Spectrum Brands Holdings, Inc. (SPB) Q1 2013 Earnings Report, Transcript and Summary

Good afternoon. My name is Kirk, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Spectrum Brands First Quarter Fiscal 2013 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded today, Wednesday, February 6, 2013. Thank you. I would now like to introduce Mr. David Prichard, Vice President of Investor Relations. Mr. Prichard, you may begin your conference.

Good afternoon, and welcome to Spectrum Brands Holdings Fiscal 2013 Earnings Conference Call and Webcast. I'm Dave Prichard, Vice President of Investor Relations for Spectrum Brands and your moderator for our call today. Now to help you follow along with our comments this afternoon, we have placed a brief slide presentation on the Event Calendar page in the Investor Relations section of our website at www.spectrumbrands.com, and this document will remain there following our call. So I hope most of you have found that by now. So if you follow along with the presentation, start with Slide 2, you'll see that our call will be led today by Dave Lumley, our Chief Executive Officer; and Tony Genito, our Chief Financial Officer, who will both provide opening comments and then conduct the Q&A session. Turning to Slides 3 and 4 of the presentation. I want to point out that our comments today do include forward-looking statements, including our outlook for fiscal 2013 and beyond. Now 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 does encourage you to review the risk factors and cautionary statements that are outlined in our press release dated February 6, 2013, 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 this afternoon's press release and 8-K filing, which are both available on our website in the Investor Relations section. Now for the first quarter of fiscal 2013, the company reported net loss of $13.4 million or $0.26 per diluted loss per share. This was on average shares and common stock equivalents outstanding of 1.8 million. This compared to net income of $13.1 million or $0.25 per diluted share in the year-ago quarter, and that was based upon average shares outstanding of 52.6 million. So very quickly, let me go through by segment the first quarter of fiscal 2013 results. And the Global Batteries & Appliances segment reported net income, as adjusted, of $92 million versus $89.9 million a year ago. The Global Pet Supplies segment reported net income, as adjusted, of $10.1 million versus net income, as adjusted, of $13.2 million in fiscal 2012. Home and Garden business segment reported a net loss, as adjusted, of $4.5 million versus a net loss, as adjusted, of $6.4 million last year. And finally, for the 2-week period as a part of Spectrum Brands, the Hardware & Home Improvement segment reported a net loss, as adjusted, of $3.5 million. With that background, I am now pleased to turn the call over to our Chief Executive Officer, Dave Lumley. Dave?

Thanks, Dave, and thank you all for joining us this afternoon. Let's turn to Slide 6. We reported a record first quarter. This is in spite of a less than robust global holiday season, cautious consumer spending in part from the fiscal cliff worries, struggling European economies and with 2 fewer shopping days in our quarter than a year ago. I am pleased to report that this performance puts us on track to deliver another year of improved results from our legacy business. Turning to Slide 7. Our net sales increase of 2.5% or 3.2%, excluding negative foreign currency impacts, was driven by 2 weeks of HHI or our new Home & Hardware Improvement sales of $34 million of revenues and our FURminator acquisition and higher Home and Garden and Battery revenue. As I will discuss later, we exited, as planned, nearly $30 million of low-margin or no-margin North American home appliance businesses as communicated on our November call and some selected battery business in the quarter, actions which helped solidify our margin levels. Our net loss in the first quarter was driven by onetime acquisition and integration costs and interest expense primarily related to the HHI acquisition. Tony Genito, our CFO, will discuss this in more detail in a little bit later in this call. However, our adjusted diluted earnings per share of $0.72 increased more than 4% versus last year. Perhaps most importantly, we achieved a fourth consecutive first quarter record for adjusted EBITDA of $131 million, including $3.2 million from HHI, which was a 4.5% increase. For legacy Spectrum Brands, adjusted EBITDA was a first quarter record again, this time of $127 million, up nearly 2% from a year ago. Including HHI, we're pleased that our adjusted EBITDA, as a percentage of sales, improved to 15% versus…

Thanks, Dave, and good afternoon, everyone. Turning to Slide 16, let me first comment on our gross profit and margin in the first quarter, our gross profit and gross profit margin of $288 million and 33.1% compared to $284 million and 33.5% a year ago. The gross margin decrease was driven by increased cost of goods sold from the sale of inventory, which was revalued in connection with the HHI acquisition. This more than offset gross profit improvement from the planned and previously announced exit of low-margin products in the North American small appliances business of nearly $20 million. Excluding HHI, I am pleased to note that the gross profit margin in the first quarter of fiscal 2013 was 34% for Spectrum Brands legacy business and was actually 34.5% on a constant currency basis. First quarter SG&A expenses, excluding the impact of the FURminator acquisition this year, were essentially flat with last year's first quarter. Interest expense in the first quarter, excluding approximately $29 million of expense primarily from the HHI acquisition, was flat with the prior year as well. Now to our effective tax rate, which was an unusual 325% in the first quarter versus 68% a year ago. Our book income tax rate is impacted by our high level of profits in foreign jurisdiction -- foreign jurisdictions. This means we provide for foreign income taxes even while having a book loss in the U.S. Our U.S. book loss results from substantially all of our debt and our acquisition, integration and restructuring costs being incurred in our U.S. entities. Since there is a valuation allowance against U.S. deferred tax assets, we are unable to book any financial statement benefit related to our U.S. domestic losses. This impact is magnified by the tax amortization of certain domestic indefinite lived intangible…

Thanks very much, Dave and Tony. Operator, you may now begin the Q&A session, please.

[Operator Instructions] Your first question comes from the line of Bill Schmitz from Deutsche Bank Securities.

It's Nick Cavallo calling in for Bill. Just wanted to dig into the battery category competitive dynamic a little bit. I know you said some of the really deep discounting during the holiday season has since subsided, but curious if you would categorize the category now as rationale -- like back to steady state or if there's still sort of a little bit of elevated promotional activity from some of the competitors. And then just curious, is there any shelf space changes either pre- or post-holiday?

This is Dave Lumley. To answer your first question, yes, it stabilized again. I think it should remain there for now, and we don't see any indication that it would go back to that. It was not successful. The category went down in both -- especially the month of December, in dollars and units. However, I think it stabilized. And I think an interesting note on the battery category, since 2009, the total battery category CAGR is about flat. And in fact, the alkaline business is up almost 1% since 2009. So the batteries are going to kind of go along with GDP to some extent, and it's going to be affected if you do bonus packs and discounting. But for the most part, I still believe it's a stable, solid business. It's not a high-growth business, but it's stable. In regard to shelf changes and all that, you will see a lot more of that the next few months because that's kind of when those changes happen. Most of retailers' years ended in end of January and a lot of the things that are happening. We're very cautiously optimistic about some things we've been involved in, and I think we should have some things to talk about pretty soon.

Great. That's helpful. And then could you just clarify, if any, the impact of Hurricane Sandy on battery and appliances?

This isn't what everyone wants to hear, but it wasn't a good thing. What happened was you got a bunch of sales at first and then you didn't get any sales because the trucks couldn't get through and the people couldn't get there. And it really impacted a lot of other categories really negative. I do think the net result of it was while there was a spike and some of the things were sold and some people got excited, there was also the downside. And if you really study the total results, the whole category was down, right? So that's the bad news. The good news is I think, once and for all, every retailer and consumer in America have learned that they really will never let that happen again, and you're going to see a lot more, I think, pre-buying and that. And one of the big winners, as far as the battery and lights category of that hurricane, was lights. So we're very, very good. Yes. And batteries now, we've introduced our 10-year battery life. Our competitors have a 10-year battery life, so consumers can also buy now ahead of time and feel confident about that.

Your next question comes from the line of Dan Oppenheim from Credit Suisse.

This is actually Will on for Dan. Can you go back to the shelf space cutback in the personal care category? Can you kind of talk about what was driving that and kind of elaborate on the conversation that you're having with retailers?

Yes. Retailers are very smart. They watch the trends. And what's kind of happening in personal care, especially on the men's side, is that wet shave had a big push from those 2 big [indiscernible]. And they're doing a lot of stuff and they keep grabbing more and more space. And the innovation on the dry shave or electric shave side, both in grooming and shaving, hasn't been so robust. And that space has continuously been shrunk. What really happened this year was that business really is driven on holiday promotions, and retailers went a different way this year with different types of products, not just in the shaving category, but what's in the category. The -- so that's the bad news, and it had a big impact. The good news is that in our discussion with the retailers, they're saying, "Geez, we can't go far -- that far back." And by the way, we're seeing a big uptick online and e-commerce and they're in a little bit of a transition on that, so are we. So I'm very -- we are very confident this coming holiday season. You're now going to see more promotions in the store and more space, but a much more robust e-commerce business by them. They saw big increases there. So as we all get ready for that, and we are, I think we'll get back to a normal season plus there's some new good products coming. I can't speak for our competitors, I'm sure they have them, but we have them in shave and groom and we're excited about those and they'll be coming for this holiday season.

Perfect. That's very helpful. And then as a follow-up, can you maybe quantify some of the opportunities for the revenue synergies on HHI?

Well, HHI is a very disciplined operations-driven company and now they have some great products like SmartKey technology and they have the new Bluetooth and things like that. I think you're going to see revenue synergies coming from our merchandising group, from our Home and Garden side. That's up to 450 people that are in HHI's #1 -- the top 2 retail customers. And that's also a product that will really benefit from displaying it and testing it. So I think you're going to see sell-through much better, and you're going to see revenues go up. Now in addition, although we didn't buy them for the housing recovery, the housing recovery impacts HHI as well up to 25%, 30% of their sales, and they're going to have a big opportunity to sell a lot more locks. They're almost -- they're a dominant player, really big player there. So you're going to see that happen naturally, and then you couple that with the merchandising and the better in-store, I think you're going to see sales go up. And I don't want to give you an exact number, but we're very encouraged by that and I would think they would tell you that they are as well. So you're going to see the sales increase versus as what's been kind of a flat business the last few years as they've been for sale and they've been integrating and housing has been down. Does that answer your question?

Yes, that's very helpful.

Your next question comes from the line of Lee Giordano from Imperial Capital.

So you mentioned distribution gains in Home and Garden. Just wondering where you're seeing those gains specifically and what kind of opportunities do you see longer term. And does the HHI acquisition actually improve shelf space of some of your other categories, particularly in the home improvement retailers?

Okay. So let me answer them one at a time. Home and Garden has been growing in controls and repellents pretty well, okay? The controls would be like our also Spectracide brand, controlling weeds mostly outside. Insect repellent is self-explanatory. What we're seeing now with Black Flag and our HotShot brands and our investment in the food and drug channel and the non-home center channels, great growth there, and we're getting a lot of our placement there. And then back in our big accounts, our top 3 accounts, we're also getting more space because we have HotShot and/or Black Flag, all right? So there's a shift there. Plus, I think a lot of retailers are realizing, whether it's bed bug or roach and ant, they can sell a lot more of that in a store, and some of our products even have germicide mixed in with it. So it's kind of happening across the board. Our Black Flag acquisition has really driven it, right, and us getting -- become a bigger player in food and drug, which we have a formal competitor there, very good at it, and that gives us a better way to compete there, all right? And our big 3 accounts, we are also balancing the brands we have there and putting together programs for them as well. So we're optimistic about that. We have merchandising there. In regard to, does HHI help our Home and Garden business? Absolutely. HHI's business in the home centers and hardware is really big. And when you couple -- put that together with a pretty big #2, almost #1 player in Home and Garden and then our growing battery businesses in there, we can benefit from the scale, the shipping, the merchandising and all the things that we can do with the customer to try to push them, right, to meet the needs of our customers today. Tony, you wanted to add some?

Yes, I just want to add on since we're talking about H&G right now. I know you said it in your prepared remarks, Dave, but again, just to talk about the second quarter versus the third quarter, we had a very successful Home and Garden season. Our business was very successful last year in total. Again, it was very much front-driven as much of the industry was because of the very, very warm early spring this year. As Dave said, we're looking at a more normalized period. So I just want to just reemphasize that for -- during the Q&A period since we had a question on H&G.

Your next question comes from the line of Hamed Khorsand from BWS Financial.

My first question is regarding the competition in your battery line. Do you -- does it pose a risk that you saw, I think it was a couple of years ago, when you faced a similar situation with a competitor, but it lasted because of lingering inventory issues?

Is your question, do you believe that we paid the risk because one of our -- some of our competitors have extra inventory? Is that your question?

Yes. I mean, 2 years ago, there was that kind of issue, right, because of the lingering inventory of discount products?

Oh, of the bonus packs, yes. Well, I don't believe that. Our competitors are very good battery companies and make good product. They know what they're doing. They have strong brands. And our retailers are even better at not allowing the inventory to grow like it used to 2 years ago. And I think that our retailers help focus where the business is going along as well as the manufacturer. So I believe there will be discounting, there will be bonus packs. I believe that this will continue to get more rational because there are just certain things that work and certain things that don't work, and this is an important category to retailers and they don't want the category to go down. So I believe that that's not a risk. But to tell you the truth, I don't know their exact inventory levels, but I have not heard that, that is a risk right now.

Okay. And on your personal care side, did -- what shave go up in revenue this past quarter?

Oh, no, not for us. We are just testing wet shave and we have a strategy to bring it out over the next year, but we're not really, per se, in wet shave yet. Most of our consumables business right now is our i-LIGHT product, which is the Intense Pulsed Light hair removal system on a global basis and the bulbs that we sell with it, with some exciting new products coming, and hair care accessories, mostly for women. That's what we're concentrating on now, but we will be in wet shave soon.

All right. My last question is on the HHI and the plans for expansion. Did we see any revenue in this fiscal year as far as expanding that product line internationally to new markets?

We do. We'll see some, but our goal in this year is to integrate. We're moving a lot of what we call TSAs or support from the Stanley transition services, from Stanley Black & Decker, of which international is a big part of. Our first goal is to integrate correctly, whether it's a TSA or international locations, get that all right. And then I think you'll see the leverage of the shared services and HHI's freedom to grow and get more attention really take hold in '14 internationally, but I definitely think you'll see international growth in '14. Plus, their SmartKey technology is a great, great door opener for that. I do think in the U.S., you're going to see sales for this year because they have -- and Canada because they have done a really good job of getting that SmartKey out. They're going to promote it more. And they're in good position with housing, and they're looking at home automation so I think you'll see some there. I think international comes in '14.

Your next question comes from the line of Reza Vahabzadeh from Barclays.

The slides are helpful. So as far as the personal care segment in the U.S., how did your share hold up in the December quarter? I know you mentioned you had some shipping issues or sourcing issues given what was happening in the West Coast port.

Well, we lost some sales we wish we didn't lose, to tell you the truth. But our share has held pretty steady because with the new consumables coming in and some of our other products. Now with the shelf space loss, right, that's not good, right? But our turns were pretty good in there, right? So it was -- it's okay. I think that we didn't go up. If we went down, it was just a bit. Now we don't have those reports, but that's what we think is going to happen. But we're very bullish on the second half because we know what we want in the line of earnings.

Got it. And then on batteries, do you anticipate the promotional environment to rise again in the coming months and quarter or -- I know you mentioned so far in 2013 it's leveled off, but what's your expectation on the promotional environment in batteries?

Well, batteries is -- 65% of batteries were bought on impulse. And most private label batteries are all sold on promotion, up to 95% of the time they're on promotion, okay? So I think you're going to still see sporadic promotions like the business has always had. I think you're going to see share grabs by trying to -- people buy their way into an account or sponsorships, but that has always had that level of income. I think we're -- not income, but promotion. Two years ago, we saw an unusual move to bonus packs by everybody, okay? I think everyone learned their lesson on that one. So I wouldn't -- I don't foresee an unusual amount, but if there is, we will match it every single place we see it.

And then -- but as far as overall shelf space in batteries in North America, you are up from last year at this point in time and you would think that your shelf space would be higher year-over-year throughout the year, right?

Well, our share has gone up every year for 5 years. We're at the highest share point we've been. We still are not anywhere near the top 2 leaders, but we are making good progress on that. We would hope we hold our shelf space and continue to increase it, and we're optimistic about that.

Got it. And then my last question has to do with the Pet business. Would you anticipate Pet to post sales growth in 2013 x acquisitions?

Absolutely, absolutely. Their aquatics business has been growing. Their POS is growing, and their companion animal dog treat has been growing, and in fact, in their specialty channels with their Nature's Miracle brand. And we even have a really exciting product, fish product. There's that GloFish that's pretty, pretty neat. So they are forecasted literally across the board and by geography.

Yes, just an additional thought on that, Reza. The aquatics business, we've seen a turnaround in North America and we're seeing the aquatics business continue to grow. And the lessons, the learnings that we had from the North American experience, we're actually bringing those to the European continent. And again, we are doing the seed, so to speak, planting the seed with starter kits, smaller aquariums to get the hobbyist involved, albeit on a small scale. But once they buy the environment, then they've got to fill it up with the fish food, the higher-margin fish food, the filter media, the water treatment chemicals, et cetera. So we're actually embarking upon that as we speak in Europe now. And we're very hopeful and confident that we're going to see that translate to additional aquatic sales in Europe as it did in North America.

Your next question comes from the line of Karru Martinson from Deutsche Bank.

I was wondering, could you quantify perhaps the impact on sales from the port strike? I mean, are we talking $10 million, $20 million or more than that?

Yes, it's about $5 million to $10 million of shipments.

It hit us really hard and there was just no way to plan for it.

But it's all about the replenishment?

Yes, it was the replenishment. We just didn't have it. But we have plans so that will never happen again.

Okay. And I guess, on that same vein, if the weather does change and March is warm again, I mean, what is the ability to get goods on the shelf right now and retailer willingness to kind of be on that front?

We're building the inventory. And by the way, our Home and Garden businesses is first in class when it comes to supply chain and being at the ready. We're producing the product as normal. In fact, we're -- the comments that we made in the prepared remarks regarding the timing of the season. Clearly, if we had an earlier, warmer spring, we'll be ready. And quite honestly, we hope that happens, and we hope that the season if you go last year where we had that benefit in the March time frame, it's really in the second part of the year. We had severe droughts with most of the U.S. Where we benefited, in all honesty, was in our fourth fiscal quarter towards the end of our third and then into the fourth fiscal quarter. The West Nile virus breakout, predominantly in Texas, but in other states through -- and our repellents was very, very successful. But, no, we are definitely at the ready to meet the demands, if we're lucky enough to have an accelerated season.

Okay. And just on the Pet side, I mean, what's the mix today for aquatics versus companion? And kind of where do we see that, let's say, over the next 2 years as FURminator continues to grow with some of the other brands?

Sure. Well, as you recall -- it's a great question, Karru. It used to be 60-40. It is, right now, about 55-45. And so we've improved that mix. And we've always said that we'd like to get to at least 50-50 and then, perhaps, we can go 60-40 the other way. But clearly, with FURminator, we -- by the way, the FURminator acquisition has been a real home run in the sense of, I guess, first and foremost, it's a great product and consumers love it. I mean, anybody that has used the product, and I've met quite a few actually analysts at -- in various meetings I've had where their eyes actually well up, it's almost like they went to a tent revival. They just love the product. So I mean, you can't beat a product that works and is effective. But the sales growth of FURminator has been very encouraging to us. And keep in mind, the household penetration of pets that -- of pet ownership that are utilizing the FURminator product, it's relatively low. So it's a big opportunity. Plus, you've got the international opportunity, which, by the way, a big chunk of the growth that came from FURminator in this past quarter that we just reported, really, was led by Europe, which is very, very encouraging to me. So as -- so that's one example. But keep in mind, too, that we've launched companion animal products in Europe, and this is now we're going into our third year, I believe, where we're getting some really good momentum. And we're going to see that mix change again to be more -- again, we're going to -- our first goal would be to get to 50-50 and then to try and grow from beyond that to be heavier weighted into companion. But it's moving forward very, very nicely.

Okay. And just on the Tong Lung acquisition here. You're going to close here by March 31. What's involved in closing that acquisition? And can you remind us just again what that brings to your portfolio?

Yes. It's -- primarily, it's just going through the legal and regulatory reviews. But we're hopeful, and I don't want to get ahead of my skis here, we say in our press release that we hope to close this transaction, the last remaining piece, by March 31. Based on what we're seeing today, we think that we'll probably close it sooner. So we feel pretty good about that. But again, we feel very, very confident and that's why we put in our release that it would be by March 31. If you recall, the transaction price was approximately $1.4 billion for the HHI asset and that we had -- we've closed the first piece on December 17, that was approximately $1.3 billion, and we held $100 million in escrow. So that -- the money is basically in escrow right now, so it's just a matter of performing the closing and the funding there will happen automatically. The business itself though is -- it's a long-time supplier of the HHI business that allows us to be vertically integrated and to be able to really capitalize on opportunities and further improve the supply chain, both from an efficiency standpoint, operational efficiency, as well as cost efficiency. On top of that, one of the benefits, and we had an earlier question on potential international growth, keep in mind that in Europe, where we're having a disruption, we look at that as an opportunity down the road for growth with the HHI business. Europeans use a different lock than ours in North America. We use a tubular lock, while they use a mortise lock. And the beauty of Tong Lung is Tong Lung produces both tubular and mortise locks. So this we see as a big opportunity from an operational efficiency and, again, further opportunity to reduce our cost of goods and improve our margins.

Your next question comes from the line of Carla Casella from JPMorgan. Carla Casella - JP Morgan Chase & Co, Research Division: So you've discontinued about $20 million of low-margin appliance business in the quarter and exited some of the nonprofitable battery promotions. Have you scrubbed pretty much all of your portfolio? Or are there more opportunities like this going forward? That's the first question.

Okay. Let's go with that one. We've exited about $30 million. We probably have one more quarter just on appliances, maybe about $10 million. So that would be like $40 million. Now we could have put that on the top line, but that would've cost us money and would sent the wrong message to the retailers and consumers. I mean, you really shouldn't have $9.99 George Foreman Grills, right? It's just not a sustainable model. However, the good news is, by the second half, we should be able to replace almost all of that with consumable sales on the i-LIGHT and all that. So to answer your question, I think we have about $10 million to go and then we should be clean. Carla Casella - JP Morgan Chase & Co, Research Division: Okay. That's great. Are there other businesses where you think you can go and kind of shave off the bottom, the lowest margin products or promotions off of it in other categories or...

Our Home and Garden business is in very good shape. Our Pet business is in very good shape. As we dig into HHI, we'll see. They have a lot of SKUs, but they usually run a pretty tight ship. So obviously, whenever we do it, the whole Spectrum value model dictates that, less SKUs, less models, hero products, lean, global, new products. But really, this thing in appliances was the big one to do, and it's not only just small kitchen appliances but it was also Remington and personal care. And remember, that supply chain is all coming out of Asia and all of the price increases and all of the issues that went with them, freight, oil, currency. And that is moderating. So I believe that, by the middle of the year, we'll be in very good shape.

Your next question comes from the line of Ali Dibadj from Bernstein. Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division: I want to go back to the battery comment you've made about it being flat since 2009. I wanted to clarify, that's a global comment, I think, right? It's just not a U.S...

That's the Nielsen database in North America from 2009. And remember, Nielsen does not include certain retailers. Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division: Sure. Okay, okay. And then if you were to kind of project forward and think about the category from a volume and price perspective in North America this year and beyond, what's your expectation?

We believe batteries will grow at GDP or a little bit below, right? It really depends on discounting and how much space and attention the retailer gives it. For instance, a few years ago, some retailers cut way back on battery displays and where they were in the store and then they didn't do too well. And then, they put a lot more batteries out. Remember, 65% of batteries were bought on impulse and they sold more. So I think you should think in terms of the battery business following GDP in general. Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division: And then volume and price as that grows with GDP?

Volume and price, price is usually steadier than unit or volumes depending on whether you are discounting going to bonus packs or going to big value packs. What happened here in December was there was a lot more big value packs than before, and that's a function of some other retailers getting in the business who are using them to promote. But in general, in general, the dollars go up about 1%, and the units are flat to a little bit below that. And you have different categories of batteries. You have the alkaline, which is the big, big part of it. You have your zinc carbon or heavy duty, rechargeable and your lithium batteries, but they make up a small portion of the total battery market. So you have about a flat to slow growing in dollars and you have units that can go up or down depending on whether you use value packs or not. Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division: Okay. That's very helpful. From your strategy in that category, the strategy clearly, is to gain share. How is that going to happen? So are you willing to be more aggressive on promotion? Or are you at the right place? It sounds like you want to get more distribution gains. How will you do that? Is there an element of innovation to this? Really want to get underneath kind of your plans within that flattish...

Well, it's not hard to figure out our strategy. We -- our strategy is that we believe we have a good brand. It's a value brand where we offer the consumer the same product performance for less price than the premium brands or some retailers will offer the same price with more batteries. This is not a new strategy. We've been doing this since 2007. This is how we've gained shelf space because a retailer has a decision to make. Are they going to have all premium products on the shelf? Are they going to have all private label? Because private label only grows a certain percentage of business regardless of what it is. And private label in the United States has never gotten enough past about 14% share. It's typically between 10% and 14%. And we make a lot of private label with Rayovac. So our strategy is exactly what it says "same performance, less price" to gain as much share as we can, whether it is a mix between the premium price products and ours or a mix between the premium price products and ours and private label. And we do that by offering the consumer "same performance, less price". And typically, the retailer has an opportunity at times to make more money on our product and less inventory cost. That's our strategy. Our competitors have good products. They have their strategies and their pricing and their advertising and, of course, private label. I do believe that you will continually see a shift from private label as most of those products come from Asia. They underperform. They are faced with currency problems, performance problems, shipment problems, timing problems. For instance, in Hurricane Sandy, if you were a retailer and you were buying all your batteries from China, you…

Well, you answered it for yourself. Typically, when something costs less, you sell more of it. And -- because other times, if something costs too much, you don't buy it at all. So typically, a lower priced product that performs as well will sell more units than a higher priced product and it usually makes up the difference. That would be true with many of our categories, not just batteries. Remember, we're just not competing with premium priced batteries, we're competing with private label batteries and there we outperform them. And so you can move price point up there, right? And as we battle there as well, that's another way to do it. But this is our model. This is no different than when we sell HotShot versus our key competitor or Black Flag or if we sell a Remington men's razor against a high-priced model. We believe that every retailer should provide premium product, value-branded product and if appropriate, a private label. It's the mix that wins in the store. There is no silver bullet. It's the mix that wins. Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division: And you still -- Last question, if I may. And you still believe that pricing in the category can go up even as you, at the lower price point, gain share?

Well, absolutely. If you convert a lot of private label, you can go up. If you introduce new products like we have been, like our Rayovac Advance, it costs more money, right? You sell alkaline versus heavy duty, it costs more money. You sell rechargeables versus alkaline and a bonus pack, the price goes up. Plus, remember, there's a lot of specialty batteries now that are changing. There's power for mobile phones. And if you suffered through Hurricane Sandy, you are shut down in 3 hours. Once your car ran out of gas, you had no power, end of story, right? So there's lots of opportunities now to power mobile devices and I think you are going to see that change coming.

I think we've, obviously, reached bottom of the hour and want to thank everybody and we'll close down our conference call at this point. I do, obviously, want to thank Dave and Tony. And on behalf of Spectrum Brands, we want to thank all of you for participating in our fiscal 2013 first quarter earnings call this afternoon. Have a good rest of the day, and we'll talk to you next quarter. Goodbye.

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