David A. Prichard - Spectrum Brands Holdings, Inc. David M. Maura - Spectrum Brands Holdings, Inc. Douglas L. Martin - Spectrum Brands Holdings, Inc..

Ian Zaffino - Oppenheimer & Co., Inc. Faiza Alwy - Deutsche Bank Securities, Inc. Bob J. Labick - CJS Securities, Inc. Olivia Tong - Bank of America Merrill Lynch Joseph Nicholas Altobello - Raymond James & Associates, Inc. Shannon Coyne - BMO Capital Markets (United States) Carla Casella - JPMorgan Securities LLC Karru Martinson - Jefferies.

Good morning. My name is Heidi, and I will be your conference operator today. At this time, I would like to welcome everyone to the Spectrum Brands Fiscal 2018 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.

As a reminder, ladies and gentlemen, this conference is being recorded today, Thursday, April 26. Thank you. I would now like to introduce Mr. David Prichard, Vice President of Investor Relations for Spectrum Brands. Mr. Prichard, you may begin your conference..

Thank you, operator, and welcome to Spectrum Brands Holdings' fiscal 2018 second quarter earnings conference call and webcast. I'm Dave Prichard, Vice President of Investor Relations for Spectrum Brands, and I'll be your moderator for today's call.

To help you follow our comments, we have placed a slide presentation on the Event Calendar page in the IR section of our website at spectrumbrands.com. This document will remain there following our call.

Now, if we start with slide 2 of this presentation, you will see that our call will be led today by David Maura, our Executive Chairman and Chief Executive Officer; and Doug Martin, our Chief Financial Officer. David and Doug will deliver opening remarks and then conduct the Q&A session.

If we turn now to slide 3 and then slide 4, our comments today include forward-looking statements including our outlook for fiscal 2018 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 April 26, 2018, 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 filings, which are both available on our website in the IR section. I will now turn the call over to our Executive Chairman and Chief Executive Officer, David Maura..

Thanks, Dave, and thanks everybody for joining us this morning. On behalf of the board of directors, I'm here today with a pretty clear message. The recent inconsistent performance of our company capped off by the disappointing second quarter results must and will come to an end.

We intend to deliver the growth and long-term shareholder value you're expecting from us, and that we are more than capable of delivering. This company will in no way be defined by this quarter's results.

12 months from now, this quarter will be insignificant, but this company will be refined by the actions that I've taken over the last couple of weeks, actions taken today, and over the coming months. Spectrum Brands is going through a transformational year that will result in a much less levered entity, with four core operating units.

We will have greater growth potential and higher margin structures going forward. We have announced several actions this morning, including the establishment of a new more efficient operating structure, for our Pet, Home & Garden and Auto Care divisions and a new board authorization for a three year $1 billion share repurchase program.

The challenges which you see in the numbers this morning relate to our HHI and GAC consolidation projects. They were meaningfully greater than management anticipated or expected and that resulted in a short-term degradation of sales, margin and free cash flow.

We've taken swift and decisive action in recent weeks to steady the HHI and Global Auto Care facilities with new frontline management, along with improved plans and aggressive oversight. I am confident that the longer term strategic merits of these consolidations will result in improved operating efficiency, reduced costs, and much lower inventories.

If I could have you turn to slide 7 now. We are combining the leadership of our Pet, Home & Garden and Auto Care divisions into a newly formed Consumer Products group. This group will be run by Randy Lewis.

Randy brings strong fresh leadership to this group and he will drive efficiency to better leverage the shared manufacturing and distribution expertise across these businesses. Let me give you an example.

The industrial production of our aerosol products, liquid fills and our canister wipe lines in both Home & Garden and Auto Care are essentially identical. This will allow us to expand and further leverage our centers of excellence and best practices between both our St.

Louis facility which is run like a military operation and our new Dayton facility which needs discipline. Randy is a seasoned and highly capable operating leader and he is now going to oversee the corrective actions being taken to implement and being implemented in our new Auto Care facility in Dayton, Ohio.

While this will take time to achieve full efficiency levels at this facility, I have every confidence that Randy and his team will accomplish the task.

Before I turn this over to Doug for some details on the quarter, I want to be clear, this quarter in our resulting of the lowering of our 2018 guidance are major disappointments to every one of us at Spectrum Brands, but they will in no way define this company a year from now. We have a lot to be excited about.

There are major proceeds coming into this company from our GBA asset sales, and there are major benefits with the resolution of the HRG ownership structure, which was resolved in the merger that we expect to close in June. We are on the way to building a smarter, stronger, and much more focused Spectrum Brands for the future.

I'm confident that you will see positive momentum and growth restored in the back half of this year. I will come back to you during Q&A, but now I'll turn it over to Doug for more details..

full year interest expense is now expected to be between $215 million and $225 million, including approximately $10 million of non-cash items; cash interest payments are expected to be between $200 million and $210 million; depreciation and amortization is now is expected to be between $205 million and $215 million for 2018, including approximately $10 million for amortization of stock-based compensation; our 2018 effective tax rate is expected to be between 27% and 32% excluding the large one-time items from Q1 related to the impact of the U.S.

tax law changes, and any sales of the GBA segment; and note that for adjusted earnings we now use a blended rate of 24.5% versus 35% in prior years; cash taxes are expected to be approximately $60 million to $70 million without the impact of any dispositions. We do not anticipate being a significant U.S.

federal cash taxpayer during 2018, as we continue to use net operating loss carryforwards; cash payments for acquisition and integration and restructuring and related charges are now expected to be between $80 million and $90 million; and capital expenditures are expected to be between $110 million and $120 million. Thank you.

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

Thanks, Doug. As I conclude today's call, I want to be clear. I absolutely believe that one year from now Spectrum Brands will be in its best position ever since my tenure with the company. I've been here almost 10 years.

We will significantly strengthen our balance sheet from over $500 million-plus of free cash that we expect to collect over the next five months. We have meaningful proceeds coming in from asset sales. We will restore efficiencies in our factories and customer service will be meaningfully enhanced as a result.

Customer service is job one in Dayton and in Kansas. Our company is intact. The underlying demand for our products is healthy. Our order book is strong and the executional issues will be behind us. I still believe the best days for Spectrum Brands are yet ahead..

Thank you very much David and Doug. With that, operator, you may now begin the Q&A session, please..

Thank you. Your first question comes from Ian Zaffino with Oppenheimer. Please go ahead..

Hi. Great. Thank you.

David, as far as the CEO role, is this a permanent role or is this is temporary until you find someone else?.

I am permanent. I'm looking forward to tackling these challenges because I see them as opportunities and I'm excited to drive the business forward..

And I know you mentioned customer service, give us an idea of what your customers are saying to you, this – you have these issues for over a year now, is there any kind of degradation in that customer relationships or is this just something that you're going to be to quickly recover?.

No. It shows up in the free cash flow adjusted guidance and that's why it's so transitory. The bulk of the adjustment today is 100%, it's almost 100% working capital and basically investment in customer relations.

And so we're doing all of that to support them through this time and I – listen, I'd be remiss if I didn't thank my sales force at both HHI and Global Auto Care for doing a great job of managing our retail customer.

But, look, I also want to tell you, while today is technically day one on the job for me, I've been traveling and probably haven't slept for two weeks but we were fortunate enough to have Randy Lewis a little over a month ago offer up a gentleman by the name of Steve Keller and he's one of our best operators and we dropped him into Dayton, he is now taken over running that plant, he is already cleared some of the bottlenecks in distribution that are out in front of those production lines, and we're getting our fill rates back up.

So, look, it's – what's difficult for you – the reader today to absorb is the magnitude of it.

And really, it's – the simple fact is that everything and anything that could have gone wrong in the months – in the month of March went wrong and calling it kind of a perfect storm in that month of March is – I mean, you live in the Northeast like me, there just wasn't a lot of people going around, walking dogs in snowstorms in New Jersey or spraying for weeds.

But, look, customer service is job one, we're investing heavily behind it. We have phenomenal brands, phenomenal franchises, we're going to keep our shelf space and we're going to make sure – look, I've told the team if there is any customer I need to see to get them through this process, we're going to do that.

But, absolutely, we did not anticipate the disruption we experienced in March, and we're putting it behind us..

Okay. And, Doug, I know you gave us a good idea of what the revenue impact was on the distribution centers.

What was the EBITDA impact, so there are additional costs above and beyond that, so just trying to bridge the gap between where we were on the Street versus kind of where you came in as it relates to EBITDA rather than revenues?.

Yeah, we haven't broken that out. I wouldn't go into those level of details.

But aside from some of the things David mentioned, the investments in customers that really haven't hit our EBITDA but are more in working capital or in some of the restructuring charges, we have had inefficiencies in those two facilities, too, and you'll see that in our gross margin..

Okay. And then just a final question would be on the buyback. I guess you have $200 million-plus on revolver, over $100 million in cash.

Are you going to be aggressive defending the stock or is this just something that you're going to just pay down debt and then wait for the proceeds and Energizer to come in – or from Energizer to come in?.

I have two big focuses. One is we're going to drive efficiencies in these plants and restore customer service. We need to get our act together, we need to start putting up numbers and delivering sales and EBITDA growth and restore the free cash flow of this company, that's job one and that's happening.

Job two, I want to materially delever this company's balance sheet. We will collect over $500 million of cash in the next five months. I think it will be significantly more, but let's start under-promising and over-delivering again. You see $2 billion of revenue we've cleared in the U.S., we've got a couple of clearances yet over in Europe.

I want to thank Energizer. Honestly, they've been a phenomenal partner with us. They're working tirelessly around the clock on the carve-outs both from the legal and the financial side. This transaction is a very high probability to close. So if you just tally that up, that's quite a lot of cash coming into the company.

And if you apply that to my debt structure and you look at the fact that this hit this quarter's transitory, I have a goal, as I look out and it's a personal goal, in the fall of this year I think it could be a mid-2s to high-2s levered credit.

The reason we're doing this transition and this transformation of the company is – and again I'm not a macro guy, but I really believe that having an exceedingly strong balance sheet going into 2019 would be a phenomenal asset for the new Spectrum Brands to have. And so I'm laser focused on achieving that.

That said, I have zero intention to defend our stock, but I will tell you from the seat I sit as a Chairman looking at M&A, I see lots of deals all the time. And these are small subscale assets the people are asking 14 times and 12 times EBITDA for.

And quite frankly, looking at the amount of proceeds we're going to get in, having a three year plan where we can buy back $330 million roughly of stock every year for three years, given where our stock currently trades, I am a huge believer in the value of our stock here. I think it's exceedingly cheap in a world with a lot of overvalued assets.

And I wanted to have that optionality. But I'm going to wait for the cash to come in from operations. And we're going to get the HRG deal close at the end of June. And we're going to let some balls drop and make sure we get that cash on the dispositions of Batteries & Appliances. But I hope that answers the question..

Yeah. Thank you very much..

Operator, next question, please?.

Certainly. Your next question comes from the line of Faiza Alwy with Deutsche Bank. Please go ahead..

Yes. Hi. Good morning.

So, Dave, can you talk about what gives you the confidence that these consolidation actions will not result in further issues going forward? And essentially what I'm asking is, what does your new guidance assume in terms of getting these facilities operating normally? And why do you think these issues won't come back? Because it seemed like we were past some of these issues and then – and now we're dealing with them again.

So perhaps if you could give us more detail around what specifically happened that could help us assess whether these are truly one-time. So any perspective on that would be really helpful..

Hey, no, listen, thank you, I appreciate the question. Listen, I think the management largely thought in the fall that we were going to be okay.

And I think when we got into the peak season of starting to produce really heavily in the March month, that's when we saw our – we didn't see it until the second week of April, but that's when the problems started. Look, I don't want anyone to be under any illusions. I am not a magician. I don't have a magic wand. We're not going to fix this overnight.

I do feel that this recovery will take place gradually over the next several quarters. But I am already through April, and I see material improvements, and I need to relay those to you.

Look, I want – why don't I let Doug walk you through exactly the logistics of what happened in the month of March? I think that granularity will help you understand just how one-time it is..

Yeah. In terms of the Dayton and Kansas facilities, in Dayton, as you know, we moved multiple manufacturing and distribution operations into one location in Dayton, Ohio. And we did that during our relatively low season, so right after the busy season last year, and got those lines all-in into the fall and up and running into the fall.

But as we really started to ramp-up production in the March timeframe, which is also the same time that distribution ramps up for our busy season, we began to see some constraints in our ability to run at full efficiency. And as David said, we dropped in one of our better operators to help on the op side and to help clear distribution.

And we're seeing that come through – begin to come through in April. But in March we really hit a wall. And it precluded us from producing as much as we wanted to, it led us to unfavorable variances and it also precluded us from shipping everything.

Kansas is a bit of a similar discussion, although there wasn't an operations or manufacturing element there. In Kansas, recall, we had our East Coast DC and a West Coast DC. We got the West Coast in. We got it all settled down into the end of the calendar year last year.

And then in late January through February, we moved our East Coast DC in, which was a higher complexity, hardware part of our business. And putting that in there was a bit more challenging than the team thought it would be and also caused back-ups across the entire facility. Just the amount of activity that was hitting the facility.

And that caused our backlog to begin building again in HHI. And that was a little over $20 million of build in the backlog that we didn't get out during the quarter. And the team is – again, during the month of April, we're beginning to see every day shipping levels that are exceeding the prior day.

And our seven week – seven day shipping average is climbing back up again. So we have confidence that through the rest of the year the HHI team will get the DC settled down and back into the right operating rhythm..

Let me just add to that, at the risk of being verbose, there's another element in March which is one-time. We shipped a tremendous amount of private label product, both on our Home & Garden side and our Global Auto Care side. That has material impacts on the margin structure.

As you enter into April, we are shipping a much higher percentage of shipments going out are branded and, therefore, fueling better margins in addition to the efficiencies we see, both on the manufacturing and the fill rates inside the Dayton facility and also the debottlenecking of the distribution at both Dayton and Kansas.

And we're seeing that this month and we should relay that to you. Look, at the end of the day if you really want to simplify this, this was a sales mix issue. This is entirely a margin mix issue from factory and efficiencies. We used to be able to put liquids in bottles very efficiently and ship them efficiently. We will do that again..

Okay. That's really helpful. If I could just ask one more question on the Small Appliances sale. At CAGNY, you guys had said that the gross proceeds are going to be around $1.6 billion to $1.7 billion. It seems like you're backing off from that, and it seems like the timing is delayed.

So, Dave, maybe if you could give us some perspective on, is there a proceed number or a multiple at which point you might choose to – below which you might choose to keep the business?.

Look, I think what I would say to that is this, we're in active strategic discussions to dispose of the business. And if we have updates, when we get to a definitive deal, we'll announce. And in terms of timing, look, I'll give you color there.

When you go to do carve-out financials, that may – we may have underestimated how much work it is to really carve-out two businesses from 150 different countries around the world, financially, legally, and from a human resource side, and that's where I really have to thank our finance teams across the globe and also our partners in Energizer, they have been absolutely fantastic at helping to resolve that.

And as that gets resolved, it helps expedite the timeline for the disposal of Appliances. But what you see in the release is, quite frankly, I'm not a big guidance guy. So I'm CEO now, I want to try to wean this company off of the guidance. I'm not a huge fan of it.

I think all it does is it puts pressure on management team, so a lot of times to do things that are not appropriate because they're under pressure for some sort of short-term deadline, we're going to run this company with a new vision with new clarity and maniacal focus on where do we want to be in 2020, 2022, and 2023, three to five year plans on where we want to be? Where we're going and we're going to be a much smarter, faster, more nimble, stronger business.

Hope that takes care of the question on Appliances..

Thank you..

Okay, operator next question, please..

Certainly. Your next question comes from the line of Bob Labick with CJ Securities (sic) [CJS Securities] (39:35). Please go ahead..

Good morning. Sorry to go on the same topic if you can. But just want to really talk about the margins and particularly in Global Auto, but also HHI, obviously really impacted.

Can you talk about how much of it – your confidence in restoring them to the current – to last year's levels, if there's any impairment going forward and the timeframe and the steps to get margins – I mean, they're dramatically lower, obviously, so to get them back to where they are?.

Yeah. Look, there is a – look, this is why, in a way, I look at these challenges and I see them as opportunity, right. There's four big drivers. When you build a new facility, you underwrite a certain standard cost, right. And so, if you think about what was the rationale behind taking five facilities in Auto Care and putting them into one.

Well, everybody buys on the phone, everybody expects the product to be at the doorstep in 24 hours. There is no question that having one facility produce all the product and distribute the product is by definition much more efficient than picking and producing out of five different facilities to shipped it to a customer.

So the strategic merit of it is 100% sound. What had happened is you had some operators that underwrote the business that would be below standard costs.

And when you start-up a greenfield and you assume certain standard costs, but then you're not – your fill rate is in the 80s, when your customers want it in the high 90s, now you have your cost of goods sold per piece is going through the roof.

Additionally, because you got a greenfield and you got a lot of turnover in the employee base, the learning curve keeps getting reset as you put people in there. That's also, guess what, driving costs through the roof which hurts margin structure.

So the inefficiencies leading to higher COGS are both tied to the production levels, our costs which are higher than the standard costs which were priced on the stand-up of the facility plus massive investment right now in customer support level. We want to stay on the shelf. We want to keep our customers happy.

So you combine that and then you get distribution backlogs and inventory builds up, your working capital builds, so you are having higher charges there, but then you have less absorption into the factory, right, because you're moving that slower.

And then you have – what I just talked about which is this mix and you don't see it because you don't sit inside the company like I do but when you ship all your private label product in March and not much of your branded, that's a massive dampen around margin.

But if I flip it and I look at the inverse of the equation, which is what we're doing now, when you restore efficiencies and you move back toward standard cost in the facility, your COGS drop, your margins expand.

If you unblock the passageways in front of the production lines, which was blocked before we dropped Steve Keller in there and you may need to use third-party 3PLs in the short run which again boost costs, now you're starting to get distribution back, your fill rates – we are seeing our fill rates go up. So our cost of piece is dropping.

You moved the distribution bottleneck, now you're flowing the inventory faster and then you get the lift and the absorption in the factory of the overhead. So that's why I'm very confident that the underlying margin structure is intact..

Got it. That's very helpful..

Does that help?.

Yeah. That was very helpful. Thanks. And then maybe just in terms of – obviously, this is a big focus right now, call it, a distraction or whatever the work would be, is this impacting any other parts of the business, product innovation and other things because I agree with you.

A year from now everything is going to look very different than it does today, but is anything that's causing the issues today going to impact the potential growth opportunities a year from now or – and how are you trying to prevent that from happening?.

No, honestly, I – we have separate departments. I mean, thank God, we have a very deep bench, probably one of our deepest benches is HHI. So this is very isolated, I guess. Listen, I got to thank David Borer (43:44), he's one of our guys, he's literally camped out in Kansas 24/7, and that's just a distribution thing.

You fix distribution in Kansas, your margins are back. You fix production efficiency and distribution in Global Auto Care, your margins are back. And, oh, by the way, guess what, because of inflation, input costs, and freight, I mean you can read it's very hard to find a truck driver in this country.

But guess what happens when you get your customer service levels back up, now you can price. So look there's lots of levers to pull, we're all over it, innovation is going to get more dollars.

Look, if you wanted more and more and more of the future out of Dave Maura, it's more innovation, more new product development, and much more news and excitement. That's what you're going to see out of Spectrum Brands in 2019 and beyond..

Great. Thank you..

Hey, operator, next question..

Certainly. Your next question comes from the line of Olivia Tong with Bank of America Merrill Lynch. Please go ahead..

Thanks. I guess a couple of questions to understand the outlook a little bit better. First, why the impact of the miss so much higher on cash and then on EBITDA.

And then in terms of your market shares, can you give a little bit color of shelf space inventory within retail and how your shelf space may have or may have not been impacted because of the shipping challenges? Thanks..

I've spoken too much. So I'm going to hand it to Doug..

Olivia, the cash impact on – is obviously partly driven by the EBITDA takedown. But because we are working through these two facility consolidations and the pace it is a little bit slower than we thought, I'm expecting inventory levels to be a little higher than was planned. So maybe $20 million, $25 million there.

And as you've seen also in our numbers today, we're – and as David has mentioned, we're investing in our customer relationships and making sure that we are shipping everything we can ship to customers. And while that is improving, it's costing us some extra money. So our restructuring cash is a little higher this year.

And then as you know interest rates are rising a little bit. We have a little more working capital through the (45:56) we had planned and we repurchased 250 million shares of stock. So cash interest is about $15 million higher as well. On the....

Got it..

Yeah, on the share – shares at retail are in pretty good shape. We did see – the only thing is we do continue to see some of the major mass retailers continue to turn squeeze inventory a little bit, but nothing like we saw last year.

In fact there are some signs that they've hit bottom and are at their optimal levels or circling around their optimal levels. The one exception to that is some online customers are dialing in weeks of inventory a little bit, but our share on shelf and our positioning on shelf, it's similar to last year..

Got it. Thanks. And then, Dave, you sound pretty darn confident that things are going to get better. Your guidance, obviously, on EBITDA and cash flows would suggest that you expect things to stabilize pretty quickly. And so do you think this is sort of like the outlook is sound from here.

Just because you talked – you also, on the flip side, talk about how you want to get back to normal efficiency, you're not going to rush it, it sounds like you're part of the way there, but clearly not all the way there.

So I'm just trying to marry those two sort of divergent paths of statements that we've heard today?.

Yeah look, I'm a perfectionist. I absolutely want this company to be the best customer service company in the industry. That's why we initially strategically did what we did with the Kansas facility for HHI, and what we did on Auto Care.

We simply took on too much, too fast and the operators did – it just did – we experienced operational executional failure. We – like I say, I see recovery, and again, it's when you're shipping more branded and your fill lines are getting better, it just – it does miracles to margins, let's just say that. But I don't want anyone under any illusions.

This recovery is going to take place gradually over the next several quarters, but the recovery is going to be good and – but my personal standards are much higher than that.

And so, for me – look, I think HHI will make a lot of progress, and will probably be pretty darn close to where I personally wanted to be in the fall to get Auto Care to be really where it should be and to – we really return the full earnings power of the company. We're in season now. We can't fix everything.

We're going to have to produce the best we can, ship the best we can, and you'll see better results over the next six months, but to get it to where I want it to be is probably a year.

And that's why I told my board, I said, listen, this is 12 to 18 months to get this where I wanted to go, but you can create a lot of shareholder wealth in a shorter period of time, and that's what we're going to do..

Thank you..

Your next question comes from the line of Joe Altobello with Raymond James. Please go ahead.

Great. Thanks guys. Good morning. So first question I just wanted to clarify, David, earlier to a question or an answer you gave to a question about the Personal Care Appliance sale, back at CAGNY you did say a number of – or Doug did say a number of $1.6 billion to $1.7 billion in terms of expected proceeds.

Is that still the case?.

Yeah, I said I don't want to address that. I want to walk away from this guidance stuff. I – we are in dialogues with strategic acquirers, we are working through it. I do not have a definitive deal. When I get to a definitive deal, I'll give you the number. But no sense trying to update numbers when I don't have a definitive deal..

Okay.

But there are multiple bidders and it sounds like there was interest in that business?.

When we launched this process, we had incredible amount of interest on this. And you should assume that the number that the company tried to give you at CAGNY was to try to help you with a pro forma balance sheet, because there was confusion in the marketplace.

And, yes, we wouldn't have represented that if we didn't have letter of intents at that level..

Okay. And then secondly, on the balance sheet, you've mentioned a couple times today that you do want to delever pretty significantly. I think the company has typically operated at 3.5 to 4 times leverage. This is, obviously, a rising rate environment.

What's the right leverage ratio for Spectrum going forward?.

The right leverage ratio depends on so many things. It's impossible to give it to you. I told you earlier in the call, just by collecting over $500 million in cash in the next five months from our operation, assume – let's take a base scenario. We just closed the Battery deal, we pay down $2 billion of debt. You've got a calculator.

You can figure out very quickly that our leverage will drop into the mid-to-high-2s. I personally would like to run the company there for a while. Okay? Because, one, I want to – just like you, I want to make sure that our house is in order, and we are starting to deliver and under-promise and over-deliver to you guys as shareholders.

We need to do that first. We need to make sure we're tick and tied and everything's running tight as a top. When that happens and I'm convinced we can then deploy capital again, we'll look around. I just don't see anything today that even if our house was in order, it would be worth purchasing.

I think valuations are stretched, interest rates are rising, and my number one priority is to protect the balance sheet..

Okay. And one last one. Obviously this is a tough question for you.

But how much did you kitchen sink the guidance today? And how comfortable are you that in three months we're not going to have a similar conversation?.

You know that's a fantastic question that I'm not going to give an answer to..

Okay. Understood. Thank you..

And your next question comes from the line of Shannon Coyne with BMO Capital Markets. Please go ahead..

Hi. Thanks for taking my question. Can you talk more about the consolidation of the Pet and Home & Garden and the Global Auto Care divisions? Seems like this is a big departure from how you've run the company in the past, which is more like a holding company.

Can you talk more in detail about those changes that you're making? And why that's now the right way to run the business?.

Yeah. Absolutely and I appreciate that question. Look, I'm all about simplicity and clarity. I think this company tried to do too many things, be too many things to too many people. And why the decision specifically? One of my very best operators is Randy Lewis.

And I made the comment earlier, he runs that Home & Garden business like it's a military operation. I mean, honest to God, when I gave him capital a couple years ago to expand our aerosol capacity, he always gives me back way more than he promises me. And he's run that thing efficiently.

When I took over the business 10 years ago, we had $35 million in EBITDA coming out of that unit. Home & Garden today is a $125 million, $130 million EBITDA business under Randy's stewardship. He is a phenomenal operator. We spent $1.4 billion to buy Auto Care.

Auto Care went from $138 million in EBITDA to $147 million to $153 million and it should be $160 million (53:40) plus, right? We had a major misstep, okay. And my job is to make sure that we create wealth. And so when I see an operational issue like that in Dayton, I take pretty swift decisive corrective action.

And given the similarities in the operations, right, it's just putting liquid in bottles. It's just canister wipes, it's just aerosol going into a can. Randy's team knows how to do that better than anybody. So I think this is phenomenal from an operational standpoint.

Now what I've told Randy is quite frankly I want to see more resources, okay, on sales, marketing, and, quite frankly, the commercial strength and backbone of our Pet and our Auto Care divisions going forward. But my number one priority is to solve an operational issue and bring Dayton into operational excellence. Randy will accomplish that task.

And that's why I did it..

Okay. Thanks. And just maybe one more. You talked about once you get through the fixing the efficiencies, you talked about the inability to take price out.

Can you kind of talk through that category, why you think you can take prices going forward, given the environment that we're in right now? And maybe which category would be easier or harder than others?.

No, I'm not going to get into specifics, but I appreciate the question. Look, you can look across the globe, there is inflation from every piece of metal, commodity. We have – I guess the millennial generation doesn't like driving trucks. We can't find truck drivers.

Look, at the end of the day, freight and input costs are through the roof and everybody is taking price. And I'm taking price in some of my – what I consider my weaker business units.

And so I know that once I get excellent in efficiency and we restore customer service levels in our higher valued franchises with our best brands, we have pricing opportunity. That's all I'm going to say about it..

Okay, thanks..

And your next question comes from the line of Carla Casella with JPMorgan. Please go ahead..

Hi.

I'm just wondering if the – are there dates yet set for the shareholder votes?.

I'll let Doug or Nathan take it..

No. At this point, we haven't. The proxy materials are in for review and the transaction is being reviewed. We don't expect anything to come out of that. But post that, the materials will go out..

Okay.

And then can you just remind us on the Harbinger transaction, when that's finalized, what's the movement of cash and the debt, either assumption or pay down, that happens at that time?.

Yeah. Similar to the information we put out before, we expect that there will be (56:41) net debt. The exact combination of debt and cash that comes over is – it won't be known until we close the transaction, but something in that range..

Okay, great.

And then just one last one, given that – I mean the difference in your business today versus a year ago in terms of the segments and some of the M&A, how seasonal is the overall company SG&A? And has the seasonality changed materially?.

The flow of SG&A is actually fairly similar outside of advertising and marketing, which of course will be more in line with the heavier parts, heavier selling parts of the – times of the year for our businesses, but in general the SG&A across the businesses is fairly stable that, obviously, leads to different ratios throughout the quarters..

Yeah. And I mean I think, Carla, listen, I think specifically given that we're talking at the end of April, I mean there's no question, right, that with Auto Care, Home & Garden, you do have a more seasonal spring business, and like we're seeing it now, right. I mean I told you about the private label and the weather issues at margin.

I used to sit in your seat, I hate companies talking about weather, but it really did impact margin – you can see the lift in April. And so, it's a – I went to bed last night looking at the weather report, and they're calling for 70, 80 degrees, and sunny in the northeast, and I'm thrilled.

But, yes, it – the revenue and the margin mix are a little bit more seasonal in the pro forma company..

Okay. Great.

And then have you – I don't – have you broken out anywhere, provided any presentation where you showed last year's quarter's pro forma for the move of the – into the non-controlling ops of the Pet, the Batteries & Appliances?.

No, that'll roll out quarter-by-quarter, but we can get you some information offline on both. All right. And the information is all in there, if you were to do the math. So we know we can help with you that..

Okay. Great. Thanks..

Operator, I think we have one last question. We'll take that and then close down the call, please..

Certainly. Your final question comes from the line of Karru Martinson with Jefferies. Please go ahead..

Good morning.

Just on the shipping side of the equation, obviously the trucker shortage will continue, but where do you see kind of the pricing for the – for yourselves and the industry kind of catching up to those costs?.

Well, that's obviously sort of supply and demand issue. We are – while we do have very good contracts in place with many of our carriers, they roll over at least once a year, throughout the year.

So we'll experience a little bit of inflation as we continue through the year there, but that will be very consistent with anybody else shipping across the U.S..

Okay.

And just on the weather impact for the Garden side, in terms of your product mix, I mean do you feel that if you get that cold start to the season that some of those sales are lost or do you feel that those can be picked up as we go forward?.

Our expectation at the moment is it, if the spring breaks back to a more normal pattern pretty soon that the season will be intact..

All right, guys. Thank you very much. Appreciate it..

Thanks, Karru. And with that, we have reached the top of the hour, so we'll go ahead and conclude our conference call. I certainly want to thank both David Maura and Doug Martin. And on behalf of all of us at Spectrum Brands, thank you for participating in our fiscal 2018 second quarter earnings call. Thanks again..

This concludes today's conference call. You may now disconnect..