Spectrum Brands Holdings, Inc. Q1 2026 earnings call

Welcome to Spectrum Brands Holdings Q1 2026 Earnings Conference Call and webcast. I'm Jen Schultz, the 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 the slide presentation on the event calendar page in the investor relations section of our website at www.spectrumbrands.com. This document will remain there following our call. Starting with slide 2 of the presentation, our call will be led by David Maura, our Chairman and Chief Executive Officer, and Faisal Qadir, our Chief Financial Officer. After opening remarks, we will conduct a Q&A. Turning to slides 3 and 4. Our comments today include forward-looking statements, including statements about tariffs, 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 February 5th, 2026, 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. 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 slide presentation, which are both available on our website in the Investor Relations section. Now I'll turn the call over to David Maura. David?

Morning. Thank you, Jen. Good morning, everybody, and we'd like to welcome you this morning to our, our first quarter earnings update for fiscal 2026. And again, thank you for joining us today. I'll start the call today with an update on the operating environment and its impact on, on our company, on Spectrum Brands. I'll then talk about our operating performance, and then I'll talk about our strategic initiatives. Faisal will then provide a lot more color and, and detailed financial and operational updates, including discussions on the specific business unit results. If I could now have everybody turn to slide 6. Our financial results for the first quarter demonstrate that our strategy is working. Fiscal 2025 was a challenging year, and we took some tough but necessary actions that positioned us well for the future.

We proactively and decisively addressed external forces beyond our control, and we are already seeing the positive impact of those decisions within our results. While the hard work is not over, we are confident that our actions will continue to create a competitive advantage for our company. We are pleased that our first quarter net sales and adjusted EBITDA exceeded expectations, despite continued headwinds. These results reinforce our belief that the most significant impacts from the tariff disruptions last year and the macroeconomic volatility. We believe these issues are largely behind us due to our decisive mitigating activities. As anticipated, we are seeing early signs of recovery in consumables, while durable products are taking longer to rebound. These external realities are disproportionately impacting our Home and Personal Care business, where overall global consumer demand continues to be subdued.

We are pleased to report that our most profitable and our largest Adjusted EBITDA-contributing business, our Global Pet Care business, has returned to growth this quarter, and our brands continue to perform well in the marketplace. I'm particularly encouraged by our performance in North America, where we saw share gains across our companion animal categories, fueled by our brand-building investments that we've been making over the past couple of months and quarters. While these categories were modestly down for the quarter, our brands actually outpaced the category and delivered growth versus the prior year. I wanna take a moment and thank Ori and our entire Global Pet Care team for their efforts and, of course, these results. During the first quarter, we remained disciplined in maintaining a strong balance sheet.

While this period is usually characterized by cash usage as we prepare for the home and garden season, I'm quite pleased to report that we generated nearly $60 million of adjusted free cash flow in the first quarter. We also repurchased approximately 600,000 shares this quarter, and we've continued to buy back our shares following the completion of the quarter. Year to date, through today, we have repurchased approximately 800,000 shares for roughly $42.3 million in total. Since the close of the HHI transaction, we've returned approximately $1.4 billion of capital to our shareholders through our various share repurchase programs, and we have repurchased almost 45% of our entire share count since the closing of that deal. We also recently have received board authorization for a brand new $300 million share repurchase program.

Our strong financial position affords us meaningful flexibility to capitalize on market opportunities, while continuing to invest in our businesses and return capital to our shareholders. If I could now have everyone turn your attention to slide 7, I'll tell you about our strategic priorities for fiscal 2026. Our priorities remain unchanged, and they provide a clear framework that will continue to guide our decision-making throughout this year. During the first quarter, we made meaningful progress on each of our initiatives, and these are positioning us well to capitalize on opportunities that we see ahead and to also address challenges as they may arise. First, as you've heard me say before, maintaining a healthy balance sheet and remaining good financial stewards is, and will continue to be, the top priority for us.

I'm proud of the progress we've made in optimizing our working capital and exercising diligence in our spending, which has strengthened our financial position. We ended the first quarter with nearly $127 million in cash, 0 drawn on our revolver, and our net leverage was 1.65 times, well below our long-term targets. We did this despite returning $46 million to shareholders through buybacks and dividends in the quarter. As we look ahead, we will continue to invest in our brands with a clear focus on generating meaningful returns. Our fewer, bigger, better approach is allowing us to concentrate our resources on higher impact initiatives, maximizing the effectiveness of our investments.

Later in the call, Faisal will provide insights into how our innovation pipeline is connecting with consumers, highlighted by significant share gains in several of our key categories, which actually underscores the effectiveness of our approach. Secondly, in regards to operational excellence, we continue to make steady progress for the remaining planned deployments of our SAP S/4HANA platform. As a reminder, we have already implemented S/4HANA in our North America Global Pet Care and our Home and Garden businesses, and the preparation for its deployment in our appliance business and the remaining international regions is currently underway. Upgrading and rolling out our new global ERP system has been a significant undertaking, and I would like to express my sincere appreciation to our teams around the world for their expertise, perseverance, and their diligence throughout this project.

This now brings me to our third key priority, which is investing in our people. As you know, fiscal 2025 was a very difficult year for us, and it was marked by a number of hard decisions that directly affected our teammates. While these actions were necessary to position our company for long-term success and to avoid a lot of tariff disruption, we recognize the impact that this has had on our people, and we don't take that lightly. We are deeply appreciative of the resilience, the professionalism, and the commitment our employees have demonstrated during this period of volatility. Investing in our people goes way beyond hiring and development. It also means being honest about what's working and what isn't, and making changes when needed.

We are increasingly leveraging the expertise across the organization to address gaps, to redeploy talent where it can have the greatest impact, and frankly, to ensure that our teams are set up to execute at a high level. Our fourth priority, fiscal 2026, is centered around transformation. Last quarter, I shared our expectation that both Global Pet Care and our Home and Garden businesses would actually return to growth in fiscal 2026. At that time, we indicated Pet would lead the way with growth in the first fiscal quarter, which obviously it's done, while Home and Garden's growth would be weighted toward the second half of the year. We expected this first quarter for Home and Garden to be down, and that's due to some abnormal timing of some seasonal inventory build in the prior year's results.

Our first quarter results confirmed these expectations with significant momentum, frankly, heading into the balance of the year. I am confident we remain on track to achieve our growth objectives in both of these segments. We continue also to be optimistic about the evolving M&A landscape. We will continue to be disciplined in our pursuit of acquisition opportunities in both our Global Pet Care and our Home and Garden businesses. We are confident that we are well positioned within this industry to be the consolidator of choice in both categories. Lastly, on our Home and Personal Care business, we are committed to being good stewards with a focus on maximizing the results of this business unit and improving its overall profitability in fiscal 2026. As the headwinds dissipate from 2025, we will continue to work towards a strategic solution for this business.

Now, if everyone could turn over to slide 8, please. Here, I'll give a review of our high-level fiscal 2026 earnings framework. Today, we are reiterating, we are reiterating our expectations for full-year net sales, Adjusted EBITDA, and Adjusted Free Cash Flow. Thus far, this year is progressing as we planned and anticipated, with overall consumer sentiment consistent with our expectations. Before I turn the call over to Faisal, I'd like to thank each and every one of our global teammates. Their dedication, their hard work, has been instrumental in advancing our company's strategic objectives and putting us back on a path to sustained growth. Now I'll turn the call to Faisal, and you'll hear more about the financials and the additional business unit insights. The call is yours, Faisal.

Thank you, David. Let's turn to slide 10, and I will review our Q1 results from continuing operations, beginning with Net Sales. Net Sales decreased 3.3%. Excluding the impact of $18.5 million of favorable foreign exchange, Organic Net Sales decreased 6%, primarily driven by continued category demand softness in Home and Personal Care business, and the impact of an accelerated seasonal inventory build by some Home and Garden customers in the prior year. This was partially offset by our Global Pet Care business returning to growth, with our key companion animal brands outperforming the market while also benefiting from a softer prior year comparison.

Gross profit decreased $16.2 million, and gross margin of 35.7% decreased 110 basis points, largely driven by lower volume, higher trade spend, and higher tariff cost, partially offset by pricing, cost improvement actions, operational efficiencies, and favorable FX. Operating expenses of $214.5 million moderately increased by 0.7%, with lower spend in advertising and marketing, partially offsetting unfavorable FX. Operating income of $27.1 million decreased by $17.6 million due to the decline in gross profit. Our GAAP net income and diluted earnings per share both increased, primarily driven by a one-time tax benefit for the quarter, resulting from a favorable settlement and lower share count, partially offset by lower operating income.

Adjusted EBITDA for the quarter was $62.6 million, a decrease of $15.2 million, driven by lower volume and reduced gross margins. Adjusted diluted EPS increased to $1.40, driven by a one-time tax benefit and the reduction in share outstanding, partially offset by lower adjusted EBITDA. Now, let's turn to slide 11. Q1 interest expense from continuing operations of $6.8 million increased $0.6 million. Cash taxes during the quarter decreased $4.2 million from the prior year. Depreciation and amortization of $25.8 million increased $1.3 million from last year, and separately, share-based compensation decreased $4.3 million from $4.7 million in the prior year. Capital expenditure were $8.1 million in the quarter, $2.2 million higher than last year.

Cash payments towards the structuring transactions, strategic transactions, restructuring-related projects, and other unusual non-recurring adjustments were $4.8 million, versus $8.8 million last year. Moving to the balance sheet, we had a quarter-end cash balance of $126.6 million, and $492.2 million available on our $500 million cash flow revolver. Total debt outstanding was approximately $578.9 million, consisting of $496.1 million of senior unsecured notes and $82.8 million of finance leases. We ended the quarter with $452.3 million of net debt. Now, let's get into the review of each business unit, where I'll provide you details on the underlying performance drivers of our operational results.

I'll start with Global Pet Care, which is slide 12. Reported net sales increased 8.3%, and excluding favorable foreign currency exchange impact, organic net sales increased 5.8%. Sales in companion animal increased high single digit, while sales in aquatics increased low double digits. In North America, sales increased in both companion animal and aquatics. This was partially driven by the strategic shift of orders by retailers in the prior year of approximately $10 million in preparation for our S/4HANA ERP implementation. After normalizing for the softer comparison, North American net sales increased mid-single digits, including the impact from tariff-related pricing actions taken during the last fiscal year. In companion animal, our key brands continue to outperform the market.

Good 'n' Fun, DreamBone, Nature's Miracle, and FURminator are gaining market share across chews, stain and odor, and grooming, despite our premium positioning and the modest softness in the overall category. We continue to be encouraged by improving POS trends across our core brands and top accounts within the category. The sales growth in aquatics was primarily driven by the pull forward in the prior year as overall demand in the category begins to stabilize. Our European sales were positively impacted by favorable foreign exchange rates as the U.S. dollar weakened against the British pound and the euro compared to last year, excluding the impact of foreign exchange, sales in EMEA decreased in the low single digits, primarily due to a decline in dog and cat food sales following their refreshed portfolio launch within our Eukanuba brand in our fiscal fourth quarter.

The launch prompted some retailers to accelerate inventory purchase to support the reset, adversely impacting this quarter's results. This was partially offset by the continued strength of our Good Boy brand, which once again gained market share in the UK. Successful Good Boy expansion across continental Europe continues to gain traction and new points of distribution. Aquatics organic sales increased, with our global leading Tetra brand outperforming the market in a declining category and benefiting from a softer prior year comparison. On the commercial side, our innovation continues to drive incremental growth. The investments we have made in Nature's Miracle are yielding results and have enhanced our position as the market leader in the stain and odor category. We recently launched our Nature's Miracle Outdoor Stain and Odor Remover, designed to address pet stains and odors on outdoor surfaces.

In grooming, our FURminator growth, with expanded distribution confirmed in the coming months. Our Good Boy brand, the number one brand in dog chews in the UK, continues to grow market share, driven by consistent consumer-focused innovation. In fact, over the last quarter, Good Boy, Good Boy became the third-largest brand in the overall UK pet market. The brand's expansion across continental Europe continues to perform very well, and new launch is expected to drive further growth in the coming months. Our Good 'n' Fun and DreamBone brands are winning distribution in key retailers, and strengthened activation is fueling the brand's growth online. IAMS's advanced nutrition positioning is driving market share wins in the UK on both dog and cat, and the brand expansion in France is off to a good start. Tetra's NutriEvolution launch is driving strong market share wins in Germany.

This quarter's Adjusted EBITDA of $49 million is $2.5 million lower than the previous quarter, and Adjusted EBITDA margin was 17.4% compared to 19.8% last year. The decline in Adjusted EBITDA was primarily driven by higher tariff costs, inflation, and additional trade and investment spend. These headwinds were partially offset by higher sales volume, pricing, and cost improvement actions. We expect to see the first quarter's result sales trend continue for the balance of the year and deliver modest growth for fiscal 2026 in the GPC business. This quarter's results, coupled with trends in overall POS, support our belief that the macroeconomic conditions are stabilizing. We are excited about the strong innovation and brand activation coming to market later in the fiscal year, expected to drive top-line growth and market share gain.

Despite this quarter's decline in adjusted EBITDA, we remain confident in our ability to deliver year-over-year growth for the fiscal year. Now, moving to Home and Garden, which is slide 13. Net sales decreased 19.8% in the quarter. You may recall in the prior year, certain customers accelerated their seasonal inventory build, impacting all pest control categories. It's important to note that the prior year's results were not typical, and our net sales results for the quarter were in line with our expectations and historical averages. Our fiscal first quarter is typically H&G's slowest sales quarter and represents a small portion of the annual consumer activity for this business. During this time, our team is predominantly focused on preparation and staging for the upcoming season.

With that said, while our first quarter typically represents less than 15% of the total year's POS, our brand continued to perform well in the market, gaining share across the U.S. pest control category. E-commerce was also a bright spot, where we delivered our best-ever first quarter for the business. Based upon discussions with our customers, we continue to prepare for a normal weather pattern in fiscal 2026, and we remain confident that our sales will pick up as the season unfolds, with normal seasonal POS expected to materialize beginning in the latter half of our second quarter. In fact, early indications are strong as POS over the last two months has gained significant momentum. While customer inventory levels are generally healthy, we expect that they will be disciplined in building inventory for the season.

Heading into the season, we continue to launch and support new innovations into the market. In fiscal 25, we launched the Spectracide Wasp, Hornet, and Yellow Jacket Trap, which was a hit with consumers and quickly gained penetration within the category, earning one of the highest penetration of any new items in overall pest control. POS performance was above expectations, and we will build upon that success in fiscal 26 with expanded distribution, continued market support, and increased capacity. Additionally, our Hot Shot brand continues to gain share, supported by the flying insect trap that we launched last year and was subsequently awarded Product of the Year. We expect continued growth in fiscal 26 with expanded distribution. Lastly, in repellents, Repel, our personal insect repellent brand, continues to outperform the market, supported by recently refreshed graphics and strong marketing support.

Thanks, Faisal. And thanks again, everybody, for joining us this morning for today's call. Look, I'll just take a few minutes right now, and we'll recap the key takeaways of today's call. If you guys could turn with me to slide 18. First, look, although we experienced year-over-year declines in both net sales and Adjusted EBITDA, we're actually pleased that first quarter financial results actually exceeded expectations. Our businesses continue to heal from the tariff torpedo that hit us in fiscal 2025, as we have restored our supply chains and have taken pricing actions. While the global macroeconomic conditions and environment remain challenging, we're encouraged by the meaningful signs of improvement, particularly in our consumables product portfolio. Our Global Pet Care business returned to growth this quarter, representing a significant milestone for us.

Beyond the broader category improvements, our key companion animal brands have continued to outperform, and they're performing exceptionally well, further strengthening our market share positions. In our Home and Garden business, we are seeing strong category POS trends currently, and our brands are outperforming category. We are encouraged by the success of our new product launches in fiscal 2025, and we expect to build on that momentum with expanded distribution here in fiscal 2026. This year, we expect Home and Garden to be our fastest-growing business. In our appliance business, overall category demand continues to be soft, and we expect that to continue into the fiscal second quarter. We will continue to prioritize maximizing the performance of this business unit through disciplined expense management as we navigate a challenged market.

Secondly, as we look forward to the balance of the year, we continue to believe that our data-driven strategy of fewer, bigger, better initiatives will actually yield higher returns. The positive results we are seeing so far serve as clear evidence that this disciplined approach is actually driving and delivering the right outcomes. Our low leverage and strong balance sheet position us exceptionally well to navigate the current macroeconomic environment, and I actually believe we are in a tremendous position of strength to capitalize on opportunities with the evolving M&A landscape. With respect to our Global Pet Care and Home and Garden businesses, we continue to look for highly synergistic assets that will allow us to maintain our low leverage.

In regards to our appliance businesses, we remain committed to finding a strategic solution for that business unit. Last but not least, I'd like to conclude my remarks by reiterating our fiscal 2026 earnings framework for flat to low single-digit growth in net sales, low single-digit growth in Adjusted EBITDA, and approximately 50% conversion of our Adjusted EBITDA to Adjusted Free Cash Flow. The progress we made this quarter reflects the dedication of our team and our focus on delivering sustainable growth. We appreciate the trust and the support of all of our stakeholders as we work together to achieve both our short- and long-term objectives. I'll turn the call now back to Jen, and we're gonna be happy to take any questions.

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