We returned to growth, all the while maintaining a strong balance sheet position. We continue to exercise discipline by optimizing working capital and keeping our net leverage low while also returning capital to our shareholders. On the strategic front, as we disclosed in our recent 8-K filing Monday of this week, we've entered into an agreement with Oaktree Capital Management to form a strategic partnership in our HPC business. I'm excited to be partnering with a firm with a proven track record of taking businesses similar to HPC and optimizing them for standalone success.
Their investment implies a valuation for the HPC business of approximately 6x LTM EBITDA as of Q1 fiscal 2026. It establishes a separate dedicated platform for HPC to maximize focus and growth potential. Organic net sales increased 1.5%, primarily driven by strong performance within our Global Pet Care and Home & Garden businesses. As expected, our Home & Personal Care business continues to experience soft consumer demand across both North America and Europe.
Gross margin of 38.1% increased 60 basis points, largely driven by pricing, cost improvement actions, and favorable FX, partially offset by higher trade spend and higher tariff costs. Operating income of $43.5 million increased by $24 million, driven by the gross profit increase and lower operating expense I mentioned earlier. GAAP net income and diluted earnings per share both increased, primarily driven by the higher operating income. Adjusted EBITDA was $84 million, an increase of $12.7 million, driven by the improved gross margins.
| Metric | Period | Current guidance |
|---|---|---|
| Adjusted EBITDA growth | Full-year fiscal 2026 | Low to mid-single-digit growth (raised) |
| Net sales | Full-year fiscal 2026 | Reaffirmed |
| Adjusted free cash flow | Full-year fiscal 2026 | Reaffirmed |
| Metric | YoY | Note |
|---|---|---|
| Reported net sales | +4.9% | Driven by strong Global Pet Care and Home & Garden performance plus $22.9 million of favorable FX; organic net sales up 1.5%. |
| Adjusted EBITDA | +17.8% (to $84 million, up $12.7 million) | Driven by improved gross margins. |
| Gross margin | +60 bps (to 38.1%) | Largely driven by pricing, cost improvement actions, and favorable FX, partially offset by higher trade spend and higher tariff costs. |
| Operating income | +$24 million (to $43.5 million) | Gross profit increase and lower operating expense, the latter helped by a prior-year trade name impairment and lower investment spend. |
| Adjusted diluted EPS | Increased to $1.25 | Higher adjusted EBITDA and a reduction in shares outstanding. |
| Global Pet Care reported net sales | +11.2% (organic +7.6%) | Strength in companion animal and aquatics, with EMEA companion animal led by Good Boy and aquatics by Tetra; included roughly $6 million pulled forward ahead of GPC EMEA S/4HANA go-live. |
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Macroeconomic and geopolitical environment | Tariff disruption and macro volatility viewed as largely behind the company | Signs of stabilization with a resilient consumer, but caution around Middle East conflict, higher fuel prices, and potential summer U.S. trade policy volatility | — |
| HPC strategic separation | Stated objective to separate HPC from other business units | Oaktree partnership establishes a well-capitalized standalone vehicle, creating optionality for sale, M&A or spin-off | — |
| Capital returns | Over $1.37 billion returned since HHI close; ~44% of share count repurchased | Over $1.4 billion returned and almost 45% of share count repurchased; ~100,000 shares bought for ~$6.8 million in Q2, more than $300 million remaining authorization, but will be judicious going forward | — |
| Inflation and tariffs | Tariff exposure largely mitigated through concessions, cost cuts and pricing | Modest inflationary pressure on commodities and freight from escalated geopolitical tension, not viewed as a significant FY headwind and expected to be largely offset by recent trade policy changes | — |