David Prichard - Vice President, Investor Relations Andreas Rouve - Chief Executive Officer Doug Martin - Chief Financial Officer.

Bill Schmit - from Deutsche Bank Jason Gere - KeyBanc Capital Markets Bob Labick - CJS Securities Zach Fadem - Wells Fargo Ian Zaffino - Oppenheimer Kevin Grundy - Jefferies Lee Giordano - Sterne, Agee & Leach Jim Chartier - from Monness Crespi Carla Casella - JPMorgan Svet Nikov - Cyrus Capital Partners Kevin Ziest - Citi Jordan Teramo - Anandar Capital Rosemary Sisson - Guggenheim Securities.

Good morning, my name is Phoenix and I’ll be your conference operator today. At this time I would like to welcome everyone to the Spectrum Brand Fiscal 2015 Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question and answer period.

[Operator instruction] As a reminder, ladies and gentleman this conference is being recorded today Wednesday April 29, 2015. Thank you. I would now like introduce Mr. David Prichard, Vice President of investor relations. Mr. Prichard, you begin your conference..

Thank you operator, good morning and welcome to Spectrum Brands Holdings conference call and webcast to discuss our dependent of agreement to acquire Armored auto group and to discuss our fiscal 2015 second quarter earnings. I am Dave Prichard, Vice President of Investor Relations for Spectrum Brands and I’ll be your moderator for our call today.

Now, to help you follow along with our comments, we have placed a slide presentation on the Event Calendar page in the Investor Relations section of our website www.spectrumbrands.com. This document will remain there following our call.

Now let’s start with slide 2 of this presentation, our call will be led again today by Andreas Rouve, Chief Executive Officer; and Doug Martin, our Chief Financial Officer. Andreas and Doug will deliver opening remarks and then conduct the Q&A session.

Turning now to slides 3 and 4, our comments today include forward-looking statements including our outlook for fiscal 2015 and beyond. These statements 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 today, April 29, 2015, and our most recent SEC filings and Spectrum Brands Holdings’ most recent 10-K. We assume no obligation to update any forward-looking statement.

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 8-K filing, which are both available now on our website in the Investor Relations section.

With that, I am very pleased to turn the call over now to our Chief Executive Officer, Andreas Rouve. .

Thanks, Dave and thank you all for joining us this morning. It’s an owner for me to lead our company forward at the new CEO and continue to execute our strategic plans for future growth and value creation.

On behalf of Spectrum Brands, I want to take this opportunity to thank Dave Lumley for his dynamic leadership at our CEO the past five years and for his many and lasting contribution to our strong growth and development.

Turning to slide 6, before we reviewed Q2 results and as you may have seen by now, we have announced definitive agreement for the exciting strategic and accretive acquisition of privately held Armored for 1.4 billion in cash and assumed debt.

This highly profitable business with its strong margins and free cash flow will add well known brands including Armored, STP, A/C Pro which all have leading market share and allow us to expand into the growing highly profitable automotive aftermarket.

Armored provides consumers and retailers with best in class do it yourself automotive solutions and category leadership, high brand awareness and offers many opportunities for additional efficiencies. In addition, we see strong sales growth at park of Spectrum Brand.

Let me lift some, Armored sales into many of the same retail channels at our current business and this will help us to strengthen our preference in the mass and home-improvement channel. In addition it will open the automotive aftermarket-channel for us and will offer good growth selling opportunities for our legacy business.

Last but not the least; we see major international expansion opportunity for the Armored business by using our broad international infrastructure. The transaction is expected to close before the end of our fiscal third quarter on June 30th.

Given our strong and growing free cash flow along with the significant incremental free cash flow Armored will generate, we expect to pay down debt and deliver quickly. Now, turning to slide number 7 and our Q2 results.

We delivered a solid quarter, sales grew as reported by over 4% and also organic sales growth excluding the favorable impact from acquisition and excluding the negative impact from currency was 2.8% overcoming 15 million of negative part impact. Reported adjusted EBITDA grew 3 million year-over-year despite a 22 million currency hit.

We feel good about our first half performance but we expect the second half to be stronger. Port and Russian fish food issues are now resolved and our three recent acquisition Tell, IAMS/Eukanuba and Salix; will fully contribute to EBITDA growth.

The integration of all three acquisitions is ahead of schedule and we are on track to realize meaningful synergizes and benefit from good cross-selling opportunities in the out quarter. The EBITDA margin of the acquired business is currently as expected below the fleet average but we see strong improvement to come.

We are also executing well on our core sales growth strategies to leverage our international footprint and our broad product portfolio to enter into more countries expand and serve more channels and use our strong retailer relations to launch more categories.

Our international sales net of currency and acquisitions grew over 5% in the quarter and we see good opportunities for cross selling not only internationally but also in the North America. Turning to slide 8, the pace of innovation across our business is accelerating new products are launching around the world at a faster rate.

This allows us to introduce product at higher price points increased shelf space and expand margin. Our new product pipeline is robust and innovation would be main core element of our organic sales growth strategy. Continuous improvement savings in Q2 were again meaningful.

They enabled us to more than offset higher cost and to invest in growth initiatives. Last but not least, we took additional actions to further improve our global cost structure and strengthen our shared service infrastructure.

The restructuring initiatives which we announced in November are now implemented and they will further strengthen our burning growth. Therefore we continue to plan for 6 consecutive year or record performance in fiscal 2015 and we maintain our focus to growing adjusted EBITDA and maximizing sustainable free cash flow.

With that I’ll turn it over to Dough to give a financial review and comment on the divisional performance..

Thanks Andreas and good morning everyone and everybody is excited as Andreas on the board on the Armor All announcement and the potential that it brings to our company. But my prepared remarks to the extent that they referenced the full year do not include any potential impact from we announced our acquisition.

Turning down to slide 10, let’s start with net sales. Second quarter reported net sales of $1.07 billion increased 4.4% versus last year.

Excluding the negative impact of $55 million of foreign currency and acquisition related sales of $72 million, net sales increased 2.8%, strong volume growth and home & garden, HHI, Europe and Latin America were partially offset by continuing challenges in the North America battery and legacy pet businesses.

We continue to expect fiscal 2015 reported net sales to increase in the low mid-single digit range including acquisitions and partially offset by the anticipated negative impact of approximately 500 to 600 basis points based on currency progress. About 40% of our annual sales were outside the U.S. with the Euro and Pound being our largest exposures.

Reported gross margin of 35.1% decrease slightly from 35.2% last year primarily due to the negative impact of FX, reported SG&A expenses was $257 million or 24.1% of sales versus 23.6% last year due to higher expenses for stock compensation and executive transition agreement.

Interest expense of $49 million increase $2 million dollars year-over-year driven my acquisitions. Full year interest expenses expected to be between $195 and $200 million including non-cash items of approximately $15 million. Turning to slide 11. Cash interest payments of $28 million in the quarter were unchanged from the prior year.

Cash interest for the year is expected to be between $175 and $1880 million. Our reported tax rate was 22% compared to 24% a year ago. Our 2015 effective tax rate is expected to be between 20% and 25% compared to 21.6% last year.

Recorded for adjusted earnings we use 35% tax rate, cash tax in the quarter were $11 million compared to $19 million in the prior year and cash taxes for 2015 are expected to be between $55 and $60 million. On a reported basis Q2 EPS for $0.52 compared to $0.64 last year.

Adjusted EPS was $0.69 versus $0.72 last year, with the decrease driven largely FX and interest expense related acquisitions. Depreciation and amortization was $54 million and is expected to be between $215 and $220 million for the year. Including the impact of acquisitions.

Cash payments for acquisition and integration and restructuring various charges in the quarter were 10 million and $5 million respect and are each expected to be between $20 and $25 million for the year. I’ll now move on to the operating unit results beginning with hardware and home improvement with slide 12.

Reported Q2 sales grew 8.4% and 13% including the tail acquisition and excluding unfavorable impacts of $.46 million and 8 million from port delays.

Reported adjusted EBITDA of $45.7 million was unchanged with the margin dropping 120 basis points to 15.8%, port delays of negative FX impacted adjusted EBITDA by $4 million and $2.5 million respectively. After adjusting for those impacts adjusted EBITDA grew 15%, HHI’s core U.S.

business continue to perform well especially residential security and plumbing. We are confident that HHI will deliver another record year. Port delay impacts are subsiding in Q3 and activity has slowly returning to normal.

HHI has implemented strong cross and expense reductions along with pricing and margin improvement actions to mitigate these pressures.

HHI top and bottom line improvement will continue to largely come from the growth of its unique impairment smart key technology, home automations and electronic locks such as Kevo and other quick set smart locks, plumbing and in light commercial security from the Tell acquisition.

Our Tell acquisition is performing well and the integration is ahead of schedule. Key new recent product launches include Pfister React faucet, Kwikse Touch Screen beadbolt locks and Kevo innovations in auto calibration, expanded compatibility with Android devices and a partnership with Nest.

The conversion of our HHI to our SAP platform worldwide is progressing and it’s expected to be completed by the end of calendar year 2015, leading to additional cost savings after 10 [0:03:53.0]. Turning to slide 13, Home and Garden which reported record second quarter results following a record first quarter.

Reported Q2 sales increased 8% with growth in all 3 product categories Adjusted EBITDA grew 19% with a margin expanding 240 basis points to 25.4%, Home and Garden has poised for record growth again in fiscal 2015. Retailers are optimistic and early season fill has been strong. When the [weather] cooperate the consumer activity has been robust.

But the spring season unfolding over the past month of businesses gaining market share in core categories and continues to outperform underlying category growth. Largely by effectively leveraging our spectrum value model. Home and Garden has winning new distribution and strategic accounts as well as summer into our promotions.

New products and targeted marketing supporter helping to drive growth such as our Spectracide AccuShot delivery system and Black Flag flea and tick killer. Cost improvements this year are once again expected to more than offset inflationary pressures. Now the global Pet which is slide 14.

Q2 reported sales grew 32% including Salix and IAMS acquisition which totaled 63 million, excluding the negative impacts of FX $8 million and Port delays $3 million and adjusting per acquisition revenues sales fell 1%. Reported adjusted EBITDA grew 8% while the margin fell 320 basis points to 14.7%.

Excluding the negative impact of FX of $800,000 and port delays of $1 million, adjusted EBITDA increased 15% including acquisitions The decrease in Pet based business, sales were primarily due to aquatics category softness in North America, while animal sales were impacted by port delays partially offset by growth in Europe.

Integration of the IAMS and Salix acquisitions are ahead scheduled and we expect to realize me meaningful synergies over the next several years to further improve the margin structure.

The acquisitions significantly broadened Pet's geographic breadth, creating a division with annual revenues approaching $900 million on a pro forma basis, but enjoys a strong pipeline of companion animal and aquatics product launches in 2015 in North America and Europe we continue to go the base business geographically in Europe, Latin America and certain Pacific Rim markets.

Now the personal care which is slide 15, Q2 report of sales decreased 5.6% with FX more than offsetting core growth, excluding unfavorable impacts of $11 million in FX 2 and $2 million in port delays sales grew 6%. Report adjusted EBITDA increased 5% with a 90 basis point margin improvement.

On constant currency basis, adjusted EBITDA increased more than 50%, strong North America growth from shaving and grooming increases, constant currency growth in Latin America from shaving hair-care and new customers more than offset slightly lower European revenues.

On a constant currency basis, Remington is pushing for record year of sales, adjusted EBITDA dollars and margin. Key to this objective is North America where we have strong new product placements, especially in our core men's shaving and grooming category.

Overall Remington is benefiting from global new product development platforms to leverage its cost base and provide for regional volume growth at better price points.

A number of new products are launching including a SmartEdge foil shaver which is the world's first active hybrid cutting technology; a virtually indestructible hair clipper and beard trimmer and a lithium powered personal groomer that is the best-selling groomer in North America.

Continuous improvement savings are more than offsetting product cost increases and support a new product development. We also continue to see strong growth in e-commerce sales.

Let’s turn to small appliances which is slide 16, reported Q2 sales were essentially flat excluding unfavorable impacts from FS off $11 million and port delays of $2 million sales increased 8%.

Revenues grew at a double-digit rate on a constant currency basis Europe and Latin America, our North American sales were essentially flat due to shipment timing. Reported adjusted EBITDA grew 13% with margin expanding 110 basis points. On a constant currency basis adjusted EBITDA grew 75%.

Volume gains and cost savings and cost savings largely offset negative impacts from FX and port delays. Small appliances is also benefiting from an improved cost structure global new product development platforms and innovation that is enabling our regions to grow volumes and price up in certain market and take shelf space.

We are excited about level of new product introductions in this business, they include a 5 minute pizza than a snack-maker, a fusion blade performance blender, purify oil-free health fryer; Russell Hobbs Legacy collection; and a series of enhanced George Forman grills. We are also seeing strong e-commerce growth in small appliance business as well.

Now to global batteries which is Slide 17. Q2 reported sales decreased 14%, excluding a negative FX impacted $20 million sales of 4% due primarily to continued comparative discounting and retailer customer bankruptcy in North America. Europe again delivered strong growth on a local currency basis, driven by new customers and increased volumes.

Latin America revenues also on a constant currency basis. The fully adjusted EBITDA decreased 16% with the 40 basis 40 basis point margin decline. Excluding a negative FX impact of $6.4 million just a EBITDA dollar’s reflect. Improved mix and cost savings offset lower volumes and higher product cost.

Aggressive pricing activity from premium branded competitors continues in North America. We are leveraging our Spectrum Value model of same performance less price for Rayovac vs. premium brands. In addition we're innovating in batteries.

The US launch of Rayovac FUSION, our highest performing and longest lasting alkaline battery began during the quarter. FUSION is an excellent example of how we reinvest battery cost improvement success for enhanced product performance, retailer POS and longer-term market share growth.

We are driving lower overall global cost this year on a currency neutral basis from significant continuous improvement savings and tight spending controls.

Moving on to the balance sheet on Slide 18; we ended Q2 in a solid liquidity position with $42 million drawn on our $400 million IPO, a cash balance of about $88 million and debt outstanding of $3.4 billion.

We continue to expect fiscal 2015 free cash flow to be approximately $400 million, nearly $8 per share impacting our estimated free cash flow, has been negative impact of foreign exchange, increased capital expenditures, acquisition and integration costs and cash costs related to our new restructuring initiatives.

Fiscal 2015 capital expenditures are still expected to be between $75 million and $85 million compared to $73 million last year. These incremental investments which include expenditures supporting the recent acquisitions are expected to drive innovation and cost improvement, increased capacity and deliver organic sales growth in future years.

And now back to Andreas for a few closing comments. .

Thanks Doug. Turning to slide 19. In summary we are optimistic about delivering record results for fiscal 2015. We are also confident about delivering a second half that is stronger than solid first half we have reported. Expenses have been reduced. A more efficient and streamlined organization is now in place that is designed to increase organic sales.

The fish food ban in Russia is solved. The port delay impacts are history. Three exciting new businesses have been added to our global platform and we are moving quickly to integrate them. In addition we're launching new product at a faster rate around the world taking pricing action where possible to mitigate currency pressures.

And we are making good progress to improve our North American battery and pet business. We look forward to sharing further progress with you again at the end of Q3. Thank you, and now Dave for the Q&A..

Thanks very much Andreas and Doug. Operator you may now begin the Q&A session please..

[Operator Instructions] Your first question comes from Bill Schmit, from Deutsche Bank. Your line is now opened..

I have a handful of questions, I apologize.

The first one is the free cash flow guidance for the year, the $400 million, I think that still excludes IAMS and Salix, is that true?.

They are in there, Bill. They are in there, and we mentioned that on the last call as well, offsetting -- that's obviously helping is offset FX. .

Okay, got you. So they are fully baked in, okay, that makes sense.

When we have an EBITDA margin for the Armor All Holdings acquisition, can you just tell us directionally where the EBIT margins are as we try to kind of do some of the accretion dilution work?.

What we like to do on that is hold of a little bit until we closed the transaction and then we'll get you a little more detail on all the elements..

Okay.

Back of the envelope math, because it seemed like the pro forma leverage is about 4 times, is that directionally close?.

Well, pro forma leverage if we close in the next -- during this quarter, the out-of-the-box leverage would be high 4s. But if recall we generate as Spectrum Brands has a lot of our cash in the last half of the year, and Armor All, and its businesses do as well.

So I would expect it to be made 4s by midyear and then a year out from our fiscal year and back down in the full range..

Okay, then I've got just a couple more structural questions on the deal.

Does it impact your taxes at all? Are you getting NOLs from the deal? Like will we still not be a US taxpayer for all intents and purposes?.

For all intents and purposes, we won't. We will continue to have the NOLs that we have. But the Armor All business is largely a U.S. business, so we will be able to use those earnings -- we will be able to offset those earnings with our NOLs. Let’s, good cash yield for us..

Okay, great.

Then just on the structure of the equity raise, am I right to assume that so Harbinger is going to take down the 59% of the 5.6 million shares to keep their pro rata ownership?.

Essentially there is going to be a - we are going to issue $500 million of stock Harbinger does intended to participate to the extent that it can’t and that’s somewhere in the 50% range..

Okay then. Two more quick ones, I apologize. How do you guys think of bandwidth because you have done so many acquisitions in the last year or so.

So like are you kind of ring fencing the acquisition so there is a like a team for IAM, a team for Salix, a team for Tell and a team for Armor, how does that impact sort of the day-to-day operations of the business because they are all great acquisitions but it seems like there's a lot on your plate right now..

Bill, that’s a very good question and I think the point is we are going to run the Armor All group at a separate division exactly that we are not going to cause distraction for the other team and also if you look at the three acquisitions which we have made this year Tell is really for HHI, if you look at Salix it’s Pet North America, If you IAM/Eukanuba it is the European team.

So each of those acquisitions while they may look a lot at one time are really being absorbed by different team..

Okay, got you.

Is Michael Klein going to come over with the acquisition as well?.

This is very early now in the process. We are actually heading to their office later today and of course we will have to see how also their intentions are, but it is going to be run as a separate division and therefore retaining the talent it’s key of our strategy..

Okay, great. Lastly, I mean it looks like the EBITDA growth on the Battery & Appliance business excluding the port strike was up 26%. How sustainable is that? Like what were the drivers there? And then also just on the G&A overhead piece, it seems like there was a big accrual step up on incentive comp.

Is that like a one quarter thing or is that going to happen for the balance of the year? Then I promise I am done..

It’s really a year-over-year difference, absence of accrual last year. But I would call a more normalized accrual given the pacing of this year and on the batteries & appliance business we run a pretty structured and we are getting good growth on the appliances and personal care pieces.

So we are getting some natural leverage there and we are getting some mix improvement as we introduce new innovation..

I think you will also see here really the benefit of our long-term strategy of having a continuous flow of innovation coming to the market and that will continue and if you look at each of the separate element be that in home appliance, be that in personal care, be that in battery, we are continuously bringing new products to the market which will help us improve our margins..

Your next question comes from Jason Gere from KeyBanc Capital Markets. Your line is now open..

Thanks, good morning, guys. Nice, exciting week since I've picked up coverage. I actually have a couple of questions to ask. So I guess the first one, if we could just talk about your excitement over organic sales in the back half of the year.

How much of that is more you are seeing on the consumer side, consumer behavior improving and you are seeing retailers take up more inventory? Or how much is it really more market share gains, strong innovation? I have seen some of the new products that you guys have been launching at the trade shows.

So I'm just wondering if you can touch upon that a little bit?.

If we go through it step by step, I think the first element we do see the market growing modestly. But this is really not going to be the key driver of change it is really that we are more seeing the benefit of our more and more strategy.

That means expanding into more categories, pushing more cross lifting at existing retailers, expanding into more channels, strengthening our multi channel strategy and last not least the international growth as you have seen already in the second quarter. We are seeing some very nice organic growth internationally.

It was just a little bit dampened in the second quarter by Pet North America and Batteries North America. But the rest of the business is really developing very nicely and we see that continue..

Okay, great. Second question just on the acquisition and familiar with the Armor All brand just from the days of Clorox.

Obviously the last few years in private equity ownership not so much because can you talk a little bit about what you think has been the biggest change? I know that they made an acquisition within the business but what really kind of changed from when it was owned by Clorox to private equity? And I understand from our perspective the international footprint opportunity, Latin America that you can bring that maybe Clorox couldn't.

But just wondering what type of change was, what did you see as some of the beneficial changes that were kind of made along the way as it comes into your portfolio or potentially comes into your portfolio?.

It may be difficult for us to come in now of what have changed over the last four or five years.

I think the point is, and that's always, if you have a brand being organized, it is a standalone or in a separate division that you have of course a much stronger focus, be that on innovation, be that on marketing initiatives, so therefore I think that really the management team has done an outstanding theme of bringing innovation to the market, strengthening their fields footprint.

Now talking about international expansion and here really I think that's one of the key benefit of Spectrum Brands going to come into play, to have the size so that you can afford and infrastructure in foreign markets it is very beneficial if you have several divisions which can share the infrastructure cost.

And this is really where we are going to add benefit to Armor All that we can basically offer them the existing infrastructure. We will need to strengthen that sales team internationally. We will add marketing and so on. But basically I think we will probably be able to take them international relatively fast..

I appreciate the color. And then my last question, I think before when you guys were giving guidance after the first quarter just in talking about the margins for the year, I think the words if margins were kind of flattish that would be kind of a good outcome.

I was just wondering just with FX and how it is playing through and then even with just some of the synergies that are coming through with some of these acquisitions, how are you thinking about operating margins playing out for this year?.

We are still -- I speak to EBITDA margins versus operating margins because that was what my comment in the last call referred to. We continue to have a lot of confidence in our ability to fight FX challenges. And we're fighting them every day and we're doing things across the business to continue to work to offset those.

That in the momentum, the growth momentum we see going into the back half would still lead me to say if we're kind of flattish EBITDA margin year-on-year, given the challenges that we have, that would be a good outcome..

So then that would imply.

I know you don't give EPS guidance or adjusted EPS guidance but your EPS guidance would be kind of similar to your top line?.

You're right, we don't give guidance on that..

All right, worth a shot, I am the new guy. Okay, thanks.

Your next question comes from Bob Labick from CJS Securities. Your line is now opened..

First I want to say congratulations to Andreas on his new role and then also on the exciting acquisition you are announcing.

On the acquisition, I was wondering if you could take a step back and maybe give us a little background to the process when you started looking, what got you involved, was this an auction, and then anything else you can tell us in terms of the background of the process?.

Sure, this was a longer-term relationship that our Chairman of The Board, David Maura had with some of the people at Avista and it was not an auction process.

It came out of a discussion and the opportunity arose when David and people at Avista recognized that we could add a lot of air to this company, if having it come to Spectrum Brands, and they could realize their objectives as well. So that's kind of the background with it.

It accelerated, I would say in early March and we have obviously spent the last three weeks, several weeks doing due diligence and working with the other side to get to the agreement..

Okay, great, very helpful color there. And then just moving back into the core business; exciting things going on in Pet. You said the acquisitions are integrating ahead of expectations.

Obviously with all of the moving parts, can you help us think about organic growth on a normalized basis and more importantly, what the margin structure is going to be once all these acquisitions fold in?.

Yes, let me just cover the first element. I think we have in the Pet business, different category, the one element, the aquatics business, there is more kind of a flattish slightly declining category.

We are working very hard to change, that means to bring innovation to the market to get more consumers into the business, to work together our retail partners to get this business up and growing again. But currently this is modestly declining business.

Completely different in the combining part of the business, this is a kind of growing business and again we will see also long-term benefits, simply that households keep more pets at home.

Our strategy to accelerate the growth is also in Pet the same as for all the other divisions, our more, more, more strategy that means using our broad portfolio of product increasing cross listings where we have already relations expanding into new channels and with especially taking them more international.

If you look back two, three years ago Pet was really strong in the U.S., Germany, France, UK, a little bit in Italy and Japan and that’s it. And we are basically now systemically taking the Pet business global. Everywhere where we haven’t footprint, we have rolling out to that division as well..

Okay, great.

And then on the margin profile for the division?.

Well, the margin is of course dependent also of the mix, they are certain categories where we are enjoying very high margins like for instance the aquatics and then there are on other extreme like in the acquired IAMS/Eukanuba margins are little bit lower, but that’s party also linked that we have not yet fully implemented all the synergy and that also again with increasing our cross listing, we believe that we can grow sales relatively rapidly and therefore leverage our expense structure.

So that we see the EBITDA margin long-term pretty much at the same level where we are today..

Your next question comes from Zach Fadem of Wells Fargo. Your line is now open..

Could you comment a little bit on the market growth rates for the Armor All businesses in the U.S.

and international if you have it? Also with a large part of the Armor All sales coming from the automotive channel, can you talk about the cross-selling opportunities you have? Are any of your current products batteries, flashlights, locks or anything like that in those channels and if not, what is the plan to potentially get them there?.

If we look at the category, it is basically and modestly growing, so it’s not extremely rapidly growing, but modestly growing category. And then again if I go to the second part of your question on the retail channels.

Yes the auto channel is a very important one, but it’s only roughly half of the business, that’s a very strong other element which is in the home improvement centers in the mass channel and therefore we see the two benefit on the one side we we’re going to strengthen in those channels where we are already present with the legacy business and with Armor All, we’re going to strengthen our presence.

And then on the second element exactly as you mentioned in the automotive channels, we do see cross listing opportunity, economic so far we are not serving that channel but our other categories, but we’ve own to get open doors than much easier..

Great. Switching gears to HHI, the business accelerated pretty sharply versus Q1 even with the port drag.

Can you explain a bit about what is going on there in the acceleration from Q1 to Q2? Is this just seasonality or easier comp or was there something else going on in the quarter to drive that growth?.

I think we’re seeing several benefits. On the one side, we do see a nice increase in new construction especially in the multi-family. And we are very successful in gaining new customers in those channels. The second is also that also in this category our strategy to continuously launch innovation is paying off.

That means we are gaining more shelf space, we are getting more promotions and also that is helping the gross rate..

Okay. On to Batteries, now that you have had a few quarters of Rayovac FUSION, how is it performing so far? Also last quarter you indicated that or Dave did that Battery sales in constant currency would be positive for the year.

Should we still expect that?.

Let me just first answer on the FUSION side. We actually have physically started shipping FUSION in this second quarter that means of course we have presented to the customers before, but first shipments really were in the second quarter.

The response so far is positive, but again I would say just probably a little bit pre-mature to make a kind of more generic statement. But the first responses are very positive from the street and also sell out data.

So with regard to full year let me take growth rate, it is a little bit difficult, because of cost we are fighting especially at one of the retailers were one of our competitors have been very aggressive. We are fighting to get shelf space back but then again that depends how fast we are going to be successful in this rule..

Okay, thanks a lot and congrats on the new role, Andreas, and congrats on the deal..

Thank you very much..

Your next question comes from Ian Zaffino of Oppenheimer. Your line is open..

Given this acquisition and the idea that maybe you have a lot on your plate here, and you are growing sort of another vertical, does it make sense maybe to pair-back in another area? Maybe use the proceeds for I don't know, maybe a buyback or to pay down debt? Or are you really happy with every piece that you have?.

This is Doug. We are very happy with our verticals and happy that this new one is -- and as Andreas mentioned earlier we run the business units as distinct and separate business units and they are very focused on what they do and by and large are performing well.

We have a couple of problems in the business that we are all aware, the North American Battery challenge and a little bit impact, but that's all being, those issues are being addressed now. So we think we have got the right focus and a right portfolio. So we wouldn't expect to do best anything so we won't have any proceeds..

And then touching on the Battery business a little bit, you spoke about challenges. Is that market now becoming a little bit more rational? I know there has been some changes at your competitors or pending changes at your competitors.

Have you seen anything as it relates to the market becoming more rational? Do you anticipate it becoming more rational, just give us a little flavor there. .

Yes, definitely, we would expect it and I think that would be common sense. We are not yet seeing it. So that's why we are expecting it and it should happen. But I think the point is also we should not overly dramatize this impact.

We mentioned earlier the second quarter sales decline, and that is North America was also partly linked to the bankruptcy of another retailer. So therefore the impact of this, let me say aggressive promotional activity of one of our competitors really the impact was already much smaller in the second quarter compared to the first quarter.

So therefore we don't see this as a long-term threat. I think it's more a kind of short-term window dressing..

Okay. And the final question would be after you deliver from this deal, do we expect another deal or do we expect shareholders to get some cash back? Help us understand that. .

On that one, we do intend to deliver over the next couple of years as several have mentioned. We have had done a lot of -- we had a lot of activity in the last seven or eight months and we are working to integrate those across the businesses. So that we are focused going forward that in deleveraging.

But as we go forward will get in some of this digested. We would continue to focus on rolling up in the business is that we want to continue to be tuck-ins and so that would be HHI and Home and Garden and the Pet businesses over time and clearly we have a new opportunity to look at once we bring the Armored AutoGroup in.

So from return to shareholders respect, I guess you're just not going to see us go to a big buyback. .

Let me just jump in. I think it should be very clear. Spectrum Brands long-term strategy is about growth. And that growth can be organic with a lot more, more, more strategy. But it can also be including acquisitions. However at the same time while we are pursuing those two strategies, we will always pay attention that we have a healthy balance sheet.

So therefore we will always have to keep that in balance sheet..

Your next question comes from Kevin Grundy of Jefferies. Your line is now open..

I will be brief because we've covered a lot of ground. I apologize if I missed it, did you guys speak to cost synergies on the deal? I mean generally sort of the rule of thumb is 5% to 10% of sales in consumer staples.

Did you speak to that and what should we sort of expect on that front?.

If you look at the group, they have a relatively lean expense structure as they are today. So therefore I would say the expense synergies are not the key while we were looking at the deal.

I think the key driver of this acquisition is really sales growth, that we have a very strong brand, very strong product portfolio which we can take international and push top line. Of course, there will be certain synergies.

We are going to continue to stay true to our Spectrum Value Model which does include shared services for our back-office function. Of course when we do the international rollout, we are going to use the common infrastructure. So therefore there will be synergies but this is not going to be the priority.

The key focus of this acquisition is topline growth..

Okay. And then the other side of that I guess sometimes the conventional thinking is that private equity may not invest behind the brands the way they should sort of longer-term.

Is that your observation at this point? Do you think there is a need to step up spending behind STP and Armor All?.

We will have to do the same as with our other brands. We will have to target it very specifically which brand is working and which channel and therefore we will have to address that.

So that will -- yes we may increase in certain areas our marketing efforts but at the same time we may also get certain efficiency by being part of the bigger Spectrum Brands family and therefore also using some of the resources more efficiently..

So we should be thinking about margins based on what is reported, not much change with some efficiencies offset by the need to reinvest? Is that fair?.

Yes, I think that's a pretty good, I think the second point what also in all fairness we will have to mention we are planning to grow strong internationally and of course we will have to add some infrastructure expenses to support that international growth and the EBITDA profitability of the international element will not be as strong as likely say from the North American.

But however topline growth leverage in some of the synergies and then those investments all should balance each out, so that the EBITDA margin should be pretty close to where it is today..

I see. Two more brief ones if I may. Can you talk about -- so the multiple is a bit higher but it is a quality asset? EBITDA margins are higher relative to the fleet and frankly even relative to the group.

Can you talk a little bit about how you are balancing the hurdle rate on this deal with the relative to the strategic fit and accretion? And then maybe how this measures up on those metrics particularly on returns relative to more recent deals?.

This is Doug. As you mentioned, the margin structure is really attractive in this business and it will help enhance the total margin structure of the company and it gives is these channel and cross-selling opportunities that Andreas as mentioned. So we took all that into account when evaluating the transaction and our expected returns..

Okay. One last one off of the deal. I guess, Doug, I was a little bit surprised. It looks like you maintained the FX headwind of 5% to 6%. Is there anything from a hedging perspective? I thought maybe that, perhaps that would be a little bit worse relative to last time you guided given the stronger dollar. .

Yes, that's on the top line specifically and we're still kind of -- we kind of move from one end of that range to the other and during the last three months. The bottom line, the EBITDA impact is going to be meaningful.

It's going to be probably twice what we have seen in the first half of the year, maybe slightly more and about half of that is translational and about half of that is transactional. And we do have our major currencies hedged for about roughly 70% hedged throughout the year, this year.

So you can expect obviously some carryover in the next year because the hedges we are layering on now are at current rates. .

And the profit hit, Doug, is about 2.5 X relative to the top line what we observed in the second quarter? Is that also fair?.

That's reasonable, yes..

Your next question comes from Lee Giordano from Sterne, Agee & Leach. Your line is opened..

My question is on the Armor deal. I'm just wondering how do you see this fitting within your Spectrum Value Model? Are these considered premium brands in their categories and do they do external advertising? I think I have seen STP ads before.

Can you just talk about how that fits within your longer-term value model strategy?.

I think the point is, and there is sometimes confusion. Value does not mean cheap. Value means the superior value. That means we are giving a consumer of that the product for a given price or we are offering same price a better product. So therefore value can work at every price level.

That can also be in higher price point as the lesson lower price point. In the case of Armor All we have again the superior value that means we have a very loyal consumer base. Therefore I think that fits very nicely. With regard to advertising we had touched it all year a little bit with regard to marketing.

These strategies have to be decided division by division, category by category. Then maybe category advertising may be a complete [indiscernible] there is the other categories that we have to create awareness where we have to highlight our product benefits and therefore we will adapt our marketing strategy to each of those segments..

Your next question comes from Jim Chartier, from Monness Crespi. Your line is now opened..

On the acquisition I was just curious if you could just talk about the size of the international market for these products relative to the US and what the market share is in those markets? And then if there are any structural differences overseas versus the U.S.

in terms of like similar level of do-it-yourself behavior?.

We are very early in the process of evaluating opportunities outside of the business. Only about 20% of the business is now outside of the U.S., and as the Spectrum Brand is about 40% outside so we are doing the work to seize the opportunity especially in the market where we already have infrastructure. But as you would expect they are big markets.

We obviously have a lot of cars in the US, but there are a lot of cars in China, in Western Europe, in Latin American countries where we have presence..

Is there a similar level of do-it-yourself behavior in those markets versus the US? And then in terms of market positioning or market share, how do these brands shape up overseas versus the US?.

There are differences, regional differences, and country differences in how people use performance products or appearance products. And in Western Europe in general we would say, would use less of these especially the AC PRO line. That would be more of a shop repair than a do-it-yourself, or do it for me repair.

In US we think there are more opportunity to continue to build that business out. And we think in some of the emerging market of the countries that we operate in and there is more -- a greater like those activities would be performed by the do-it-yourselfer..

. I think it's also important to understand, even in our current existing other divisions, we do see regional differences in consumer behavior. Just let me pick one example of home appliances. Everyone in Germany brings coffee for breakfast, if you try to sell a coffee machine in the UK, good luck. There everyone drinking tea.

And the same is going to apply also here that they will have to adapt our product offering to the target, market to the target consumer..

Your next question comes from Carla Casella of JPMorgan. Your line is now opened..

On the Armored Auto acquisition, the $900 million of debt, that assumes refinancing of all of the Armored and IVQ debt, correct?.

That's correct..

Okay.

And then the free cash flow increase this year; is some of that benefit coming from working capital or is it assumed to be almost all EBITDA increase?.

Across the whole business you mean?.

Yes step..

Yes, yes. There is a -- it's largely from the EBITDA growth of the business. It's where the free cash flows coming from. That will be a modest improvement we think in working capital..

Okay, great. And then you talked about the premium battery kind of discounting you are seeing in the market.

Can you just talk about the price differential where it is today versus where it would be on a normal basis and where you see that ending up for the year -- of yours versus the premium? And do you try and maintain a margin or just that you want to be less expensive at the same quality? I think the point -- and that is where you getting the -- the distinction come into play that superior value to stop mean lower price.

And this is also where the launch of our fusion battery comes into play. It is, I believe long-term key to maintain healthy margins, both for the retailer and for the manufacturer. And that's why I think it would be a very dangerous game to try to play a kind of downward spiral where one takes the price down and the other one is going to follow.

So we would put more emphasis also on some of the higher quality, higher performance battery to make sure that price points remain in a healthy level..

Your next question comes from Svet Nikov of Cyrus Capital Partners. Your line is now open..

Hi. I just wanted to clarify the $60 million additional free cash flow that will come from the acquisition. It says that it includes integration costs.

Could you give us a sense for how much that is in other words if once you get past those, what would the full cash flow impact be?.

I am not prepared today to talk specifically about integration expenses now far but once we close the transaction, we will be ready to talk about those. But I would say that that is a $60 million is a relatively conservative number. We expect to increase that pretty rapidly..

Your next question comes from Kevin Ziest of Citi. Your line is now open..

Just real quickly on the IDQ business, we are pretty familiar with Armored and STP. I understand that the refrigerant that is used in that product is banned in certain new cars and maybe potentially going to be banned elsewhere.

Could you talk about any due diligence you have done on that front and sort of how easy it is to switch over to new refrigerants?.

I think the point for this important that A is the time horizon. The potential change is coming couple of years down the road and second which is probably even more important, our target consumer is driving a used car that means we are not so much concerned about new cars but the used cars.

So that what we believe we have a quite a sufficient time window to look for alternative. However, what I think is also very important to understand, we faced continuously in any industry changing regulations that means that continuous flow of innovation to look for substitute product if nothing new, just if you look at batteries.

Couple of years ago, batteries included mercury so we have to substitute those materials. And that is the same going to be in this business, so we don’t see that as a major concern..

That is really helpful. Just in terms of the broader auto aftermarket category, you mentioned that this may be a platform for additional tuck-ins it sounds like.

Can you talk about where multiples are? Are they around what you are paying for this business or are they a lot lower given that this is kind of a platform acquisition for you?.

Yes from a multiple respective when we were considering, at a point we decided again considering tuck ins with this category, we will evaluate it at that point but we didn’t have done a lot of work in this space yet..

And in all trends, I think our --after the integration, our first priority over the next 12 months would be to reduce our leverage again to a long term target rate of the pool..

So under or around 4 times?.

That’s correct..

And then just lastly on the broader business, I'm not sure if I heard sort of an overall inflation target for 2015.

I saw you mentioned that the Home and Garden space is seeing some inflation?.

It varies by business and varies by region and honestly and we are actually seeing some of our ability to offset FX challenges related to our ability to push our cost increases and cost to our supply chain whether it is raw material cost, we are commodities are stepping back a little bit or in our sourced finished good supply chain where inflationary pressures are less than we expected in any way.

So not a large amount of inflationary cost pressure in cost to goods sold for us in the business and we have very robust, continuous improvement programs that are offsetting some of those input cost increases in the business..

Your next question comes from Jordan Teramo of Anandar Capital. Your line is now open..

Thanks. Couple of quick questions.

Just want to make sure the $400 million, the approximately $400 million of free cash flow, that does include all the acquisition integration and restructuring initiatives which should be about 20 to 25?.

That’s correct..

Okay.

And it doesn't include as you have mentioned, anything and none of this guidance includes anything with regard to Armor All?.

That is correct..

In terms of EBITDA, free cash, besides what you said but you don't add that in terms of talking $400 million or anything like that?.

That is correct..

Operator, I think we have time for one more question here as we near to the top of the hour, let’s take one more then. Thank you..

Your final question comes from Rosemary Sisson of Guggenheim Securities. Your line is now open..

Thank you. Just a quick one, you did mention that you might possibly be able to close the acquisition before the end of June.

Did I hear that right?.

Yes, that’s our current assumption..

Okay. Thank you..

Okay, thanks to all of you and with that we have reached the top of the hour and we know we all have busy day today. So we’ll go ahead and conclude our conference call. I certainly want to thank Andreas Rouve and Doug Martin.

And on behalf of everybody here at Spectrum Brands we want to thank you for participating in our conference call to discuss the Armored Auto Group acquisition and our fiscal 2015 second quarter earnings. Have a good day and thanks again..

Ladies and gentlemen this concludes today’s conference call. You may now disconnect..