tariff rate on Chinese imports dropped to 30%, 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. 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. 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. We've had to prioritize investments that would be the most impactful to both this year and into the future, given softer consumer demand in some of our categories.
Operating income of $31.3 million decreased by $16.4 million, driven by the gross margin decline, partially offset by the lower operating expenses I mentioned. GAAP net income and diluted earnings per share both increased, primarily driven by lower interest expense, reduced income tax expense, and lower share count, partially offset by lower operating income and lower investment income. Adjusted diluted EPS increased to $1.24, driven by reduced income tax expense, lower interest expense, and the reduction in shares outstanding, partially offset by lower adjusted EBITDA. Capital expenditures were $10 million in Q3, essentially flat to last year.
Cash payments towards strategic transactions, restructuring-related projects, and other unusual non-recurring adjustments were $8.6 million versus $10.5 million last year. Moving now to the balance sheet, we had a quarter-end cash balance of $122 million and $388.5 million available on our $500 million cash flow revolver. Total debt outstanding was approximately $681 million, consisting of borrowings on our cash flow revolver of $103 million, $496 million of senior unsecured notes, and $82 million of finance leases. Reported net sales decreased 9.6%, and excluding favorable foreign currency impacts, organic net sales decreased 11.4%.
| Metric | Period | Current guidance |
|---|---|---|
| Formal guidance | Fiscal 2025 | Still not provided, citing ongoing tariff/trade volatility making accurate prediction irresponsible |
| Q3 sales lost to stop shipments / internal actions | Q3 fiscal 2025 | Approximately $30 million, expected to be quite a bit less in Q4 |
| Cost reductions | Fiscal 2025 | Over $50 million expected |
| Metric | YoY | Note |
|---|---|---|
| Net sales | -10.2% (organic -11.1%) | Targeted stop shipments to certain retailers, supply constraints, category softness in Global Pet Care and Home & Personal Care, and unfavorable cold/wet weather delaying Home & Garden replenishment; $6.8 million favorable FX. |
| Gross margin | -110 bps (to 37.8%) | Lower volume, unfavorable mix, inflation and higher tariffs, partially offset by pricing, cost improvement actions, operational efficiencies and favorable FX. |
| Adjusted EBITDA | -$29.7 million (to $76.6 million); -$17 million excl. prior-year investment income | Prior-year investment income of $12.7 million, lower volume and reduced gross margins, partially offset by expense management and lower investments. |
| Operating income | -$16.4 million (to $31.3 million) | Gross margin decline, partially offset by lower operating expenses (down 8.7% on reduced advertising/marketing and restructuring spend). |
| Adjusted diluted EPS | Increased to $1.24 | Reduced income tax expense, lower interest expense and reduced shares outstanding, partially offset by lower adjusted EBITDA. |
| Global Pet Care reported net sales | -9.6% (organic -11.4%) | Decision to stop shipping to a handful of customers during tariff-related pricing negotiations, tariff-related supply issues from the China import pause, and a large retailer's capacity constraints; companion animal organic down low double digits and aquatics down low teens. |
| Global Pet Care adjusted EBITDA | -$12.7 million (to $44 million); margin 17.2% vs 20.1% | Lower sales volumes, unfavorable mix and inflation, partially offset by operational productivity, lower brand-focused investments and FX. |
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Tariff response | Hit by the 'tariff torpedo'; controlling what is controllable | Took swift, draconian actions (China purchase pause, stop shipments, pricing, cost cuts); confident the right decisions were made and benefits are starting to show | — |
| Pet category and competition | Struggled to hold share amid trade-downs and private label over prior four quarters | Improving versus private label in the U.S.; feels the category has bottomed and is starting to get a little better, with pricing in place and new leadership reinvigorating messaging | — |
| M&A strategy | Vision to triple Pet and double Home & Garden | Chased a deal in the quarter but got outbid by private equity; maintaining discipline on price/returns while preserving balance sheet flexibility, with a slowly improving but still uncertain M&A environment | — |
| Consumer environment | Weakness emerged in U.S. last fall, Europe following | Consumer more resilient than expected; sentiment expected to heal globally as tariff volatility calms, though consumers remain judicious and value-seeking | — |
| Pricing for fiscal 2026 | Not specified | Targeting only ~$20-$25 million of incremental pricing and supplier concessions annualized to mitigate 2026 tariffs, equating to less than 1% of the ~$3 billion revenue base | — |