Spectrum Brands Holdings, Inc.

Have a good day and thank you for standing by. Welcome to the third quarter 2025 Spectrum Brands Holdings Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Joanne Chilmack. Thank

you and welcome to Spectrum Brands Holdings Q3 2025 Earnings Conference Call and Webcast. I'm Joanne Chilmack, Senior Vice President of Tax and Treasury, and I will moderate today's call. To help you follow our comments, we have placed a slide presentation on the event calendar page in the investor relations section of our website at .spectrumbrands.com. This document will remain there following our call. Starting with slide 2 of the presentation, our call will be led by David Mora, our Chairman and Chief Executive Officer, and Jeremy Smeltzer, our Chief Financial Officer. After opening remarks, we will conduct the Q&A. Turning to slides 3 and 4. Our comments today include forward-looking statements, which are based upon management's current expectations, projections, and assumptions, and are by nature uncertain. Actual results may differ materially. Due to that risk, Spectrum Brands encourages you to review the risk factors and cautionary statements outlined in our press release dated August 7th, 2025, our most recent SEC filings, and Spectrum Brands Holdings' most recent annual report on Form 10-K and quarterly reports on Form 10-Q. We assume no obligation to update any forward-looking statements. Our statement reflects our expectations regarding tariffs, which are based upon currently known and effective tariffs, and do not reflect tariffs that have been announced and delayed, or other additional tariffs which could result in additional costs. Also, please note that we will discuss certain non-GAAP financial measures in this call. Reconciliation on a GAAP basis for these measures are included in today's press release and 8K filing, which are both available on our website in the investor relations section. Now, I'll turn the call over to David Mora. David?

Hey, thanks, Joanne. Good morning, everybody. Welcome to our third quarter earnings update. I want to thank everyone for joining us today. I'll start the call as usual with an update on kind of the global economic markets and their impact on our company. We'll then talk about Spectrum's operating performance and then our strategic initiatives. Jeremy, as usual, will then provide a more detailed financial and operational update, including a discussion on the more specific results of each business unit. If I could get you guys to turn to slide six now. When we spoke last quarter, the company had been hit with what I'm now calling the tariff torpedo. That really disrupted practically every aspect of how we do business around here. Operating when the cost of your products can more than double overnight is something we never really thought we'd experience. Frankly, about 20% of our global cost of goods sold at the time was sourced from China for the U.S. market, and the cost of importing that product for sale to the U.S. consumer was suddenly so high, we had to take very swift and, quite frankly, draconian actions to protect the company. I told you last quarter that we would control weak control, we would be nimble, and we would protect the house. We were resolute in our conviction that we would not sacrifice long-term health, the long-term health of our business, for any sort of short-term gain. I was confident that we would get through the near-term volatility and emerge a stronger, a more focused competitor in our space. We knew that there would be short-term consequences to these decisions, but we also believe that doing the right thing for the long-term would outweigh any sort of short-term gain. As I sit here today, 90 days later, I'm confident that we've made the right decisions. We took the challenges head on. We felt the impacts on our results this quarter, but we're now already starting to see the benefits of making these difficult but correct decisions. Doing the difficult but right thing meant we had material supply issues in the third quarter. You'll recall that when U.S. tariff rates on Chinese-sourced products went to 145 percent, and in some cases up to 170 percent earlier this year, we paused virtually all finished good purchases from China until such time that tariff levels declined to a place where we believe we could maintain profitability and margins. In mid-May, when the U.S. tariff rate on Chinese imports dropped to 30 percent, only then did our businesses begin to strategically place orders again, and we only bought product where we knew we could price them for tariffs. Turning to the supply chain took time because we completely shut it off. We were negotiating supplier pricing concessions. We were prioritizing production runs and we were making arrangement with ocean freight carriers. We genuinely have one of the best supply chain teams in the industry today, but even with them at the helm, we went up to eight weeks without any importation of product, and that left us out of stock on some of our main SKUs. Regular supply is now back on, but in this case, doing the right thing meant we had orders we simply couldn't fill in our global pet care and home and personal care businesses during the third quarter. Some of that will continue into Q4 as well. Doing the difficult but right thing meant that we stopped shipping to some customers. When we faced material inflationary headwinds, our playbook is to cover our margin structure through a combination of supplier concessions, internal cost reductions, and yes, unfortunately pricing. So with each round of tariffs, we had to notify our customers that we will be increasing prices. No pricing negotiation with a retail customer is easy. But generally, we seek to be in a mutually agreeable place to arrive at a logical point given the inflationary headwinds. But when these negotiations stall, we simply have no choice but to stop shipping to the customer and allow the negotiation to play out. We know that our products matter not only to our retailers, but to our ultimate consumers. And we need to protect our bottom line, in part, through pricing. With all the tariff headwinds this year, and even with at the lower Chinese tariff levels, it simply wasn't practical for us to absorb all the cost of tariffs without increasing some prices. Unfortunately, some of our negotiations lasted much longer than others, which meant we had to stop shipping to certain customers while those negotiations were ongoing. In fact, in some of these cases, the customers were quite large and they were our key customers and the stop shipment lasted weeks. The good news is that we have now we now have tariff related pricing in place with practically all of our customers and our sales levels are already improving. Again, doing the right thing to avoid massive long term P&L hits meant we had to lose a significant amount of revenue in the third quarter. Doing the difficult but right thing also meant we had to look internally, unfortunately, and we had to reduce our own costs. During the quarter, we executed a number of reduction in force activities that spanned across all the businesses and our corporate functions. We have either eliminated open positions or delayed their backfill. We had to adjust our investment spend to reflect the state of the business and the consumer environment. We've had to prioritize investments that would be the most impactful to both this year and into the future, given software consumer demand in some of our categories. We also reduced discretionary and external spend, and we've been shrinking the real estate footprint of our company by right sizing office spaces, warehouses and distribution centers. I'm very pleased that despite these tough decisions, these cost reduction activities that we engaged in and that we've implemented literally in the last 90 days, we now expect to reduce our costs by over 50 million dollars in the fiscal year, fiscal 25. That's a lot of work in a 90 day period of time. We also have been working hard to diversify the supplier base across the board. The teams are continuing to create diversified sourcing footprints for global products, developing and activating non-Chinese sourcing alternatives. Our goal is to have the lowest all in cost of supply for each of our markets. We expect that China will likely be the low cost supply base for our international markets because of its cost advantages and its manufacturing efficiencies. Now, for the US market sourcing outside of China, even there may not always be the lowest cost option due to tariffs on other Asian countries. However, with the recently announced reciprocal tariffs and the trade agreement between the US and China not finalized, it is possible that Chinese sourcing can still be the low cost option. We have to be nimble. We're doing the work that provides us the highest level of flexibility to react to whatever the volatility there may be in the marketplace going forward. We are still working toward the targets we discussed during our last call with GPC or a global pet care company having non-Chinese sourcing alternatives for the dominance of its purchases by this county year end and HPC continuing to build out its non-Chinese sourcing footprint throughout the remainder of fiscal 25 and growing it in 26. However, the drop in Chinese tariff levels has provided some relief to these diversification efforts and they're giving us a slightly longer timeframe in which to address it. If the relative tariff rates change, we will return to an accelerated path to exit China. Ensuring we have quality product, finding the right long term solution for the company is the priority. With our initial rounds of pricing and supplier concessions, we have essentially eliminated our tariff exposure at the end of Q3. I'm very proud to make that statement. Based on the current known trade agreements between the US, the European Union and other countries that we source from, we are now targeting an incremental 20 to 25 million dollars worth of pricing and supplier concessions across the three businesses to fully cover what we believe will be the incremental exposure heading into fiscal 2026. Our ability to do the difficult but right thing is enabled by our balance sheet, which is of the business and our ample liquidity and extended debt maturities. These things are all enabling us to be not only sustain ourselves, but to enable us to strengthen our position in a volatile environment with quarterly sales that quite frankly were materially disrupted given the tariff activities of the last 90 days. But these things, we continually do the right thing for this company to set us up to enter 26 on strong footing. It's really made us the partner of choice, too, for suppliers that are trying to build out new Southeast Asian factories. They know we're going to be here. They know we're going to give them orders. They know they can count on us to pay them in time, on time, every time. We're going to continue to strive to do the right thing when it comes to protecting our balance sheets and our cash flows always. If I can now have everyone turn their attention to slide seven, I'll take you through the Q3 numbers. And again, these numbers are materially distorted because of shutting off inputs from suppliers and then quite frankly, shutting off sales to customers during pricing negotiations. But our net sales in Q3 did decline 10.2 percent. If we exclude some foreign currency benefit, organic sales decreased 11.1 percent. The U.S. and European customers have been feeling macroeconomic pressure, quite frankly, from the global trade instability around the world. Customers have been stressed and that's led to kind of overall category decline in both pet and the appliance businesses. Quarterly sales were also negatively impacted by the temporary but difficult decisions we made to stop shipments to major retailers when tariff related pricing negotiations stalled, as well as some inventory shortages from the period when we paused all imports from China. In our home and garden business, we actually had a cold and wet season. We had to start to the season and that did negatively impact POS and retail reorder patterns during Q3. The adjusted EBITDA generated by the business was 76.6 million dollars. That's a decline of 17 million compared to last year's results, which excludes the investment income we had from the large cash balance at the time. Our gross margins did suffer a contraction of 110 basis points during the third quarter, and that's mainly driven by negative mix tariffs and inflation. We reacted, as I've described, very quickly to offset these tariff headwinds and consumer softness by taking out our fixed costs and limiting external spend. It's imperative every dollar of our spend has to be purposed and to be focused on driving the top line of our companies. Our teams have and will continue to step up to the challenge of doing things better, leaner and more efficiently. The third quarter was all about making the tough but right decisions to protect our house, to protect our balance sheet and to protect the long term success of this company. We have now put Q3 in the rearview mirror. We are excited to be focusing on the future and we are already seeing the results with a very strong start to the fourth quarter from a big rebound in sales in July. We have had a strong start to Q4. In July, both our global pet care company and our home and garden division delivered growth over the prior year. For home and garden, the weather started to improve in the final weeks of Q3 and that momentum is carried through into July when we had very strong POS and retailer reorder rates. The new products we introduced this year, including Spexicide Wasp Hornet and Yellow Jacket Trap and the Hotshot Flying Insect Trap are driving category growth. And in spite of a lot of new competition entering the category, Spexicide is taking share. GPC and HBC's results continue to be impacted by supply constraints from our POS and Chinese imports, but each business is now shipping to all customers. In global pet care, we gained new points of distribution and regained premium shelf placement for some of our choose at a large retailer who had moved them to prioritize their private label product in the past. Our new GPC president has quickly elevated the level of engagement of our business and is bringing excitement to the team, rallying around new innovations in health and wellness, niche treats and food and cat. HPC performed well during Amazon's prime days and is now shipping new innovation to retailers that have been impacted by our pause on Chinese purchases. We are continuing to make top line brand building investments to support our new innovation and to drive category growth. If I could have everyone now go to slide eight and I'll give you guys an update of the strategic priorities for the remainder of fiscal 25. After updating their priorities last quarter to reflect the tariff, the new tariff landscape and softening consumer demand environment, our strategic priorities remain unchanged this quarter to reflect our continued focus on making the right long term decisions for the business and maintaining a nimble stance during these times of volatility. We are focused on protecting the balance sheet and we remain on track to deliver approximately 160 million dollars in free cash flow this fiscal year, which is nearly seven dollars per share in free cash flow. On our last call, I told you we were running the business for cash flow generation for the rest of the year due to the high tariff environment and the volatile situation we found ourselves in. The reduction in Chinese tariff rates has shifted our focus back to a more normalized approach while we remain laser focused on cash flow, liquidity and net leverage. We continue to identify working capital improvements throughout our operations. We are leaning into our supply chain strength to diversify our supplier footprint and our supply chain team is uniquely situated to strategically anticipate and to quickly and proactively respond to macroeconomic developments. In the third quarter, they handled not only turning off Chinese imports to the U.S. literally overnight, but also turning that back on in a way that ensured we would maintain our profitability. Our quarterly average global fill rates were over 95 percent in spite of having tariff related shortages. I'm very proud of the team for that accomplishment. Thank you all. Having high fill rates and service levels are critical when you're negotiating terms and trying to get pricing with your retail partners. Thanks, everyone, and supply chain for making that a reality for us. We are reducing our cost profile to adapt to consumer demand and, quite frankly, the tariff headwinds. We'll continue to adapt to these new macroeconomic conditions swiftly and decisively, just like we did this past quarter. The teams are focused on fewer, bigger and better initiatives to maximize the impact of our investments. We are preparing to take advantage of the opportunities that the times of economic uncertainty bring and emerge a growing, stronger company that will be the partner of choice for M&A activity. Our businesses and our advisors are actively looking for acquisition targets for both our pet and home and garden businesses. We believe that when we make the right acquisitions, both our businesses and the target accelerate sales growth and profitability, which makes our strong capital structure to fund M&A the right move. We will remain disciplined, however, and we will not overpay. We will make sure we have the right assets. Our strategic transaction for home and personal care business continues to be delayed given the current tariff landscape and geopolitical factors that are frankly out of our control. While we are disappointed in the delay of the transaction, Spectrum Brands and Spectrum becoming a pure play pet home and garden company, we believe in the HPC business and we're going to continue to be great stewards of it. We have not called off a transaction permanently and as always, we will seek ways and opportunities to maximize its value. If I can now turn your attention to slide nine and give you an update on share repurchases. During the third quarter, we repurchased just under a million shares. We in fact bought back 900,000 shares and we continue to buy during our pre earnings quiet period through a 50 million dollar 10 B five one plan put in place in June year to date through today. We have repurchased approximately four million shares for roughly three hundred million dollars. And in total, since we closed the HHI transaction, we have returned approximately one point three two billion dollars of capital to shareholders through various share repurchase programs. And we've repurchased 42 percent of our share count since the closing of that deal. We have been more conservative lately in share repurchases to preserve the strong balance sheet and liquidity to manage through the volatility of Q3. And we'll monitor and be opportunistic in share repurchases going forward. Turning to slide 10. Given the continued unpredictable nature of global tariffs and global trade negotiations, particularly between the US and China and some softening in the US and Europe of consumer demand, at this time, we don't have sufficient visibility to give you an earnings framework for 25. However, we are reiterating our expectation to deliver the one hundred and sixty million dollars of free cash flow. And as I noted earlier, that is approaching seven dollars per share in free cash flow and fiscal 25. Now, before I turn the call over to Jeremy, I want to sincerely thank each and every one of the members of the specs and brands team. The last 90 days was no fun for any of us. You guys all worked hard and tirelessly. I'm proud of how you faced into the tumor that was that was delivered to us through tariffs. And I'm really I'm really proud of how we've handled that. I think we took our medicine and better days are already happening. So I hope we never get hit with this this tariff torpedo again, but I'm confident this team will do the right thing. Make the tough decisions, work together to ensure the long term success of this company. I'm going to turn the call now over to Jeremy and he's going to give you some updates, more specifics on the financials, a lot more business unit insights. And then I'll come back to you guys for closing remarks. Turning it over to you now, Jeremy. Thanks,