Spectrum Brands Holdings, Inc. 2026 Q3 Earnings Call

Please go ahead. Thank you, and welcome to Spectrum Brands Holdings Q3 2026 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 events 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 two of the presentation, our call will be led by David Maura, our Chairman and Chief Executive Officer, and Cecil Cutter, our Chief Financial Officer. 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 August seventh, 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. 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. I'll turn the call over to David Maura.

David? Hey. Thank you, Jen.

Good morning, everybody, and welcome to Spectrum Brands' third quarter earnings update. I appreciate everybody joining us for today's call. As usual, I'll start the call with an update on the operating environment, then our operating performance, and I'll finally turn our attention to our strategic initiatives at the end. Cecil will then come on and provide more detailed financial and operational updates, including a discussion on the specific business unit results. If I could have you turn to slide six. Let me start by sharing some of the significant accomplishments since our last quarterly earnings call. This quarter was marked by meaningful milestones, and I believe it reflects the strength of what this team is capable of when we are focused on executing with discipline.

I'm incredibly proud of what the global team has delivered, not just this quarter, but consistently over the past year in the face of a dynamic and changing macroeconomic environment. The results speak for themselves, and they reinforce my conviction that we do have the right people, the right strategy, and the right priorities in place to drive both our near-term performance and long-term value creation for our stakeholders. With that context in mind, let me walk you through a few of the highlights. First, our quarterly results once again outperformed expectations on both the top and the bottom lines. This is a trend we have sustained throughout the fiscal year. Net sales increased 7.7% versus the prior year, with all three business units delivering growth.

In fact, in our Home & Garden business, we delivered a record-setting quarter with net sales of $225 million, surpassing even the elevated demand levels we experienced during the COVID-19 pandemic. Second, on a year-to-date basis, our company has returned to organic growth, a meaningful achievement against a challenging macroeconomic backdrop. While geopolitical tensions persist and volatile trade environments continue to create uncertainty and weigh on consumer sentiment, we've been encouraged by the resilience that consumers have demonstrated across most of the categories we serve. Our Global Pet Care and Home & Garden businesses benefited from solid underlying demand. While we are seeing some expected softness in the Home & Personal Care unit, the trends are consistent with our expectations. Third, on the cost and tariff front, we continue to experience modest inflationary pressure, particularly across commodities and freight.

The tariff landscape continues to evolve with the recent expiration of the Section 122 tariffs and the announcement of new Section 301 tariffs. That said, the proactive approach we took last year positions us well to navigate these pressures in the near term, and we do not view this as a significant headwind for the balance of this year. On the IEEPA refund front, we've made significant progress. While some refunds were collected within the quarter, a more substantial cash collection occurred subsequent to the quarter close. We have now collected substantially all refunds associated with phase 1, and we filed over 95% of our phase 2 claims. In the quarter, we did recognize a receivable for those refunds on our balance sheet, which reflects our confidence in the collection process and the progress we've made to date.

Fourth, if we turn to our balance sheet, we ended the quarter with almost $260 million of cash. We have zero drawn on the revolver, and we have a net leverage ratio of about one times. This is well below the long-term target we've set for the company of two to two and a half turns of leverage. We also repurchased approximately 200,000 shares during the quarter for about $15.8 million. With over $300 million of additional board authorization still remaining, we will continue to be opportunistic in share repurchases to ensure flexibility as we look to capitalize on market opportunities and dislocations. Fifth, on the operational front, in July, we completed our first SAP S/4HANA deployment into the Home & Personal Care business here in North America, while also finalizing implementation across the remaining Global Pet Care and Home & Garden entities.

With these completions, 100% of our Global Pet Care and Home & Garden businesses, and all but the EMEIA region in Home & Personal Care, are now operating on a single unified ERP platform. This is a significant milestone in our multi-year transformation. If I could now turn your attention to slide seven, here I'll give an update on our strategic priorities for the balance of fiscal 2026. These priorities are serving us as a clear guide in our decision-making, our progress against each one of them reinforces the effectiveness of our strategy. First, with respect to financial stewardship, our core objective is delivering growth while maintaining a very healthy balance sheet and strong margin structures. Our quarterly results demonstrate how deeply the team has embraced this philosophy.

Year to date, we've delivered $136 million of adjusted free cash flow through disciplined working capital and CapEx management, including approximately $3 million from tariff refunds. Operationally, our S&OP process continues to perform at a high level. In fact, I once again maintained fill rates above 95% across all three business units this quarter on a linear inventory base. This reinforces the fact that we can deliver for our customers without sacrificing working capital discipline. Second, if I move to operational excellence, I'd like to build upon what I shared earlier as it relates to the S/4HANA ERP transformation. As I mentioned, we're now in the final stages of this multi-year project, with only the HPC EMEIA region deployment remaining later this year. I want to take a moment on this call to sincerely thank each one of our global team members who have driven this implementation.

This has been a long, hard process, their dedication, patience, and perseverance over the course of this journey has been remarkable. Reaching this point is a really significant milestone that should not be understated. That said, completing this implementation is not our finish line. It's simply the foundation. The real opportunity for our company lies in what comes next. Leveraging this new platform to further standardize our processes, drive efficiency improvements, and ultimately unlock the full potential of what a unified global ERP system can deliver for our business and our stakeholders. We do have meaningful work still ahead of us, I'm confident that we have the right team in place to capture that value over time. This brings me to our third key priority, which is investing in our people.

At the start of the fiscal year, we set a clear intention to raise the bar on both talent and leadership, recognizing that building the right team is foundational to executing the strategy and long-term sustainable growth we desire for our company. This isn't something that happens overnight, but as I reflect on where we stand today, I'm genuinely proud of the progress we've made. Over the past year, we've made meaningful leadership changes within the Global Pet Care business, bringing in experienced CPG talent with a very strong focus on consumer-led insights and data-driven decision-making. These additions have already begun to strengthen our commercial capabilities and sharpen our go-to-market approach. Our fourth priority for fiscal 2026 is strategic transformation. Our key brands in both the Global Pet Care and Home & Garden businesses continue to deliver above-market growth, driven by consumer-led insights and bolder new product development.