS.
At the beginning of June, The rawhide dog chew recall was estimated at $11 million and the retail inventory reduction plan was about $25 million.
Reported gross profit margin 36.
3% decreased by 270 basis points from 39% last year, mainly due to adverse combinations, low operational efficiency, negative effects of skin recalls and increased restructuring activities, as well as negative effects of foreign exchange
SG & fee reported is $285.
3 million, or 21.
9% of sales, $295.
9 million last year, or 21. 7%.
Reported operating profit margin 12.
1% fell 310 basis points from 15.
The previous year was 2%.
Earnings per share were reported to be diluted by $1 in the third quarter.
An increase of 31 dec compared to $1.
71. last year, partly offset by lower interest payments, mainly due to a decrease in volume.
Adjusted earnings per share are $1. 71 decreased 1. 2% versus $1.
73. last year, mainly due to the decrease in quantity, the decline in productivity and the negative effects of foreign exchange, was partially offset by the decrease in interest expenditure and the decrease in non-issuance of shares.
Q3 declaration rate 23.
9% from 29.
4%, mainly due to the federal tax credit application confirmed in the quarter in previous years.
Turn to slide 11.
Our measures to improve working capital, not just the year of absolute improvement-over-
There have been systematic improvements throughout the year to reduce the seasonality of working capital, but progress continues.
In the first nine months of fiscal 2017, we achieved positive adjusted free cash flow of $0. 114 billion, an increase of $56 million over last year, driven mainly by working capital and lower cash interest.
Interest expenditure for the third quarter was $52.
$4 million decreased by 7.
Driven by our 5 million euro earnings, it\'s up 4% from last year.
Re-pricing of denominated bonds and US Treasury bonds issued in last SeptemberS.
Fixed-term loans in October and April were partially offset by interest-related acquisitions and stock buybacks.
Cash interest payments of $42 million were $25 million less than last year.
The current tax was $10 million, compared to $7 million last year.
Depreciation, amortization and share
Compensation for the quarter was $55 million, compared to $61 million last year.
Cash Payments for acquisitions, consolidation, restructuring and related expenses were $3 million and $13 million respectively, compared to $10 million and $3 million respectively last year.
Starting with slide 12 of global automotive care, our operations have achieved results.
Net sales for the third quarter were $155.
2 down 8 million.
Driven by Volkswagen and auto retailers going to stock, it grew 5% last year and is expected to be nearly $8 million in the quarter compared to last year, plus cool and humid weather conditions.
This slowed the flow of the store, hurt the POS, partially offset by the successful launch of all our armor washes and wax wipes, which contributed to significant incremental sales and strength during the quarterA 6.
EBITDA fell 5% to $50 after adjustment.
7 million, so the margin is reduced by 140 basis points to 32 basis points.
5%, this is due to the reduction in the number of refrigerants, the continuous expansion of input costs and the increase in planned marketing costs to support the release of new products.
The issue of temporary transport start-up at GAC\'s new Dayton plant also affected third-quarter results, including sales of about $4 million.
Overall, Dayton facility integration is on schedule and will achieve meaningful cost savings and improved working capital in fiscal 2018.
GAC continues to accelerate organic growth by increasing cross-investment.
Sales, revenue sharing and neighboring expansion in the USS.
Increase its vitality through higher investment in new product development and international growth.
We continue to expect that, even with the pace of innovation and international expansion, GAC will report an adjusted EBITDA profit margin of more than 30%.
Go to slide 13, hardware and home improvements, release to 1.
Net sales fell 2% in the third quarter to $324. 7 million.
HHI\'s first quarterly peak profit decline since its acquisition at the end of 2012 was due to US-related temporary operations start-up issuesS.
The distribution center integration project we started in April has had a negative impact on sales of about $20 million, while planning to withdraw from unprofitable business in Mexico, this has had a negative impact on the growth of about 1% in the previous quarters.
EBITDA fell 4 after adjustment. 6% to $62.
2 million, the reported profit margin fell by 60 basis points to 19 basis points.
2%, reflecting the adverse product mix and the start-up cost of the facility.
As we continue to improve DC efficiency, sales growth is expected to resume in the fourth quarter. HHI\'s core U. S.
Commercial and residential safety, builder\'s hardware and plumbing remain healthy and growing with the support of strong new equipment-
Strong roadmap for new products, stable innovation every quarter, and a major home construction channel that will benefit 2018 people in the near future.
Q3 New Product Introduction includes 【indiscernible]
Smart Lock, modern smart lock, Baldwin evolution, new Kwikset San Clemente series and several new Pfister product lines.
In continuous improvement, HHI continues to steadily advance its global transformation plan, which began last year, which will increase production capacity and revenue.
Purchase, coordinate lock assembly and improve automation by Fiscal Year-end 2018.
This move will consolidate HHI as low-
Manufacturer of cost industry
Pets worldwide, slide 14;
Net sales for the third quarter were $189.
9 million fell 8.
3%, organic income decreased by 10.
5%, excluding negative foreign exchange of $2.
7 million and $7 in acquisition sales. 2 million.
EBITDA fell 4 after the report was adjusted.
2%, excluding negative EBITDA related to foreign exchange and acquisition, the organically Adjusted EBITDA is $34.
5 million fell by 8. 5%.
However, the reported adjusted EBITDA profit margin increased by 80 basis points to 19%, confirming that operational and process improvements in the business continued to be effective.
Sales in Europe and the United States have declined. S.
In Europe, revenue declined mainly due to a sharp decline in sales of dog and cat food in Europe, mainly due to the acceleration of the withdrawal of the pet food customer fee agreement, which totaled $4. 7 million. In the U. S.
Revenue declined due to falling categories and weak pet professional channels, as well as low returns planned to withdraw last year
Profit private label rawhide and dried chicken business.
Overall, these planned exits had a negative impact on sales of about 2. 7%.
In addition, in June 10, pets began to voluntarily recall certain rawhide dog bites.
The negative impact of the third quarter recall on pet is estimated at $11 million and is expected to continue to have an impact in July.
To this end, we recorded a one-time non-recurring fee of $24.
9 million, or $0.
Pre-tax $42 per share for this recall, mainly including inventory
Cost of product return and other related costs.
As Andreas mentioned, these factories have now resumed production and restockedS.
Retailers are expected to open soon.
Move to the family and garden of Slide 15.
Net sales for the third quarter were $192.
4 million fell 9.
2%, the Adjusted EBITDA is $59.
5 million fell by 11. 2%.
The EBITDA margin fell 70 basis points to 30. 9%.
The lower result is by system quality and do-it-
The estimated $17 million retailer inventory management plan compared to last year, adverse weather is limited POS and customer replenishment orders, compared with last year\'s strong rejection of orders due to Zika virus concerns, there was no repetition in 2017.
Q3 category POS mix, home up, outdoor control down, insect repellent down double digits;
All of this is in line with the actual results of the family and the garden.
While Home & Garden\'s POS performance is mixed, it is encouraging to know that the business has gained market share in all three categories.
The introduction of the black flag in the outdoor control category and our hot shoot integrated bug pest management system have all been successfully launched this year.
Given the growth of market share, stable innovation and the distribution of excellent resale service teams, Home & Garden is working to restore the highest and lowest levels of growth in the fourth quarter.
The trend in July is encouraging so far, and we are optimistic that
Margin business can end fiscal 2017 in a positive situation and resume growth in the fourth quarter and next year.
It is slide 16 now to personal care;
Net sales for the third quarter were $110.
9 million fell 4.
2%, organic income decreased by 2.
2%, excluding negative foreign exchange of $2. 3 million.
Growth in Latin America has been offset by the US economic downturn. S.
Revenue in Europe is largely due to price increases implemented in Europe, an increase in competitors\' promotions, and weakness in major categories in the United StatesS.
And the Volkswagen POS is slow. In the U. S.
According to ScanData, the overall category through May fell by 8%, and our business fell by about half.
One highlight of this quarter is double
Digital growth in e-commerce
Business with the Enterprise already has an important existence.
Although reported sales shortages and organic Adjusted EBITDA grow with a reported profit margin increase of 160 basis points, this increase is driven by a favorable combination, lower operating costs and ongoing
Looking forward to the fourth quarter, Remington continues to focus on the launch of new products in the United States. S.
While shaving, dressing and hair care and expanding distribution, Europe continues to grow strongly in the e-commerce sector. commerce.
Before the important Christmas holiday, Remington launched a series of new products in North America and Europe. In the U. S.
Major new products include durablade, vintage hair dryer, traditional shaving line and new shortcut pro hair clipper.
In Europe, the new products include the Kerins, durablade and Lux intense pulse light hair removal products that protect the hair care series.
Now let\'s go to the small household appliances on slide 17;
Net sales for the third quarter were $145.
4 million fell by 3. 8%.
Negative foreign exchange excluding $3.
7 million, organic income fell by 1. 3%. Higher U. S.
Revenue from e-commerce growth
Business and mass channels, in the face of flat categories, the decline in revenue from continued Brexit in Europe and Latin America was offset --
Related weakness in our large Russell Hobbs brand UK business, discounts from competitors and exit from unprofitable businesses.
Despite the low income, the reported organic Adjusted EBITDA has increased and the reported margin has increased by 250 basis points.
The strong growth in profits has benefited from the savings of continuous improvement, good combination and unified spending.
The small home appliance program continues to expand its portfolio and distribution points around the world, focusing on blank space opportunities and ongoing e-commerce
Business growth, business income accounted for a large proportion of its income.
Innovation in cooking and beverages highlights the release of key products in the fourth quarter, which is probably the most exciting product in the United States. S.
The launch is the iconic Russell Hobbs United States. K.
Brands and families of electronic products
Business channels.
This is our higher quality and higher quality profit line in the United States. S.
Than our existing home appliance market.
In Europe, new product launches include fashion [indiscernible]
There is also an elegant breakfast collection and Duraco impact iron.
Finally, the global battery, which is slide 18.
Net sales for the third quarter were $184.
8 million, down 1. 2%. Excluding $2.
4 million of negative foreign exchange, organic sales are flat.
Similarly, strong growth in Europe, mainly alkaline and hearing aid batteries and Latin America, was offset by a decline in US salesS.
Despite the continued strength of fusion, we have the highest performance alkaline batteries.
As pricing pressures and increased commodity costs exceed offset cost savings, the organic Adjusted EBITDA has fallen by single digits and profit margins have declined.
Despite a shortage in the third quarter, global batteries have achieved strong organic sales and adjusted EBITDA growth in the first nine months.
Finally, the global battery is expected to achieve another year of strong savings of continuous improvement, which will help offset the negative impact of foreign exchange and the increase in commodity costs.
Move to the balance sheet on slide 19;
We are in strong liquidity at the end of the third quarter, and we have more than $0. 385 billion of available funds on our $0. 7 billion cash flow revolver, with a cash balance of $0. 11 billion and outstanding debt16 billion.
Since we acquired PetMatrix in June and bought back shares totaling $0. 166 billion in nine months, we now expect the leverage at the end of fiscal 2017 to be slightly higher than in fiscal 3 or so. 9x last year.
As mentioned earlier, the adjusted free cash flow for the first nine months was $0. 114 billion-
By contrast, the previous year was $58 million, reflecting progress made in substantially improving working capital management and reducing some seasonal fluctuations in the working capital cycle.
Capital expenditure for the third quarter was $27 million, compared to $21 million in the previous year.
In the quarter, we bought back more than 487,000 ordinary shares for $62.
Average $9 million or $129 per share.
Turn to slide 20 and review our 2017 guide;
We expect net sales in most categories to be higher than the category rate, partially offset by the expected negative impact of foreign exchange around 70 to 90 basis points.
We expect the adjusted free cash flow to be between $0. 575 billion and $0. 59 billion.
Interest expenditure for the full year is expected to be between $0. 205 billion and $0. 215 billion, including approximately $15 million in non-cash items.
Cash interest is expected to be paid between $0. 18 billion and $0. 19 billion.
Depreciation and amortization for 0. 23 billion is expected to be between $0. 24 billion and $2017, including amortization and inventory of approximately $40 million to $45 million
Based on compensation.
Our effective tax rate of 2017 is expected to be between 30% and 35%, and we still remember that we use a 35% tax rate for adjusted income.
The current tax is now expected to be about $40 million to $50 million, and we do not expect the United States to be an important country. S.
As we continue to use the net operating loss carry-over, federal cash taxpayers for the next few years.
Cash Payments for acquisitions, consolidation, restructuring and related costs are expected to be between $45 million and $55 million, and capital costs are expected to be between $0. 105 billion and $0. 115 billion, including extended expenditures from 2016.
These incremental investments will support footprint optimization, vertical integration improvement, technology and innovation, and are expected to increase the company\'s profit structure and organic sales growth rate.
Thanks, now go back to Dave\'s Q &.
Thank you so much to Andreas and Doug.
With this, operator, you can start Q & A now. Question-and-
[Answer]
Operation instructions]
Our first question comes from Jason Gere of KeyBanc Capital Markets.
The first big issue, Jason GereI thought, is that I know you\'re talking about sales throughout the year and obviously we \'ve seen a lot
Sales of organic products have been affected in the past few quarters.
But what you\'re saying is-
A category was added above.
So I was wondering if you could give a little background to the category you see growing?
Obviously I\'m trying to figure out if you think organic sales are going to be flat this year because I know there really is such a benefit in the fourth quarter?
So just wondering maybe if you could talk a little bit about what category growth is, then how should we think about having some background in the next few quarters?
Douglas Martinez--
This is Doug, Jason.
As you pointed out in this quarter, it\'s a bit volatile in terms of the quarterto-quarter.
But, for example, electrical appliances have been declining this year, and we are doing better than the sluggish environment in Europe and the United States. S.
The same is true for personal care categories.
Family and garden business, we expect this to be a category for low singles-
In fact, we expect to drop a bit this year when you think of insect repellent.
But beyond that, the core category will grow slightly and we will do better.
We did better--
From the perspective of sharing
So when you go through the portfolio, our expectations are still the same and it is important that this is the expectation of overtime for the company.
Jason, I want me to jump in, too.
We have to keep in mind that we are facing a special 2016, where we have had a very early spring and retailers have withdrawn very early due to Zika virus concerns.
For example, the world\'s largest retailer pulled their demand for the whole year in the second quarter.
Then they continue to bleed all year round.
Now, we are facing a much lower situation in the fourth quarter of last year.
For example, the same is true if you are looking for it in our hardware and home improvement department.
There, we expect the market to grow roughly to three categories. 5%.
Yes, category growth is very healthy and we believe we can grow faster as we continue to win new distribution channels and grow very quickly, e-locks for example.
So once these distribution activity challenges are overcome and we clear the backlog in the fourth quarter, we should be in a very good position. Jason GereOkay.
And then, Doug, can you comment--
What do we think of the fourth quarter trading day?
So I think the understanding last quarter was that we\'re going to get some of those times --
Through things.
Between the third and fourth quarters, many are weather-related or what retailers are doing.
But I think, I think the fourth quarter will definitely be better than the third, but I think, in terms of some of the issues that we saw in the third quarter, I\'m just thinking, how should we moderate our expectations for the fourth quarter?
So maybe, if you could provide it on the trading day, I might give us a bit of a background on what we think about the fourth quarter?
Douglas Martins
We also set this out on a conference call in the first quarter.
Unlike the fourth quarter of last year, we have a greater impact.
We have another day in the fourth quarter of this year.
We lost a day all day and we got the benefit of others earlier this year. Jason GereOkay.
Then the second question, then I get off the bus.
I think, when you think-a lot of the --
I think the topic of this industry is now about the growth of private labels, Amazon\'s push, and Aldi came to the United States.
I think this has been very successful in the past when you think of spectrum value propositions, just because you have excellent quality, lower price points and success, can you talk about what categories? As far as this is concerned, what you see may affect the strategy of the future?
I know Wal-Mart last quarter. -
There are some open price you see and they should start running.
So, just wondering, maybe in context, if you can talk about some other players, I think they\'re pushing the low end of the spectrum without pun?
Yes, Andreas.
I think if you look at the private label, it\'s fair to say that all categories are affected by that.
As I mentioned before, hardware and home improvement, all the big retailers and home improvement centers have also completed their products in terms of private labels.
So I think it\'s a trend, and what we have to accept is that it\'s going to be a global long-term trend. term trend.
However, we have several strategies,-
How we use it.
First, we have a clear commitment to a multi-channel strategy, including that we also offer private labels.
Now, for example, if you look at our European business, a large part of that business comes from the supply of private labels.
So, to some extent, we benefit from a change in the private label.
For example, we mentioned earlier that in terms of our hardware and home decoration, we have made a clear commitment to be the lowest cost dollar producer in the world.
So we also have a big win in the private tag section.
Second, how do we take advantage of it, we are driving more innovation and higher features --
Pricing products, especially online products.
For example, our e-commerce growth in the first quarter
Business in the United StatesS.
40%, this is mainly a higher feature, higher
Therefore, we are creating very healthy profits, for example, this is also a favorable EBITDA profit combination you see in the electrical business, we won the victory at the high end, but at the low end, on the OPP side there are also some challenges, but it is still a positive impact on EBITDA at the end of the day.
Operator your next question is from Bob Labick line for CJS Securities.
Robert rabbucky is just following up.
The end of the last answer.
For a long time, we have been discussing the category reset for store traffic.
On the other hand, it must be online.
So I hope you can look into your online strategy further?
How do you connect with consumers?
How do you measure this, the implementation process, and the opportunities for future spectrum online?
We believe that online shopping is the core channel of consumer shopping.
This will be a different categoryby-category.
For example, there are categories such as home appliances or personal care, and we expect the share of this category to be within 25%.
So a core sales channel, then there will be other categories, more impulsive, lower-value products, compared with the value of the product, the transportation cost is not attractive for online distribution, battery, for example.
However, we now take network channels as an important opportunity, so we have a dedicated sales team that focuses on all major online retailers, not only the largest online retailers, it also includes all other retailers, including home improvement retailers, home improvement channels, and we are working closely with them to drive our sales.
For example, we have a gold Day deal if you take a look.
We have a list of the best-selling items that have grown significantly over the past year --over-
We are also strengthening our internal resources.
Our number has increased by more than 30%. over-
In the year of the digital field, increase our online content and carry out more promotional activities online.
In addition, some SKUs are provided, which are aimed at online to avoid channel conflicts, which is a huge challenge to some extent.
Robert rabbi, that\'s great.
Then follow up on this.
Years ago, marketing was successful in spectrum and everything else, but can you talk more about how this has changed?
How did you decide?
Where did the marketing funds go?
How much is offline?
Online and so on, what is the cost of talking about the whole ad in marketing?
Andrea, in-year-Serhs
I think that if I start with this, advertising is still the value model of the spectrum, which is our guiding principle in the later period.
Due Date, really focus on POS, do not do any advertising.
I think this is a model that fits perfectly--
Very suitable for battery category with lower value, a bit difficult to distinguish between products.
Therefore, this is appropriate.
However, as we pursue more innovative products such as our armor, wash and wax wipe, we are rolling out a new technology that does not exist at all and we have to tell consumers.
So we invested $5 million in the release and support of these categories, which shows very good results.
This is the best-selling product of its kind.
So, yes, we are vigorously strengthening advertising to support the launch of our innovative, more functional products.
Now about the marketing investment between digital and entityand-
I don\'t think the mortar is either.
It must be both.
You must contact the consumer --
Because at the end of the day, this is still the vast majority of the sales of our products --
But consumers are also looking for information online.
Therefore, strengthening content improvement is the key.
I mentioned earlier that we grew more than 40% in the e-commerce quarter
Business in the United StatesS.
I can tell you that we have grown by more than 100% in our battery business.
So there are very strong methods in all of our categories.
Your next question comes from the relationship between Majid Khan and Tourbillon capital.
Majid KhanAndreas, I am a little confused about the answer to the first question, it seems that all of your categories are growing or falling by 1 on average.
5%, you have dropped nearly 2% this year.
So, in order to do better than this category, you have to launch a plus 4% comp in the fourth quarter, is that your guidance?
The key is that we do not give forward-looking guidance on sales.
But if you look at our backlog in Washington. . .
Majid KhanI what you just said ---
You said, you will defeat the category and--
Add 4% in order to beat the category you have to do?
Andreas rovéi just wanted to start explaining.
If you look at our DC backlog of over $24 million, if you look at our--
In the fourth quarter of last year, retailers ran out of seasonal home and garden products.
So if you take a look and compare our sales in the fourth quarter of f\'16 and f\'15, you will find that our sales in the fourth quarter of last year have dropped significantly.
So we will achieve low growth in the fourth quarter.
Therefore, we are very confident about the growth opportunities in the fourth quarter. Majid KhanRight.
So, to be clear, you \'ve lost $50 million in sales this quarter and you expect to be pushed to the next quarter, which is 4% in itself.
If I take it all out
As you said, there was an organic increase of 1% this quarter.
So if this trend continues, your organic growth rate for the next quarter should increase by another 5%.
Sounds like--
What seems to be your communication?
Douglas Martin, who we directed, was very clear.
We are very, very specific in guiding cash flow in one scope, and we now expect to grow most of our categories for most of the time to come. Majid KhanOkay.
I\'m not sure which math is going to add 5%, why are you guys so shy about math? All right. We\'ll move on.
Can you guys talk about the cost savings from the Dayton merger?
Douglas Martins
We did not specify the savings in Dayton.
This is actually a combination of several things we have done since we bought the company.
We merge first. -
We had a DC project last year.
They put everything in a place in Ohio.
So this year we moved Garland, Texas, Washington to Ohio, and then we moved manufacturing and R & D to Dayton.
We broke ground about 13 months ago and from a production point of view we did start running and we still have a production line to introduce but the situation there is very good.
I would like to say that DC is running better and better every day and is now about 98%.
So it\'s in good shape.
Although we do not specifically disclose what the cost savings are, it is more than 3-
Annual returns, and significant reduction in inventory benefits associated with them.
So while it has a better impact on our quarter than the negative, it is a very attractive product.
We do this every time these projects come up. Majid KhanNo.
You have a good history of success in this regard.
Just a simple question about stock repurchase.
When you guys buy back a bunch of stocks this quarter, you must know it\'s a bad print view?
There is still room for you to authorize the repo of more stuff, I just wanted to know if you intend to be actively involved?
Douglas martinwell, it was very, very clear, and frankly, we didn\'t know it was going to be a bad news, because we had a plan after we quit last quarter and received revenue calls and entered this quarter.
So our point is that as we move into the last quarter, given our expectations for cash flow and the future for this year, we feel that our stock is undervalued and we still believe that.
Currently, we have used content that is authorized under that particular plan.
What we have--
The available capacity of the $0. 5 billion plan approved by the board in January.
So it depends on whether we have--
We believe that the implementation of the new plan is open. Go ahead.
Majid KhanI in the mirror-
Thanks, Doug.
How was July?
Andreas rové is very powerful.
There are two reasons;
A, we know, and, compared to the fourth quarter, in our sales guidance, this problem occurs earlier and the weather is always unpredictable.
So we had a really cool June in June, so the POS is very low.
However, it has picked up significantly in July and we saw a very strong POS in July.
Given that the retailer\'s inventory is very low, they have to withdraw now and have to re-order.
So we see strong sales, especially in our seasonal category.
Similarly, we have made good progress in cleaning up the backlog in HHI and auto care, because efficiency is constantly improving every day now, so we are doing better and better in this regard.
David prichard we have a lot of other people having problems so can we take them with us if we have time?
The next question is the lines of Joe Altobello and Raymond James.
Joseph AltobelloI just wanted to review the whole concept of retail inventory reduction, and I got it this time ---
This is the first home and garden season, and in particular some changes have been implemented by some large retailers.
So is fiscal 2017 or 17 the right way to think? This will be a step-by-step feature this year, and the impact will be much smaller next year?
Or is this something we have to deal with on an important basis in the next few quarters and years?
Andreas rovéi believes this is indeed a step forward this year.
As I mentioned before, 16 years is also unusual in terms of the quarterly phase.
So if you compare \"17\" to \"15\" or even \"14\", you will find that the effect will not be so significant.
So they\'re more-
Let me say, back to a normal state where they improved their system and all the major retailers worked with us to speed up replenishment orders.
So they can pull these products as needed.
The biggest impact is our seasonal category, which, as you can imagine, is like a bell curve in which their inventory increases with the arrival of the peak season, they run out of stock at the end of the peak season.
In this case, they never agreed so.
So, however, they don\'t need to run out of it as they did last year.
So yes, we almost see this as one time, and if you compare it to \"16\" instead of long-term normal.
Nevertheless, all categories are affected.
This means that we see a decrease in inventory in all categories, just not as material.
The significant impact on these two seasonal categories is that you actually have more or less a quarterly staging because last year they ran out of stock in our fourth quarter and the first quarter of the next fiscal year.
So we should see a very good pick-up in these two quarters.
Joseph Alberto belowayThat\'s helpful.
And two quick ones.
The impact of the recall on the fourth quarter\'s finances sounds like it will not resume shipping until August.
So what about the annual total sales of PetMatrix and GloFish?
Andreas rovéi believes that in the recall, due to the fact that we are replenishing our inventory, we may have another month\'s sales error in July.
We expect sales to be within the $5 million range.
So if you look at the negative impact of our $11 million per year --to-
Date, about $5 million in the middle.
Sales in June and product returns of about $5 million.
So that\'s what we expected in the fourth quarter.
Joseph Alberto beloway
Yes, sorry, Doug is doing the second part.
Douglas Martin Petter matrix business performance for 75 years
Wide variety, very, very good growth, very high profit margin and much smaller GloFish.
We will give you more information about the future.
It\'s a different model, so it\'s--
And less than $10 million.
Your next question comes from the lines of Ian zafino and Oppenheimer.
Ian ZaffinoI just wanted to get some insight into the GAC.
I know that the weather at home and in the garden is usually covered and I think you mentioned that.
Will you see similar trends in the GAC as well?
Or is this just a loss of sales?
Then I will follow up.
The influence of Andres Ruwe may not be as strong as that of the family and garden.
So we did see some recovery, but maybe not that much.
Because the point is that if you don\'t have a car wash or a car wash in June, then your car wash in July will not be twice as much as it is now.
So yes, we saw a good pick-up on POS.
We see good sales but may not be fully recovered.
The impact will therefore be slightly less obvious. Ian in Gaddafi apart
Then just in the fourth quarter, will there be an additional cost for the integration of the HHI release and the GAC release?
Or, are these expenses paid to go against the wind?
Douglas Martin for the combined, but mostly HHI, because it started late and you\'ll see some ongoing costs in the restructuring as we continue to complete those mergers.
So we are still moving along the East Coast and West Coast DC and on stage.
So you will see this continue. Ian in Gaddafi apart
The last question is, do you say the order is much higher than usual and what are the special advantages?
Is this just a purchase?
Or what drives it all, just fast?
Yes, Andreas.
Basically, we have orders on hand and cannot ship them in time.
So basically, there is a slight delay in the delivery of these orders.
Douglas Martin is mainly related to the upgrading of HHI and distribution facilities.
Your next question comes from Olivia tang of Bank of America.
Christopher Carlyle, this is Chris Carey from Olivia.
You earned quite a bit in the third quarter of pet trading, and your stock buyback also earned.
Can you tell us about your recent situation?
Leverage target?
Then I will follow up.
Douglas Martinez
They have not changed.
When we continue to be comfortable in these 3.
In the range of 5% to 4%, we are willing to go beyond that when good opportunities arise.
In the last quarter, we did have three acquisition opportunities, PetMatrix and GloFish, and then we acquired a minority stake in a business called Shaser, and the rest was--
This is what we are looking forward.
There are more than $0. 3 billion in total.
As I mentioned earlier, given our expected cash flow performance, we think the stock is undervalued.
So we tend to buy back shares.
While this brings us to a high-end level of 3 to 4 times, even a little higher than we did at this time of year, we were very comfortable there.
Okay, Christopher careyok.
Then I think, more broadly, you do quite a bit of work on improving the operations in your portfolio.
Pet is with your management team, but it looks like the business is still a few quarters away from growth, top growth, and personal care equipment is still a bit challenging.
In order to improve your profitability, you have obviously withdrawn from some businesses.
So, I guess, what do you think is the schedule for additional plans, like how long do these plans last?
How does this affect our ability to return to the market for more meaningful transactions, especially in the upcoming leveraged transactions this quarter?
Let me answer first part of your question about pet growth.
As we have already mentioned, we are withdrawing from the European cat and dog food business which will continue--
It may not affect our sales until next year.
Therefore, we will withdraw from the remaining part of the business in fiscal 18.
This is expected to have an impact of about $30 million on our global pet business as we withdraw from the European fee agreement for dog food and cat food.
Now, if you look at the rest of the pet industry, we actually do a very good job.
Let me call it more commodity products, we have been purchasing in part from China, some retailers in China, they decided to go to China to purchase directly.
So we are losing money on lower prices and trading products in the OPP category, but we are growing very well in the core category.
We are speeding up the pace of innovation. for example, with the miracle of nature, our development is very rapid and very successful. In addition, our international outreach in Latin America in the rest of the world has also shown good progress.
So we believe that pets are long-lasting.
Long-term growth drivers.
Yes, we have some negative mixed effects this year. -
Sorry, some positive mixed effects from low
Our core business and growth followed by dog food and cat food.
Now in terms of personal care, we mentioned earlier that there has also been a change in the mass channel, and these retailers have again put pressure on their own brand OPP.
There, of course, we will be challenged within the scope of some open price products.
However, in products with higher prices, the more characteristic products, the better our growth will be.
That\'s why we\'re launching more innovations in the United States. S.
Including Europe and AsiaPacific.
So we \'ve also seen very positive trends, and you \'ve also seen this quarter, for example EBITDA profit margins, and despite some challenges at the top line, it\'s already good
Your next question comes from the line Kara Casera at JPMorgan Chase.
If I miss this in the first place, Kara Cassella and I are sorry.
But did you comment? -
You mentioned pets. -
There is a particularly weak channel in pet business.
Is this a pet specialty? Or is it --okay.
Yes, Andreas. The U. S.
Purchasing directly from China, pet professional is an inevitable trend to promote local brands.
There are certain challenges.
But, again, in this channel, we have successfully launched more innovative and better products, which are developing well.
However, in the opening price of some products, they decided to purchase directly from China.
Kara casserak
Have you ever said how much of your business today is a private label, not a pet, but an overall one? Andreas rouvino.
This is really a category. by-
Very different categories.
So the real biggest private brand is the battery, which is largely driven by Europe.
We see this trend in the United States. S.
Earlier, the increase in discounts on the US sideS.
But in other categories, especially if you talk about more featured products like electrical appliances, yes, it happens in the OPP area but not in products with higher functionality and higher prices
This applies to almost all categories.
Kara casserak
Have you quantified last year\'s push for Zika sales, and have you said how much is there in the next quarter?
Douglas Martino
We did not comment on this.
This is one--
As Andreas mentioned, we-
For some retailers, they want as many insect repellent as possible.
Then what we see is a lot of retail inventory, which was sold off last year, even in the first quarter of this year, for the rest of our fiscal year.
Now that some of the family\'s Pantry has been exhausted, so--
Or in the second quarter.
So this is where we are-
That\'s why we think it would be useful to see 2015 at the end of this year than the 2017 we think is more normal.
Carla casserak. great. And one other; on the --have you --
Can you tell us your sales online? only channel?
Andres ruveis--
This is really a category. by-
Very different categories.
So if you push small appliances to the extreme, I would say, we\'re in a high doubledigit area.
If you go to other categories such as global car care or battery, we are in low orderdigit area.
Pets are in between safety, plumbing and both because there you have more featured products, higher products
Expensive products, like heavy pet products, it is a convenience to ship to your home.
So it\'s really a category. by-
Very different categories.
We have three to four minutes left.
So we can have a really quick Q & A before closing the phone in 60 minutes.
The operator and the last question we had in line came from the team at Majid Khan and Tourbillon Capital.
Majid Hann was quick and obviously, despite the first-line pressure this quarter, you guys did a good job in terms of profits.
I\'m just wondering, given what\'s going on in reverse, if I hear from this category, your profit for the next quarter is going to get messed up?
Do you think it\'s down or down?
Douglas Martin we will not guide it on this level as we do on the sales line.
We want--
We reiterate the guidance in cash.
Your observations are noted and directed, and they make sense.
We have encountered some one-time problems in HHI, Home & Garden, RR-in the third quarter-
At our top
Margin business.
We also note that other categories, including pets, expanded their profit margins during the quarter, including electrical appliances and personal care.
Although our goal is clear, we want to continue to invest in the growth of the entire business.
So if we don\'t increase our profit margins, we have the opportunity to reinvest in accelerated growth, and we will make choices.
Therefore, we would like to moderately expand EBITDA profits within these parameters.
Again, this yearon-
20 to 50 basis points for overtime work is our range.
Majid KhanGot.
The last question.
I think it\'s great that you set up a special committee.
This is a great corporate governance.
I just want to know that you have a few votes when you do Russell Hobbs deals.
Do you also intend to comply with the agreement in this transaction?
Douglas martinwell, we don\'t. -
We don\'t know what the trade fair looks like.
Now that we have talked about it, we have a framework.
With these agreements, as you know, we will follow the correct agreement to protect all our shareholders,-
We are still very early in the process.
There is a lot of due diligence and other work to be done.
Majid KhanGot.
I just want to know, I know, you mentioned this very early, but from the precedent you have seen, for example, in the DSW retail business, goldman Sachs actually made very good comments on the progress of some of these transactions.
Do you have any views on what discount is appropriate in such a transaction? Is NOLs a suitable consideration, I think in the case of Goldman Sachs, they say no, etc?
Douglas Martinez
What I want to say is that we just reiterate that we are too early and there is too much due diligence to do, so it is too early to comment on any type of valuation issue.
These options will, of course, be made by the special committee.
With this, we are at our best.
So let\'s finish the call now.
Of course I want to thank Andreas and Doug.
All of us on behalf of the Spectrum brand thank you for attending our earnings call for fiscal 2017 for the third quarter.
Have a good day. Thank you.
Thank you for your participation.
This is the end of today\'s conference call, and you can now disconnect.
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