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.