Spectrum Brands Holdings, Inc.

Good day. Thank you for standing by. Welcome to Spectrum Brands Holdings Board Quarter 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message device when your hand is raised. Please note, today's conference is being recorded. I will now hand the conference over to your first speaker today, Jen Schultz, Division Vice President, Financial Planning Analysis and Investor Relations. Please go ahead.

Welcome to Spectrum Brands Holdings Q4 2025 Earnings Conference Call and Webcast. I'm Jen Schultz, Division Vice President of FP&A and Investor Relations, and I will moderate today's call. To help you follow our comments, we have placed a slide presentation on the event calendar page and the investor relations section of our website at www.spectrumbrands.com. This document will remain there following our call. Starting with slide two of the presentation, our call will be led by David Mora, our Chairman and Chief Executive Officer, and Fessel Kotter, our Chief Financial Officer. After opening remarks, we will conduct the Q&A. Turning to slides three and four, our comments today include forward-looking statements which are based upon management's current expectations, projections, and assumptions, and are by nature uncertain. Actual results may differ materially. Due to that risk, Spectrum Brands encourages you to review the risk factors and cautionary statements outlined in our press release dated November 13th, 2025, our most recent SEC filings, and Spectrum Brands Holdings' most recent annual report on Form 10-K and quarterly reports on Form 10-Q. We assume no obligation to update any forward-looking statements. Our statements reflect our expectations regarding tariffs, which are based on currently known and effective tariffs and do not reflect tariffs that have been announced or delayed or other additional tariffs which could result in additional costs. Also, please note that we will discuss certain non-GAAP financial measures in this call. Reconciliations on a GAAP basis for these measures are included in today's press release and AK filing, which are both available on our website in the investor relations section. Now, I'll turn the call over to David Mora. David?

Good morning. Thank you, Jen. Good morning, everyone. I want to welcome everybody to today's fourth quarter earnings update. I appreciate everybody taking the time to join us today. For today's call, I want to begin with a few big picture opening remarks. First, I'm delighted and thankful to our teams for navigating the most difficult year. And I am excited to let you all know that we believe that the worst of the tariff and economic disruptions to our businesses are now behind us. Secondly, we expect our two highest value businesses, Global Pet Care and Home and Garden, to return to growth in 2026. Our adjusted free cash flow of $171 million, or approximately $7 per share, beat our own expectations in fiscal 25, and our strong free cash flow generation will continue into fiscal 26 and beyond. Fourth, our balance sheet is strong with $124 million in cash at the end of the year, zero drawn on our revolver, and we ended the year with just 1.58 turns of net leverage, after returning approximately $375 million to shareholders throughout the year through buybacks and dividends in fiscal 2025. Last, but certainly not least, we are hell-bent on improving the profitability and competitive positioning of our HBC appliance business, and as the headwinds dissipate, we are excited to work towards a strategic solution for this business once again. We are also highly confident that we are well positioned within our industry to be the consolidator of choice within the pet and home and garden industries. As we wrap up a very challenging year, navigating through headwinds largely outside of our control, I again want to start this call by simply saying thanks. Thanks to every one of our global team members for battling through tough times. Thank you to our vendors and retailers for your partnership in addressing the macroeconomic conditions that we collectively continue to face. And lastly, thank you to our investor base for your continued trust. I know this year has been tough, but I am proud of how we have proactively and decisively reacted to these outside forces. And I believe that actually it's creating a competitive advantage for us as we look forward to the future. If I could have everyone now turn your attention to slide six. During the year, we saw a significant decline in the macroeconomic environment, which impacted overall consumer sentiment, not just here in the U.S., but globally. Trade policy uncertainty and volatility led to softening demand in the U.S. starting in the second quarter and impacted global markets more noticeably in the second half of fiscal 25. When tariffs were at their highest point earlier this calendar year, we were looking at an annualized tariff exposure of approximately 450 million US dollars. This exposure is now approximately 70 to 80 million dollars on an annualized basis. And the good news is, thanks to the diligence and the incredible efforts of our global supply chain team, we are extremely happy to report to you that we have offset substantially all of this exposure through a combination of vendor concessions, painful internal cost reductions, supply-based reconfiguration and diversification, and lastly, pricing actions. I shared this with you last quarter that we had implemented a number of cost reduction initiatives that would result in over $50 million of savings in fiscal 25. This included a reduction in force that spanned all three of our business lines and our corporate functions. While it's never easy to take these kinds of actions, we know that the impact has been tough on our employees. We also know, however, that it was necessary to right-size our cost structure and to protect the health of the businesses. We have also made significant progress in diversifying our supply chain to increase both its resiliency and its flexibility. Heading into fiscal 25, we had approximately $300 million of source product coming into the United States from China. We have since reduced these Chinese source products to the U.S. markets by nearly 50%. Further diversification will remain a priority for us going forward, and we expect to only have approximately $15 to maybe $20 million of direct spend in China for our two most highly valued businesses, Global Pecure and Home and Gardens. by the end of fiscal 26. We will also continue to move product out of China within our home and personal care businesses when it's the right financial decision to do so and when it does not sacrifice the standards that we have for our quality. I would also like to take the opportunity now to thank our Agile Global Supply Chain team who have worked tirelessly to navigate this volatile environment and to make sure that our supply chain going forward is much more resilient and flexible to whatever challenges may arise. Earlier in the year, I emphasized that with all of this uncertainty, we would control what we could control. And one of the priorities when we pivoted our operating strategy was to maximize cash flow generation and deliver to you over 160 million in free cash flow in fiscal 25. And in fact, we over-delivered this number. We delivered $170 million plus in free cash flow through disciplined CapEx management and better working capital improvements. We ended the year with net leverage of 1.58 times, well below the stated goal of 2 to 2.5, all while continuing to reward our shareholders with approximately $375 million of capital returns split between share repurchases and dividends in fiscal 25. During just the recently completed fourth quarter, we repurchased an additional 700,000 shares of stock, and we continued buying during our pre-earnings quiet period through a 10B5-1 plan put in place in June, later which was amended by our board in September to increase the cap on that to $100 million. In fiscal 2025, we repurchased approximately 4.4 million shares, roughly $326 million, And since the close of the fiscal year, we have purchased approximately 0.4 million shares, roughly 21.5 million in total. Since the close of the HHI transaction, we have returned over $1.37 billion of capital to our shareholders through our various share repurchase programs and reduced our share count by approximately 44% since the close of that deal. I can now have everyone turn to slide seven. I'll give you a quick overview of fiscal 25 results. As I mentioned earlier, it was a challenging year for the businesses, and we were faced with a variety of external headwinds. The volatile trade policy landscape not only impacted consumer demand, but it also led to a temporary pause in shipments from China into our US businesses when the tariffs were at their highest point. In fact, we paused all incoming and inbound traffic from China for about six to eight weeks, And that impacted our ability to fill orders throughout the second half of the fiscal year. Overall, fiscal 25 net sales declined 5.2% compared with fiscal 24. And this was after actually starting the year off with top line growth, as you remember, in the first quarter of 25. And while our fourth quarter net sales also declined by 5%, we're actually encouraged that consumer demand was stabilizing during throughout the quarter in our key markets and our categories as trade policy has become a little less volatile and the supply shortages we experienced in the second half of the year are now behind us. Largely behind us, I should say. We have been relentless in addressing the top line declines by initiating further cost reduction initiatives and cost savings. In addition to the fixed cost reductions, With the elimination of permanent salary headcount, we have also been reducing selectively our advertising and marketing spend in light of category softness, and we have significantly reduced our office and distribution footprint as well. All these actions are mitigating some of the EBITDA declines in the various macroeconomic headwinds. If we can now look to slide eight and focus now on our strategic priorities for this upcoming year, fiscal 26. The fundamentals of our business are actually strong, and I'm confident the decisions we've made over the last six to nine months actually make us a stronger, more focused business. And that brings me to the first key element of our strategic focus. We will continue to be good financial stewards of the businesses as we navigate the current macroeconomic landscape. The actions we took in fiscal 25, while difficult, they were quite necessary to address the external headwinds we were faced with, And with that said, the hard work is not over. We have to continue to be diligent and we actually need to be more efficient with our spending and investing profile. We need to demand and we will demand better returns on our investments while continuing to reduce the overall complexity of our businesses. The teams are now focused on fewer, bigger, better initiatives to maximize the impact of our investments. As you've heard me say before, we believe that the strength of our balance sheet sets us apart from our peers. We will continue to remain disciplined in managing working capital while at the same time maintaining high fill rates supported by our best-in-class supply chain team. The second element here is continued focus on operational excellence by leveraging technological advances that we're building for the future. As you know, we've been on a multi-year journey to upgrade and implement the new ERP system, SAP's S4 HANA. This is a project that's been underway for the last several years. and it started off with a successful implementation in our global pet care North America business at the end of fiscal 24, and it was shortly therefore followed up by a successful go-live in our home and garden business, which is mostly a North American business. Over the last few months, we've also started now to move portions of our international business over to the new platform. While no new ERP implementation program is flawless, we have been incredibly pleased so far with the progress we've made by implementing this without any or trying to minimize any sort of disruption to our customer base. We've also made the decision to extend the implementation of S4HANA to our home and personal care business. Our third key element is centered around our people. And while we've had a challenging year and made a lot of difficult decisions, particularly around human capital that's impacted our employees, I am proud of our team, and I believe that their focus and resilience are critical components of driving the next chapter of growth. Our last key element is around transformation, and our continued plans to focus on becoming the pure-of-play global pet care and home and garden business that we set out a few years ago. Starting with global pet care, under Ori's new leadership, The team is embracing a new data-driven approach that has already yielded small wins and is resulting in improved operational trends. The innovation pipeline is strong with fewer, bigger, better new product launches on the horizon that are grounded in consumer insights. I'll continue to push this team to go faster because I believe in the strategy and I'm excited about the future of PEP. Moving to the home and garden business, as you may recall me saying before, we've been on a bit of a turnaround over the last couple of years since Javier joined the team. Javier has set the right tone for a high-performing team with a culture anchored around growth, development, and employee engagement. We have had some highly successful innovation launches, and I'm really pleased with the progress the R&D team has made here. These new products have landed well with the consumer, And we're expecting this momentum to actually continue and build with exciting new product launches planned for fiscal 26. I remain optimistic about the evolving M&A landscape. We expect to continue to pursue acquisition opportunities in both our global pet care division and our home and garden businesses as additional assets become available at better price points. Lastly, on home and personal care, the most impacted of our three businesses by the latest trade policy volatility, the team has stepped up to the challenge. They've made meaningful changes to address our current reality. And while we had a tough fiscal 25, we are committed to maximizing the business's value, and we expect an improvement to overall profitability in fiscal 26. We remain committed to the vision of finding a strategic solution for our HBC business. If I can now everyone turn to slide nine, I'm going to give an overview of our high level 26 earnings framework. We expect net sales to be flat to up low single digits versus the prior year. The external headwinds that suppress consumer demand for the vast majority of fiscal 25 are expected to continue. particularly in the first half of our fiscal year. Despite these external pressures, we believe home and garden and global pet care are both positioned to resume growth in fiscal 26, offsetting an expected decline in our home and personal care business as we navigate through category softness and supply chain simplification initiatives that will reduce the product portfolio in North America. From an adjusted EBITDA low single-digit growth, primarily driven by continued expense management, cost improvement initiatives, and favorable effects offsetting lower volumes. The additional cost of tariffs are largely mitigated through a variety of actions, including pricing. And lastly, for adjusted free cash flow, we expect another strong year ahead at approximately 50% conversion of adjusted EBITDA. Heading into the fiscal year, we are seeing signs of improved predictability in the macroeconomic environment, giving us the confidence to reinstate our earnings framework. We are focused on delivering on our goals to our investors. We believe this framework provides a challenging but achievable financial goal to the team as we look forward to a stronger fiscal 26. Before I turn the call over to Faisal, I'd like to sincerely thank our outgoing Chief Financial Officer, Jeremy Smeltzer. He's been a tremendous asset to me and the company and helped us navigate through some really challenging times. I'm confident that Fessel will continue to drive strong execution and financial discipline in the years ahead, and I'm already enjoying my new partnership with him as my CFO. With that, I'll turn the call over to Fessel to share more on the financials and additional business insights. The call is now yours, Fessel.

Thank you, David. Turning to slide 11 and a review of our Q4 results from continuing operations, beginning with our net sales. Net sales decreased 5.2%. Excluding the impact of $10.5 million of favorable foreign exchange, organic net sales decreased 6.6%, primarily driven by supply constraints as a result of our decision to pause purchases from China for the U.S. market during the third quarter and continued category softness in our global pet care and home and personal care business. These headwinds were partially offset by a delayed start to the season for our home and garden business that benefited current quarter results. Gross profit decreased $31.4 million, and gross margins of 35% decreased 220 basis points, largely driven by lower volume, unfavorable mix, inflation, and higher tariffs. partially offset by pricing, cost improvement actions, and favorable effects. Operating expenses of just over $227 million decreased 14.6% due to lower spend in advertising and marketing and general expense management in light of category softness, as well as lower restructuring-related project spend. Operating income of $29.4 million increased by $7.5 million due to the lower operating expenses partially offset by a decline in gross profit. Gap net income and diluted earnings per share both increased, primarily driven by a one-time tax benefit for the quarter resulting from a tax entity realignment initiative, lower share count, and higher operating income. Adjusted EBITDA was $63.4 million, a decrease of $5.5 million, driven by lower volume and reduced gross margins, partially offset by lower operating expenses. Adjusted diluted EPS increased to $2.61, driven by a one-time tax benefit that I referenced earlier, and the reduction in shares outstanding, partially offset by lower adjusted EBITDA. Turning to slide 12, Q4 interest expense from continuing operations of $7.9 million increased $1.2 million due to higher average borrowing on our cash flow revolver in the current quarter. Cash taxes during the quarter decreased $10.2 million from the prior year. Depreciation and amortization of $23.9 million decreased $1.7 million from last year. And separately, share-based compensation increased to $5.8 million from $4.6 million in the prior year. Capital expenditures were $13.2 million in Q4, essentially flat to last year. Cash payment towards strategic transactions, restructuring-related projects, and other unusual non-recurring adjustments were $7.3 million versus $10 million last year. Moving to the balance sheet, we had a quarter-end cash balance of $123.6 million, and $492.3 million available on our $500 million cash flow revolver. Total debt outstanding was approximately $581.4 million, consisting of $496 million of senior unsecured notes and $85.3 million of finance leases. We ended the quarter with $457.8 million of net debt. Turning to slide 13 and an overview of our full year results, Net sales decreased 5.2% and organic net sales decreased 5.3%. The sales performance was driven by category softness in light of macroeconomic conditions and supply shortages from the six to eight weeks pause previously mentioned. These headwinds significantly impacted results both in our global pet care and home and personal care businesses. Despite strong performance by our key brands, sales in home and garden business were modestly down, driven by unfavorable weather conditions. Full year gross profit decreased by $77.4 million, and gross margin of 36.7% decreased 70 basis points, driven by lower volume, higher inflation, increased tariff costs, and unfavorable mix. This was partially offset by cost improvement initiative, pricing, and favorable effects. Adjusted EBITDA decreased to $289.1 million, Excluding investment income of $52.7 million in the prior year, adjusted EBITDA decreased $30 million, or 9.4%, primarily driven by lower volume and a decline in gross profit, partially offset by a reduction in operating expenses. Adjusted free cash flow was $170.7 million, or approximately $7 cash per share. exceeding the 160 million free cash flow framework previously provided. During the year, we prioritized the health of our balance sheet through active management of CapEx investments and improved working capital. Now let's get into a review of each business unit, where I'll provide you more details on the underlying performance drivers of our operational results. I'll start with our global pet care business, which is slide 14. Reported net sales decreased 1.5%, and excluding favorable foreign currency impact, organic net sales decreased 3.3%. Sales in aquatics increased high single digits, offset by mid-single digits decline in companion animals. In North America, our companion animal brands continue to trend favorably. Our brands maintain or gain market share driven by innovation and successful commercial activations with our retail partners in spite of category softness. In aquatics, we successfully mitigated category declines and delivered improved results, driven by distribution gains in pet specialty and mass channel. Comparisons for the quarter in both companion animal and aquatics were impacted by a strategic pull forward of orders by retailers in the prior year in preparation for our S4 HANA ERP implementation, resulting in an approximately 10 million headwinds for the quarter. Also as expected, our decisions to pause shipments for a six to eight weeks period when tariffs were at their highest point during the third quarter led to continued supply shortages during the current quarter. Our inventory levels are now generally healthy and shortages are not expected to be a significant headwind heading into the fiscal 26th. Conversely, results were favorable impacted by our decisions in the third quarter to stop shipment to a key retailer as tariff pricing negotiations stalled. By the end of third quarter, negotiations were complete, but it did result in shipment delays benefiting our fourth quarter results. In EMEA, companion animal sales increased, driven by the continued strength of our Good Boy brand, market share gains in the UK, and expanding further in continental Europe. Net sales also increased in our dog and cat food, led by our Eukanuba brand. Aquatic sales also increased with the Tetra brand gaining shares in key markets, mitigating category softness. Our innovation continues to resonate with the consumer and is largely focused on further expansion into adjacent categories. You may recall we recently launched Green Bone Collium, a product that focuses on health and wellness benefits for pets. We also continue to launch new innovations in the treats categories as our good and tasty product launches continue to perform well with further plans of expansion and more unique innovations coming in the coming months. Our investments in Nature's Miracle also continue to yield results as the brand is gaining share and new points of distributions. In the fourth quarter, Nature's Miracle grew across PurePlay Online, Mass, Food, Dollar, and Drug Channels. Our Good Boy brand is the number one brand in dog chews in the UK and it's the fourth largest brand in overall pet and continues to grow market share driven by consistent innovation. The brand's expansion across continental Europe continues to perform really well, most recently becoming one of the top five treat brands in the Netherlands. In dog and cat food, we are continuing to expand Iams into more markets and recently launched a refreshed portfolio on Eukanuba. This quarter's adjusted EBITDA of $49.6 million is $5.3 million higher than the previous year. An adjusted EBITDA margin was 16.6% compared to 14.6% last year. The improvement to adjusted EBITDA was primarily driven by expense management through cost savings initiatives announced earlier in the year, lower investment spend due to category softness, and pricing. These actions more than offset the lower sales volume, higher tariff cost, and inflation experience in the quarter. While GPC's fiscal 25 sales fell short of the prior year due to macroeconomic and category headwinds, we believe the business is well positioned heading into fiscal 26, and we expect to return to modest growth as underlying category fundamentals and macroeconomic trends begin to stabilize. With generally healthy levels of inventory, we continue to be optimistic about our performance in the category. With the recent wins in product distribution and placement, together with the positive pace of sales and consumer acceptance of our innovation, we believe we will continue to outperform the category. While consumers continue to be challenged, we are encouraged by the overall resilience and strength of our brands. I'll now move to our home and garden business, which is on slide 15. Net sales increased 3.2% in the quarter, reflecting a delayed start to the season that pushed volume from the third quarter into the fourth quarter. While July experienced favorable weather conditions, leading to an improved POS and strong retailer reorder patterns, unfavorable weather conditions across key regions in the latter half of the quarter negatively impacted POS and shipments. Net sales and controls, which is our largest category in home and garden, were up high teens as spectrocyte continues to outperform the category with a strong finish to the quarter in home insect control and herbicides. In household pets, hotshot also gained share with the positive POS while the overall category was flat. We are particularly pleased with the recent innovation launch of our flying insect traps that continues to outperform the rest of the category. Repellent sales were down mid-single digits with softness at key retailers driven by unfavorable weather conditions. Net sales and cleaning were also down for the quarter. As weather patterns evolve and shift POS into the fall, our late season programs continue to gain incremental support from our key account partners with activations for the quarter at four times the number of stores as compared to last year. Our big bet innovations are gaining support from our retailers and resonating with consumers, exceeding our expectations. This year's innovation launch, the Spectracide wasp, hornet, and yellow jacket trap was a hit with consumers and quickly gained penetration within the category, earning one of the highest penetrations of any new item in overall pest control. POS performance was above expectations, with additional PAMs to expand distribution and capacity heading into fiscal 26. The hotshot flying insect trap launch also performed very well with its strong value proposition. We're excited to see expanded distribution on this new product as well in fiscal 26. Adjusted EBITDA was $16.9 million compared to $19 million last year. And the adjusted EBITDA margin was 12.1%, 200 basis points lower than the prior year. The decrease in adjusted EBITDA was driven by unfavorable mix, inflation, tariffs, and incremental brand-focused investments partially offset by pricing, productivity improvements, and higher sales volume as our innovation continues to resonate with consumers. As we look forward to fiscal 26, we believe retailer inventory levels are generally healthy, and we expect reorder patterns to closely align with POS. Our sales team will continue to work closely with our retail partners to understand consumer demand expectations and what it means to our production and shipment plans. We expect our category will continue to be well supported by our retail partners, and the strength of our brands will continue to drive share growth. While weather is unpredictable, early indications are that our retail partners expect a normal weather pattern for fiscal 26. with precipitation and temperatures expected to go back to historical levels. Most of the POS for our home and garden business comes in the second half of our fiscal year, with the first half largely focused on preparation and staging for the seasonal business. As a result, timing of inventory builds can vary and impact quarterly results. Our fiscal 25 first quarter benefited from an earlier than normal seasonal inventory build, as well as a pull forward of orders in advance of our S4 go-live by certain retailers that we would not expect to repeat in fiscal 26. Overall phasing of net sales in home and garden are therefore expected to be similar to fiscal 24. And finally, moving to home and personal care, which is slide 16. Reported net sales decreased 11.9%, excluding favorable foreign exchange organic net sales decreased 13.4%. Net sales in the personal care category were down low single digits this quarter, while sales in home appliances were down double digits. Organic net sales in EMEA were down double digits, with softness in both home appliances and personal care. Lower consumer confidence continues to be a headwind in European markets. impacting both personal care and home appliances categories. We have also seen an influx of Chinese competitors targeting the region in response to the higher tariffs in the US. We continue to be nimble and evaluate new strategies to ensure our brands remain relevant to our consumers in the current environment. As the consumer moves increasingly to digital markets, our near-term focus is increasing our digital shelf space and ensuring our presence in all relevant channels. In addition, one of our retailers experienced high inventory levels following a major sales event that negatively impacted replenishment orders within the quarter. North American sales decreased around 25% driven by lower sales in home appliances. Much like GPC, HPC's fourth quarter results were impacted by inventory availability constraints from the six to eight weeks pause on Chinese sourced products to the U.S. when tariffs were at their highest point. Our inventory levels are now generally healthy, and shortages are not expected to be a significant headwind heading into fiscal 2026. Overall share was also impacted by pricing taken to offset cost of tariffs. You may recall last quarter that we were one of the first to negotiate pricing with our retail partners, and thus our product were among the first to see tariff-related price increase hit the shelves. We expect that this will normalize in the coming months as pricing goes into effect across the categories. Personal care appliances sales increase in both brick and mortar and e-commerce channels, benefiting from a softer prior year comparison. Organic net sales in LATAM grew high single digits, with growth in both categories driven by new product launches in personal care and distribution gains in the cooking category within home appliances. On the commercial side, You may recall we recently launched the PowerXL Air Max at Walmart, and our ad campaign is seeing strong consumer engagement. We also recently launched the Remington Gloss Collection exclusively at Target stores and Target.com. The new line of styling tools is designed to deliver high gloss results and offer a wide variety of styling tools. In LATAM, our Remington brand saw record quarterly sales in the fourth quarter after brand refresh initiatives resulting in distribution gains. But time continues to be a compelling market for our HPC business, and we are excited about our plans to introduce our Russell Hobb brands to the market in the coming month. We continue to be pleased with our launch on TikTok in UK, where our products are resonating with consumers, closing the year with another record month. We plan to build upon the success we're seeing in the UK and take these best practices to other markets in the near future. This quarter's adjusted EBITDA was $15.7 million compared to $19 million in the prior year. The adjusted EBITDA margin was 5.3%. The decline in adjusted EBITDA was driven by lower volumes, unfavorable mix, and tariffs. These significant headwinds were largely offset by pricing, lower brand-focused investments in light of tariff supply issues, reduced distribution costs, and expense management as we actively address our fixed cost structure. As we look forward to fiscal 26, we expect softness and global consumer demand for durables to continue. Compared to the prior year, this is expected to be most impactful to our first quarter results. In North America, tariff-related disruptions are expected to reduce sales volume as we prioritize our overall financial health and right-size the business. HPC will continue to evolve as we reduce our USQ count to simplify our supply chain and diversify our supply base, while maintaining overall profitability through increased scale on a smaller subset of product offerings. In EMEA, our largest market, we expect category softness and increased competition to continue while we expand our presence in the direct-to-consumer channel, helping to partially offset consumer confidence headwinds. Now turning to slide 17 and our expectations of fiscal 26. We expect net sales to be flat to up low single digits compared to the prior year. While we expect growth in both our home personal, in our global pet care and home and garden business, our home and personal care business is expected to decline due to continuous category softness and our supply chain simplification initiative in the North American market. Adjacent EBITDA is expected to grow low single digits driven by the return to sales growth in our global pet care and home and garden business, continued expense management, continuous improvement initiatives, and FX favorability, offsetting the lower volumes in home and personal care. Tariffs are expected to be largely offset through the various mitigation actions which we have taken, including pricing. I do want to point out that in our model, we have fiscal 2026 corporate costs at approximately $66 million, up from $54 million in fiscal 25. As you will recall, in fiscal 25, we had a little over $20 million in TSA cost reimbursements from our sale of HHI that do not repeat in fiscal 26. We have mitigated approximately half of the cost headwind thus far and intend to address the remaining $10 million during the coming quarters. From a phasing perspective, we expect the first quarter to be the most challenged, primarily due to the shifts in consumer sentiment in the middle of the prior fiscal year. We also expect retailer-to-order patterns will generally more closely align with POS, which is expected to be most impactful to our home and garden business given the earlier buy-in of inventory in fiscal 25. And lastly, adjusted free cash flow conversion as a percentage of adjusted EBITDA is expected to be around 50%, as we continue to prioritize the strength of our balance sheet. Depreciation and amortization is expected to be between $115 million and $125 million, including stock-based compensation of approximately $20 to $25 million. Cash payments towards restructuring, optimization, and strategic transaction costs are expected to be between 25 and $35 million. Capital expenditure are expected to be between 50 and $60 million. Cash taxes are expected to be between 40 and $50 million. For adjusted EPS, we use an effective tax rate of 28%, including state taxes. To end my section, I want to echo David and thank all of our global employees for their hard work during these very challenging times. Back to you, David.

Hey, thanks, Faisal. Let's look at slide 19. Thanks, everybody, for joining us today on the call. Again, I'll take a few minutes just to recap the key takeaways and findings on slide 20. Fourth quarter financial results conclude a very challenging year for us. We took decisive actions, as I've mentioned. They were necessary to protect the company and the balance sheet, but it did have short-term impacts on the P&L, and that's reflected in the numbers we reported today. We will continue to be good stewards of the businesses going forward. We will be disciplined in our actions while utilizing a strong balance sheet. As you know, earlier in the year, with all the macroeconomic uncertainty, we made the strategic pivot and started running this business to maximize free cash flow. I'm proud that this decision paid off. We were able to deliver over $170 million, or roughly $7 for share in free cash flow, to our investors. And these actions are now embedded, quite frankly, in our DNA. And we're going to continue to focus on this going forward. We're really excited to report, quite frankly, that both the global pet care and home and garden businesses, which are two most highly valued businesses, they're going to return. We're expecting them to return to growth in fiscal 26. We're excited about that. We believe in the categories and we believe in our teams in these businesses. Our new product development pipeline is strong and we're going to continue to focus on launching fewer, bigger, better initiatives for successful commercialization as we move this company forward. I also continue to be optimistic about the evolving M&A landscape. We expect additional assets to become available at better price points. And with that said, we will remain disciplined in our process as we look for highly synergistic assets while being mindful of maintaining our lower leverage. We are confident that despite the current headwinds that were largely outside of our control, we are a stronger, more focused company as we move the business forward in its strategic transformation. We will continue to be good stewards of this appliance business, focused on overall profitability improvement as we navigate a challenging environment, and we remain committed to finding a strategic solution for this asset. As trade policy stabilizes and consumer sentiment improves, we believe synergistic growth opportunities are on the horizon, with a higher probability of consolidations in this space, which we believe, frankly, is long overdue. We are committed to executing on our operational goals, delivering improved business performance and driving value to our stakeholders. Again, I think the good news today with today's call, we believe that the worst of the tariff and economic disruptions to our business are behind us. We expect our two highest value businesses, Global Pet Care and Global Home and Garden, to return to growth in fiscal 26. We're going to continue generating a lot of free cash flow as we go forward. The balance sheet is strong, and we're going to continue returning lots of capital to shareholders through buybacks and dividends as we move this business forward. I'll turn the call back over to Jen, and we'll be very happy to take your questions.

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

Certainly. Ladies and gentlemen, as a reminder, to ask a question at this time, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, simply press star 11 again. Please stand by while we compile the Q&A roster. Now, first question coming from the line of Chris Carey with Wells Fargo Security. CLN is now open.

Hi, everyone.

Hello.

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

The short answer is no, because I'm not going to discuss M&A opportunities on a live public call. A more broad response to your question would be it's pretty obvious when you're dealing with $450 million of tariff headwinds that it will sideline a process with strategic parties for completing a synergistic merger, if you will. And so we had a very robust process about a year ago at this time that got derailed by trade policy out of the United States. We pivoted to run the business to maximize cash. We're taking the fixed expense base of that business down to basically deal with the realities of the current economic situation. We've materially diversified the supply chain there, made it more resilient and less reliant on China. We're going to improve the profitability of appliances in fiscal 26 as we move the company forward. And we're telling you that as the trade situation becomes less volatile moving forward and macroeconomic headwinds subside, we are excited to resume strategic discussions around finding a strategic solution for the business, which we believe there are many. Frankly, this industry is littered with small competitors that are subscale and barely profitable, and most of them over-leveraged, and some of them will go bankrupt. We intend to capitalize on that because we're the strongest player in space.

helpful thank you just on um you know follow up on on the pet category um you know you've you've worked through a period of intense competitive activity uh including from uh some large private label uh competitors you know where where are we you know in the journey of of the pet business and I think you've sounded a bit more confident about shelf placement and some stabilization and go forward potential and return to growth. So can you just maybe help us understand the journey and how you see the next 12 months? Thanks.

Yeah, really happy. Thank you for that question. And I'll turn it over to Fessel when I'm done for any additional remarks. Look, we are thrilled because we've infused that business with some new talent. It's got some new direction. It's got a higher level of energy to it. The team is embracing a more data-driven consumer insight. I would tell you geographic, category, specific analysis of that business. You know, in terms of your comment on private label, yeah, we saw some competition there. You know, post-COVID, the entire pet industry has kind of been in a recession. We were able to kind of reset some mods and some shelf space with some major players just a few months ago. We're seeing much better trends now with that done in terms of takeaway. POS and, frankly, shipments have been improving pretty consistently, so that's why you hear a much more bullish outlook for the business looking into 26th. But more importantly, there were branded ankle biters that entered into this space. Anybody that had access to social media and the Chinese product could kind of come in here and nibble at you. We are seeing people go by the wayside, and we are seeing products like Nature's Miracle really take a lot of market share because the product actually works, does what it says, and a lot of competitive products simply does not. So, look, I think it's still early innings. We're making incremental progress, but we are launching a lot of new product. We are getting a better response from the retail customer, and consumers seem to be buying our product at a greater rate. And then, quite frankly, I think this is going to be a fantastic M&A platform. My vision of getting us to $3 billion of revenue and $500 million of EBITDA and PET is unchanged from the prior call. And in fact, I'm seeing more and more assets come to market at better prices. We have missed on a few of them because we simply refuse to overpay. But we will find highly synergistic businesses that complement this platform from both a cost synergy and revenue synergy standpoint. And I'm really looking forward to that opportunity to capitalize on it. Appreciate the question. Cecil, I miss anything?

Well, I think you've covered it. The only thing I'll add is just if you look at our performance through the year, you kind of see the signs of stabilization and how our Q4 certainly seem to be heading in the right direction for the global pet care business. And we do feel that's the one business that returns to growth faster just based on where the category stands. And to David's point, how our products have recently done in each of the categories that we play in.

And we also have expansion opportunities like we referenced in our prepared remarks about expanding into adjacent categories there. So, a lot of opportunity for the global pet care business.

Okay. Thanks, guys.

Thank you. Thank you.

Thank you. Our next question coming from the line of Bob LeBic with CJS Securities. He'll .

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

How are you doing, man?

Doing well. Thank you. Yeah, no.

Good.

As I said, nice job. It's good to chat again. I wanted to start, I know this is a kind of a category and product basis question, so maybe we can dig in a little. And the question is, how much is pricing going up at retail, you know, for your categories, products, et cetera, kind of in aggregate? And And when do you expect to get clarity on consumer acceptance of that and how has that been playing out so far?

Yeah, great question. Look, I'm kind of stunned at how little pricing we actually had to take. You know, I thought, you know, February, March, you know, when I was hardly sleeping, staring at 450 million challenges that we'd have to take a lot more pricing than we actually did. But, you know, that resulted in us having to take a lot of internal pain and make some very difficult decisions to remain competitive at shelf. We had to take down, you know, fixed cost salary headcount. And that's not fun to do, you know, but we've done it and it's in the past. We'll continue to address the fixed cost structure of the company going forward, particularly corporate overhead. And we're going to be aggressive on that as we move through 26 and complete the S4 Han implementation in Europe. Um, but you know, again, you know, in my opening remarks, I thanked our supply base, you know, we've worked really hard with our suppliers to remain competitive, uh, particularly given the consumer landscape, um, and, um, and our retailers. Uh, and so it's really those three levers, right? Working really hard with your vendor base, um, frankly, taking out internal costs and being more efficient with what you have, and then taking a little bit of price at retail, the greatest price increases came on the durable side and appliances. We were the first to move there, believe it or not. And I don't think anybody in that space actually knows their numbers. I think you're still figuring out elasticity of demand, particularly in the North American market. I think we took our pain early. And frankly, I think we're going to capitalize on that note going forward. But we got our work cut out. I appreciate your comments saying that we executed pretty well. I'm not pleased with the performance yet, but I'm sure looking forward to getting into 26 and seeing how we do. So appreciate the question. I'll turn it to Faisal if I missed anything.

I think you covered everything. And I think I'll just reiterate the point that we took our medicine early for our HPC business. And that's where we saw a lot of the impact of price elasticity, which should play in our favor going forward as we see the rest of the market kind of come up, because I think everyone will have to eventually take price there.

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

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

All right. Thanks. Thank you. Our next question coming from the line of Ian Ciccino with Oppenheimer. Your line is now open.

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

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

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

Thanks. We're the world's largest player in Tetra. We have the best brand, you know, it's recognized without having to advertise it, right? You don't need any awareness. We've got a great product. Frankly, I'm excited about the new leadership in PET because I think we have a price pack architecture issue, and I think we have a lot of opportunity there. We're doing better in Europe than we have in North America. Kids like to live on these iPhones all day long. They don't like taking care of fish tanks. The hobbyist community has been the install base. We need to do a better job communicating that kids actually love aquariums. Taking care of fish teaches responsibility, and it's actually a very therapeutic thing to do as a family, and it's an enjoyable thing to have in your household. Ori's got a big task in front of him. He's addressing it. But we are the leaders, and we are responsible for changing the narrative in that space and driving growth, no matter what the external environment is. We're doing a decent job in Europe. We've got to get a better job going here in North America. I hope to achieve that during fiscal 26th.

All right. Thank you very much.

Thank you, sir.

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

Great. Thank you, David. Cecil, good morning. A couple of cleanups. Last quarter, I think you exited with about 20, 25 million annualized and tariff headwinds that related to the EU and Southeast and Asian markets that you hadn't mitigated at the time. Just Maybe an update on any steps you've taken to address those costs and whether you feel like you have addressed them going into 26. Maybe start there.

I think we've eliminated most of them. I think there's two different numbers that we're giving you. We're giving you the gross exposure was 450. That was at 145 out of China plus all the other countries. Then we're giving you an updated one because China rates lower and So apples to apples, that's like 70 to 80. But we're telling you we've mitigated the vast majority of it. And then we're also telling you that, you know, look, you know, things move around so much. I used to have 120 million bucks of exposure out of China just on pet. I think I just told you on this call that my gross exposure on global purchases for my two most high value businesses, which is global pet and my home and garden business are somewhere between 15 to 20 million by the end of 26. I mean, we've really worked this thing down to nothing. And, you know, we'll continue to flex it around, whether it's Cambodia, Nam, U.S., wherever we can do it. that's where it economically makes sense for us today. Faisal, if I mess the messaging up, please clean up what I said.

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

perfect. Thank you. And two other, um, if I could just, one is just your, your, your category growth expectations in 26 relative to your, your call, your own call for low single to the top line growth, just, you know, how you think like end market demand compares to your, your top line, uh, expectations. And then separately, you know, as you think about rolling out S4, I think you mentioned moving that into HPC, David, just any implications there on, on your ability, um, to pursue strategic solutions there while that's in flight? Does that delay or cause any impediment to moving strategically as that project is underway? And then are you able to implement it in such a way that it's sort of modular enough to potentially carve out if a separation is the ultimate solution? Thanks.

That's a great question. Appreciate you answering. I'll take the second one. Fessel will touch on the first one. Look, the whole goal of S4HANA is to get to a single source of truth and quit using 10 different systems all over the place and run the company more efficiently and then liquidate, frankly, corporate costs, right? AI, the whole movement is to be more efficient, period, end of story. We're basically done with that in North America. We still have to get the synergies for it. Europe will roll that out. HPC is on a bunch of different platforms. It's been a series of acquisitions over 20 years. Putting that on a single source of S4 HANA is actually going to create a lot of efficiencies and create a platform there that enhances the business. It will in no way slow down anything that we have on the table now or in the future for strategic solution. We will pursue that and if we find something great, we're going to execute it and you'll hear about it then. But in the interim, it actually will make that business more valuable to any potential partner in the future because it will have a more flexible, dynamic operating infrastructure that can actually be more plug-and-play, which is, quite frankly, where the industry needs to go. There are way too many subscale players selling product from the same supply chain to way too few retailers. That space makes no sense in its current configuration. And again, I think S4HANA will be not only a great enhancement to the operating income and efficiency of the company that is in existence today, but will actually enhance it as an M&A partner for future combinations. That's my opinion. Faisal?

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

Okay, perfect. Thanks for all that. Appreciate it. Thank you.

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

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

Thank you. Everyone have a good day.

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