Spectrum Brands Holdings, Inc. (SPB) Q3 2015 Earnings Report, Transcript and Summary

Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Spectrum Brands Fiscal 2015 Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' prepared remarks, there will be a question-and-answer period. As a reminder, ladies and gentlemen, this conference is being recorded today, Wednesday, August 5, 2015. Thank you. I would now like to introduce Mr. David Prichard, Vice President of Investor Relations. Mr. Prichard, you may begin your conference. David A. Prichard - Vice President, Investor Relations & Corporate Communications, Spectrum Brands Holdings, Inc.: Yes. Good morning and welcome to Spectrum Brands Holdings' fiscal 2015 third 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. Now, to help you follow our comments, we have placed a slide presentation on the both the Event Calendar and the Presentations pages in the Investor Relations section of our website, at www.spectrumbrands.com. This document will remain there following our call. So let's start with slide two of the presentation. Our call will be led today by Andreas Rouvé, Chief Executive Officer; and Doug Martin, our Chief Financial Officer. Andreas and Doug will deliver opening remarks and then conduct the Q&A session. So let's turn now to slides three and four. 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 August 5, 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 we will discuss certain non-GAAP financial measures during 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 on our website in the Investor Relations section. With that, I am now pleased to turn the call over to our Chief Executive Officer, Andreas Rouvé. Andreas Rouvé - Chief Executive Officer: Thanks, Dave, and thank you all for joining us this morning. Turning to slide six. We had a very strong quarter, with good organic adjusted EBITDA growth. And at the same time, we made progress on strategic priorities and we completed the accretive acquisition of Armored AutoGroup. Our reported adjusted EBITDA grew $34 million year-over-year. The organic adjusted EBITDA, which excludes acquisition EBITDA of $28 million and $18 million of negative currency impact, increased a strong 12%. And also our EBITDA margin showed a good improvement of 100 basis points. These results support our comments on last quarter's call that our second half was expected to be stronger than the first half. The integrations of our Tell, Salix Animal Health, and European IAMS and Eukanuba pet food business are complete and we are on track to realize cost synergies and benefit from good cross-selling opportunities from these acquisitions and our legacy business. Armored AutoGroup, now called more appropriately Global Auto Care, as it includes also the strong STP and A/C PRO brands delivered sales of $64 million and adjusted EBITDA of $19 million between the acquisition date of May 21 and the end of the quarter. We are off to a fast and smooth integration of Global Auto Care and are making plans to accelerate its international sales growth in the next two years. Organic sales which exclude acquisition revenues and negative currency impact increased a healthy 3.7%. However, it is important to highlight that our sales growth was below EBITDA growth as we exited several unprofitable geographic product categories and promotions, especially in hardware and home improvement, as well as in pet. In addition, we decided to reduce our promotional program activity in batteries North America. The strong adjusted EBITDA growth was supported not only by our organic net sales growth, but also our continued strong cost improvement savings and the fact that we are successfully leveraging expenses across the business. This allowed us to overcome another quarter of strong negative currency impact as the euro declined to $1.10 from $1.37 last year, but also other relevant currencies dropped significantly. We are also pleased with the operational improvement in our legacy pet business, where we have stabilized the bottom line and are preparing it for a resumption of growth. Also our international business is doing well. In Europe we achieved an impressive 11% net sales growth in local currency and in Latin America we continue to implement price increases to offset the large negative currency impact. Turning to slide seven. New product introductions were important contributors to our third quarter results and the pace of our innovation is stepping up. We are leveraging our global new product development platforms and are collaborating more effectively across regions. At the same time, we are developing robust multi-year product roadmaps to provide retailers products with new features that enable us to target higher price points, increased shelf space and margin expansion. Also, e-commerce growth in Q3 was a pride spot, especially in our appliances and pet business. We continue to focus on our more, more, more organic growth strategy as we enter more countries, serve more channels and launch more categories by leveraging our strong retailer relations. We want to fully leverage the R&D, purchasing and manufacturing capabilities of each of our global divisions by taking advantage of our strong regional sales presence to ensure that Spectrum Brands is the preferred partner of our retail customers. As we work to close the year with a solid fourth quarter and a sixth consecutive year of record performance, we are maintaining a clear focus on growing adjusted EBITDA and maximizing sustainable free cash flow to drive greater shareholder value. Let me now turn it over to Doug for a financial review and comments on the divisional performance. Douglas L. Martin - Chief Financial Officer & Executive Vice President: Thank you, Andreas, and good morning, everyone. Turning to slide nine, let's begin with net sales. Third quarter reported net sales of $1.25 billion increased 10.5% versus last year. Excluding the negative impact of $64 million of foreign currency and acquisition-related sales of $140 million, organic sales increased 3.7%. Record growth in Home and Garden, strong personal care and small appliance results and strong European volume growth were partially offset by the reduction of promotional initiatives in the North America battery business. We continue to expect fiscal 2015 reported net sales to increase in the mid-single digit range including acquisitions and partially offset by the anticipated negative impacts from foreign exchange of approximately 500 basis points to 600 basis points based on current spot rates. About 40% of our annual sales are outside of the U.S., and they move across a broad basket of currencies. Reported gross margin of 36.7% decreased from 37% last year, primarily due to the negative impact of foreign exchange. Reported SG&A expense of $274.7 million, or 22% of sales, improved slightly versus 22.2% last year. Reported operating margin of 10.9% decreased from 13.2% last year, due primarily to higher acquisition, integration and restructuring charges related to acquisitions. On a reported basis, lower Q3 earnings per share of $0.79 compared to a $1.47 last year, primarily driven by acquisition-related charges and one-time costs related to the capital structure improvements. Adjusted EPS of $1.42 versus $1.30 last year increased primarily from the impact of acquisitions and improved mix partially offset by the negative impact of foreign exchange. Turning to slide 10; interest expense of $113 million increased $66 million largely due to non-recurring items related to acquisition financing and capital structure refinancing initiatives. Full year interest expense is expected to be between $270 million and $275 million, including non-recurring items of approximately $59 million. Cash interest payments of $154 million were $96 million above last year, driven by $74 million of non-recurring items related to the AAG acquisition financing and the refinancing of our capital structure. Cash interest for the year is expected to be between $245 million and $250 million, including these non-recurring items. The Q3 reported tax rate was a benefit of 113% compared to expense in the prior year of 21% due to the net release of U.S. valuation allowances resulting from the AAG acquisition and the refinancing activities. Our 2015 effective tax rate is expected to be between 10% and 15% compared to 21.6% last year. Recall that for adjusted earnings, we use a 35% tax rate. Cash taxes in the quarter were $18 million compared to $37 million in the prior year and are expected to be between $55 million and $60 million for the full year. Depreciation and amortization for the quarter were $61 million, and are expected to be between $215 million and $220 million for the full year. Cash payments for acquisition and integration, and restructuring and related charges in the quarter were $24 million and $11 million respectively, including $17 million related to the AAG acquisition. Excluding these costs, cash payments for acquisition and integration, and restructuring and related items are each expected to be approximately $25 million for the year. I'll now move onto operating unit results, beginning with Global Auto Care which is slide 11. Global Auto Care is our newest reporting segment as of this acquisition on May 21. GAC reported sales of $64.4 million and adjusted EBITDA of $19.2 million from May 21st through the end of our quarter. Adjusted EBITDA margin was 29.8%. Distribution gains in the U.S. and new Armor All and STP product introductions drove solid performance, while weather impacted the timing of A/C PRO air conditioning recharge shipments. New product introductions in recent months include Outlast protectant and leather restorer, Quicksilver wheel and tire cleaner, Ultra 5-in-1 engine treatment and fuel system cleaner. Integration of GAC is off a great start and we are thrilled to have the new GAC team members join Spectrum Brands. Turning to slide 12; Hardware & Home Improvement; reported Q3 sales grew 2.2% driven by increases in U.S. residential security and plumbing and the Tell acquisition. Excluding negative FX of $4.9 million, sales increased 3.8%. We also had planned exits from unprofitable businesses and the expiration of a customer tolling arrangement which negatively impacted sales by 2.5%, while improving margins. Reported adjusted EBITDA reached an all-time record quarterly level of $62.6 million with a 50 basis point margin improvement to 20%. We expect HHI to deliver another record year largely on the strength of its core U.S. residential, hardware, and plumbing businesses. This includes SmartKey home automation and smart locks, retail and non-retail plumbing, and light commercial security. Our Tell acquisition is performing well and the integration is complete. Cross-selling opportunities between Tell and our core businesses are beginning to gain early traction. Q3 new product launches include the Pfister Indira and Filtration kitchen faucets, the Baldwin Reserve line expansion, and interior door hardware kits under the National Hardware brand. Cost controls and expense reductions and pricing are helping to mitigate FX pressures in Canada and Latin America. Now to Global Pet, which is slide 13. Reported Q3 sales grew 36.9% including the Salix and IAMS acquisitions which totaled $66.2 million. Excluding the negative FX impact of $8.3 million and adjusting for acquisition revenues, sales fell 1.2%. Reported adjusted EBITDA grew 25.1% primarily due to acquisitions, while the margin fell 180 basis points to 18.4%. Excluding the negative impact of FX of $1.2 million and including acquisition EBITDA of $7.4 million, adjusted EBITDA grew 29%. The decrease in legacy – in the legacy pet business was due in part to our exit of low-margin promotions in North America. Operational improvements and restructuring benefits started to take hold in the North America legacy pet business in Q3 resulting in modest adjusted EBITDA growth and margin expansion compared to declines in the first half of the year and setting the stage for a resumption of healthy growth. At the same time, our international legacy pet business delivered healthy constant currency sales and EBITDA growth. As Andreas mentioned, the integrations of the IAMS and Salix businesses are complete and we have executed the TSA agreements with Procter & Gamble. IAMS results to-date are tracking with expectations, while Salix is outperforming. Pet's strong innovation pipeline is also evident in the second half of this year. The business continues to rollout new companion animal and aquatic products in North America and Europe, and we are increasing our focus on pet growth opportunities in Latin America. Moving to slide 14, Home and Garden, which reported recorded third quarter results following record first and second quarters. Reported Q3 sales increased 15.9%; all three product categories grew double-digits. Adjusted EBITDA increased 20.9% with the margin expanding 120 basis points to 30.8% driving this outstanding performance was the excellent – was excellent operational execution, retail distribution wins, market share gains, and strong POS, which drove retail replenishment orders. New products, most notably our Spectracide AccuShot delivery system were solid contributors in the quarter. As Home and Garden closes in on another strong year, Q4 has started out well. However, we do not expect growth to continue at double-digit rates as we comp against strong Q4 growth last year. We do know though, that when weather cooperates consumer activity is robust and retailers extend support for the category. On the cost side, commodity trends remain favorable and continuous improvement savings continue to exceed expectations. Now to Personal Care, which is slide 15; reported Q3 sales increased 1.5%. Excluding unfavorable FX of $13.5 million, sales grew 13%. New customers, new products, and promotions drove strong North America growth and solid volume increases in Europe and Latin America on a constant currency basis. Men's shaving and grooming and women's hair care were brig spots. Reported adjusted EBITDA increased 13.1% with a 120 basis point margin improvement. On a constant currency basis, adjusted EBITDA improved 40%. Key drivers were growth in North America behind new products in our core men's shaving and grooming category along with solid international volume growth. Remington is one of our most international businesses and is benefiting from leveraging global new product development platforms and an introduction of more men's and women's products that can provide incremental volume growth at higher price points. Examples are the SmartEdge Advanced Foil Shaver, PROtect straighter, lithium powered personal groomer, and the Virtually Indestructible Beard Trimmer. On the cost side, Remington continuous improvement savings and SG&A leverage are more than offsetting product cost increases and foreign exchange. Let's turn to Small Appliances, now on slide 16. Small Appliances also delivered a strong Q3 performance. Our reported Q3 sales fell 1.6%, organic sales increased 6.4% excluding a $13.1 million unfavorable foreign exchange impact. The improvement was driven by strong North America sales increases and double-digit growth on a constant currency basis in Europe, from new retail customers, new products, and promotions. Reported adjusted EBITDA grew 5.5% with a 60 basis point margin expansion highlighted by significant improvement in North America where the business is gaining shelf space and expanding its portfolio, including George Foreman grills, which new features, and an entrant into the slow cooking category. On a constant currency basis, adjusted EBITDA grew 40%. Our core Small Appliance business is healthy in all regions. Volume gains have been driven by e-commerce and innovation. We also continued the staged rollout of the 5 Minute Pizza Oven and Snack Maker, and have launched the Performance series featuring the Professional blender and full-size food processor. In Europe, innovation is also evident with the 60th anniversary Russell Hobbs Legacy and Clarity breakfast series and new grills. Finally to Global Batteries, which is slide 17. Reported Q3 sales decreased 16.4% excluding $23.8 million of negative foreign exchange, sales fell 5.3% due to reduced promotional activity in North America. Europe, however, again delivered strong growth on a local currency basis, driven by new retail customers, market share gains and promotions. Europe's performance to-date in constant currency follows a record last year with continuing share and distribution gains. Reported adjusted EBITDA decreased 24.4% with a 170 basis point margin decline. Excluding negative FX of $7.6 million, adjusted EBITDA fell 4.9%. Improved mix and cost savings offset lower volumes. We expect to begin to anniversary the impact of prior-year aggressive North American promotional activity as we move closer to the important holiday season and into calendar 2016. We are driving to lower overall Global Battery costs this year on a constant currency basis from significant continuous improvement savings and tight spend controls. Moving to the balance sheet on slide 18. We ended Q3 in a strong liquidity position, with over $400 million available on our new $500 million cash flow revolver, a cash balance of $107 million and debt outstanding of $4.35 billion. We strengthened our balance sheet and improved our liquidity through significant capital structure activity in the quarter including extending the duration of our term loan facility and replacing our asset-based lending facility with a $500 million cash flow revolver, which significantly improves our liquidity position. Fiscal 2015 free cash flow adjusted for non-recurring items related to acquisitions and refinancing is expected to be up to $440 million compared to $359 million last year. Fiscal 2015 capital expenditures are expected to be between $75 million and $85 million compared to $73 million last year. These incremental investments, which include expenditures to support the recent acquisitions, are expected to drive innovation and cost improvement, increase capacity and deliver organic sales growth in future years. And now I will turn it back to Andreas for some closing comments. Andreas Rouvé - Chief Executive Officer: Thanks, Doug. Turning to slide 19. We feel very good about our third quarter performance. Organic sales and adjusted EBITDA growth was healthy. Margin improvement was strong, as new product introductions continued at a fast pace around the world. We are pricing where we can and we exited unprofitable business to improve the bottom line. Continuous improvement savings are on track and we are effectively leveraging expenses across the business. Our three acquisitions from early in the year have been integrated smoothly in record time and are performing at or ahead of expectations. The Global Auto Care integration is off to a fast and smooth start. And, finally, our operational improvements in our pet legacy business are taking hold and beginning to turn around its performance. For all of these reasons, we expect to achieve a sixth consecutive year of record financial performance. Thank you. And now to Dave for Q&A. David A. Prichard - Vice President, Investor Relations & Corporate Communications, Spectrum Brands Holdings, Inc.: Thank you, Andreas and Doug. Operator, you may now begin the Q&A session, please.

[Operating Instructions] Your first question comes from Bill Schmitz with Deutsche Bank. Your line is open.

Hey, guys. Good morning. Douglas L. Martin - Chief Financial Officer & Executive Vice President: Good morning, Bill.

Hey. Can you bridge the free cash flow between the first nine months to the fourth quarter? Because it looks like you have to do like $650 million of free cash flow in the fourth quarter to hit the $440 million target. But I also read that there's like some adjustments in there that maybe we didn't see. And then like how much of that is related to the acquisition and maybe just timing of shipments? Because it looks like the days receivables is up quite a bit year-over-year. Douglas L. Martin - Chief Financial Officer & Executive Vice President: Yeah, you're right, Bill. We did have strong sales in the quarter and strong sales throughout the quarter, including the latter half. So receivables are a little inflated right now and we expect those to come in. As you know, we're very seasonal. So we expect most of those to come in by the end of our fiscal year. Inventory is also a little high for us right now, and there are a couple things driving that. There is a bit of hangover from the port issues because we continued to order inventory as the uncertainty of the port resolution unfolded. So we'll work through that this quarter as well or most of it this quarter as well. And then as Andreas mentioned and I think I did too, we exited a tolling arrangement during the quarter, and that chunk of inventory came over to us. So that's sitting in our inventory as well. And then as you also mentioned, we had some one-time things. We had one-time interest that will be excluded from the $440 million number of about $74 million that relates to the acquisition and refinancing activities. So we believe we're still on target.

Okay, great. Thanks. And then is there a way to sort of disaggregate that 3.7% organic growth between volume and price mix? So I don't need the exact numbers. But was it more volume-driven or was it helped by – because I know you pulled some promotional spending, so maybe that helped on from a price mix perspective? Douglas L. Martin - Chief Financial Officer & Executive Vice President: We did. We did pull some promotional activity across all of our business as well. We also did a little more in some of our businesses like the appliance and personal care businesses in Europe was, promotional support helped there. So I would say there is kind of a neutral balance there. We haven't – we don't have a lot of pricing, and we don't break it out. But Latin America, as you can imagine, is where we have the greatest ability to price. So it largely is volume-driven.

Okay. Great. And then just one quick last one. If you pro forma the Armor All, can you just tell us what – or now the Global Auto Group, can you sort of tell us what the sort of organic sales and EBITDA growth was? Douglas L. Martin - Chief Financial Officer & Executive Vice President: Not with great clarity, because – I mean, I do have some numbers. Obviously, we have some numbers. But, recall, they early last year acquired IDQ. And so those businesses were coming together in the same quarter year-over-year. We're looking at as we talked about growing that business at kind of a GDP kind of basis, where we are going forward and growing that from an international perspective going forward, so that's where we're focusing right now.

Okay, great. Thanks for your time. Andreas Rouvé - Chief Executive Officer: Thank you.

Your next question comes from Olivia Tong with Bank of America. Your line is open.

Great. Thank you. Good morning. Andreas Rouvé - Chief Executive Officer: Good morning.

First on batteries, obviously, you mentioned the pullback on promotion, have you seen the other major players in the category do the same? And do you see any differences in dynamics in the tracked versus the untracked channels? Or are you pulling back a promotion across all channels? And is this sort of a start to a trend, or more of a one quarter phenomenon for you? Andreas Rouvé - Chief Executive Officer: Yeah, this is Andreas. Let me just jump in on that. And you may have heard and realized early that, for instance, we mentioned that in Europe we are gaining with promotions whereas in North America we have pulled back in promotions. So, you may say, how does this fits together? I think, the key element is if you look at our battery category, we also have some, let me say, impulse items in there, like for instance, light. And in Europe we were very successful in the quarter in launching the Minions flashlight series which coincided with the movie and therefore we had a very nice pickup in such promotional activities, which is creating impulse purchases and driving it. If you now look at the core battery category, alkaline batteries, we have to say very blunt; no consumer is going to use more batteries because you put them on promotion. The consumer buys the batteries he needs. And therefore to a certain extent promotions in the core alkaline categories are destroying value for the manufacturers and the retailers, and that's why we are pulling back on those activities.

That's helpful. Thank you. And then, now that you've started to integrate Armored into the organization, do you have any updated thoughts on in terms of revenue synergies, you obviously talked about international, already, but any early learnings and – on revenue synergy opportunity and then how would you compare the opportunity in terms of retail channels expansion and retail channels domestically versus the expansion opportunity internationally? Andreas Rouvé - Chief Executive Officer: I think we are very confident about those cross-selling opportunities, but we have to be realistic that those are not going to happen overnight. You have to establish first relationships, and you have to gain the trust of the retailers. So, we typically expect at least one year lead-time before we will see those kind of cross-selling opportunities materialize. Now, we have already started and we're in the progress both in North America, talking about certain opportunities in cross-selling in channels which we have so far not served. But really the bigger opportunity we see internationally because the Auto Care Group has a relatively weak international presence and has been working through distributors which were partly also selling competing products, so therefore our position in some of those markets have been very weak. And by taking advantage of our established infrastructure, both in Europe, but also in Latin America, we believe that we can gain there very fast traction. Obviously, we will continue to work with those distributors, but focusing more on the Auto Care channel whereas we would expand into the mass channel into the home centers where we are historically strong and take those products into those channels.

Got it. That's helpful. And then just lastly, given that you exited some businesses in HHI, can you talk through the process in evaluating businesses? Is this an ongoing process, and do you anticipate more exits to come, or is this sort of a one-off in terms of the way that you think? And then also should we expect HHI to be under pressure for the next three quarters as you sort of digest the exits? Thanks a bunch. Andreas Rouvé - Chief Executive Officer: No, really this point is we are very, let me say, clear, as I mentioned earlier, focused on EBITDA growth. And if we have business where we are making either a negative EBITDA or no EBITDA, we will always evaluate is that a strategic segment which we want to grow long-term and where we have global synergies and leverage, or is it a kind of insignificant part. Let me give you an example. In China, we were very strong in so called closet door business. This is the only country in the entire world, where HHI did such business. And we lost roughly over $1 million EBITDA per year in this segment. And there the point is very simple, it's not of strategic value, we lose money, so we're going to pull the plug. We had also – in Mexico, we had some kind of outdated technologies, which we have exited. And – but then again I would say the total impact is relatively minimal, and I think, we have now tackled those three items that is in Canada, the hardware business; in Mexico, some old outdated hardware and locks business; and in China, the closet door business. And those we have tackled. We will have in the next two quarters or three quarters some anniversary effect, but it is pretty much done.

Great. Thank you so much. Appreciate it. Andreas Rouvé - Chief Executive Officer: Thank you.

Your next question comes from the line of Zack Fadem with Wells Fargo. Your line is open.

Hi, good morning. Can I – I'm – I want to ask about the port, what impact if any did the issues have on Q3? I mean, did the delayed sales from Q1 and Q2, did those come back in Q3, or what's the expected impact going into Q4 there? Thanks. Douglas L. Martin - Chief Financial Officer & Executive Vice President: Yes. Sure, Zack. This is Doug. Thanks for the question. It, obviously, didn't impact revenue in a negative way like it did in Q1 and 2Q, so that's the good news for us. And the port issue sorted itself out relatively quickly which brought some more inventory into our system which we were expecting, and we're glad that that's all behind us. It's a little difficult to parse what part of the growth in the quarter was catch-up or flushing through of the port issues, and what part was normal fill rates. But there was a little bit of recovery in the quarter. I wouldn't expect anything meaningful in Q4.

Okay. Andreas Rouvé - Chief Executive Officer: I would jump in, part of the port issue or the hit to EBITDA was also that we had to use air freight to get the product in more costly. So, therefore you know part of the EBITDA hit in the first quarter and second quarter was going back to air freight instead of sea freight.

Okay. Thanks. And just another question on the Home and Garden business, which – with the double-digit growth, I mean, are you able to parse out kind of what percent of that growth is incremental distribution versus what you had before? Andreas Rouvé - Chief Executive Officer: I think, you know, and you have seen also some of the competitors publish their numbers. I think, the category is growing. So, we are benefiting from that. But in addition to that, we are seeing also market share gains. So, we roughly – based on the data we have, we have gained roughly one point in market share and that is – let me say, and the rest is category growth.

Great. Thank you.

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

Great. Good morning. Hey, just a couple of questions. One, I guess, I want to talk about the strength in Europe, and how much of that is more, I guess, I would say, micro versus macro, micro really being some of the go-to-market changes, Andreas, that you've kind of implemented over time. And then I guess in context, thinking about North America where there are opportunities for you to kind of take some of those changes, those learnings, and then even really kind of strengthen the portfolio in the North American business especially as you continue to grow through acquisitions? That's the first question. Andreas Rouvé - Chief Executive Officer: Yes, the point is you are 100% right, and again no big secret, because we have been mentioning it over the last couple of calls. We are going to apply the same more, more, more strategy systematically around the globe. We have benefited from that not only in Europe, also in Latin America we are seeing nice traction, and again, the idea of the more, more, more is that we are working closer between the divisions in a certain region to take advantage to strengthen our retailer relations. So if you look, for instance, at the biggest retailer in Europe – in the U.S. We have been treating it like four different suppliers. And there we are intensifying our cooperation so that we can leverage a little bit that relationship to help open doors, get more appointments, and therefore get more of our product listed. And we will apply exactly the same strategy here in North America.

Do you see that more as a revenue opportunity or margin or just a combination of the two, as you kind of think over the next couple of years? Andreas Rouvé - Chief Executive Officer: It is probably more a volume driven increase, so I think, you know, the – because the margins again are typically, let me say, pretty consistent dependent on which channels you serve, so it is really a kind of volume driven increase of the revenue and also accordingly EBITDA.

Okay. Thank you. And then, I guess, the second question really I guess goes back to the North American battery and I know you guys talk about anniversarying some of the trends last year, but what's your internal outlook for the upcoming holiday season, do you feel that it will be similar to last year, do feel that you will actually see an improved environment or just with the change in ownership at two of your competitors just wondering how you guys are talking with retailers. And again I understand that you've pull back on some of the promotional spending out there, but what are you anticipating for the upcoming holiday season? Andreas Rouvé - Chief Executive Officer: We do actually see a kind of, as you mentioned, exactly the kind of that things are calming down and then again that there is more focus on the value of the category, and therefore also partly going after higher price points. Like, you know, with some – like some of our competitors, also we have launched a premium version of the alkaline battery under the FUSION sub-brand and, therefore, the same strategy is applies also by our competitors. So going after higher price points and, therefore, stopping the destruction of value in the category.

Okay. Thank you. And then the last question is just, Doug, maybe just an outlook on commodities right now and how you guys are thinking about over the next six months to nine months, but looking at it more from I guess input cost versus even manufacturing logistics. All those things kind of wrapped together, we've heard some mixed bags from some of our other HPC companies out there. Some are starting to see a little bit more benefit and some are saying it's a little bit more mixed and neutral. So I was just wondering how you guys see the next six months to nine months kind of shaping up. Thank you. Douglas L. Martin - Chief Financial Officer & Executive Vice President: Yeah, thanks, Jason. I would say that mixed and neutral would be a good way to describe it across our whole business. It has been a little better than we planned this year, which is going to help to offset to the FX headwinds that we've had on the earnings line this year. So, that's good news. When we look into next year, we're planning in a very difficult environment because commodity costs are up and down and up and down. So obviously we're going to pick our spots and base our sourcing and manufacturing decisions on where we think commodities will be and where we can realize margin.

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

Hey. Good morning, guys. Douglas L. Martin - Chief Financial Officer & Executive Vice President: Hi, Kevin. Andreas Rouvé - Chief Executive Officer: Good morning, Kevin.

Hey. I wanted to come back to Home and Garden, because credit to you guys and your team, the growth there has just been fantastic. And I'm curious as to what's changed. How much of this is you guys have a bigger seat at the table now with home improvement centers in U.S. post the HHI deal? Because this was a category historically in which you guys used to point to low-single digit growth. And some of this might be favorable weather this year, but you're doing double-digit growth on top of double-digit growth. And I know you talked about some slowing there, but what's changed? Is it distribution at home improvement centers in the U.S.? Is it difference in execution? I'm just trying to understand here how we should think about the glide path now for growth and what's really changed about this business that you guys are doing exceedingly well. Andreas Rouvé - Chief Executive Officer: Yes, I think, you mentioned it also. We have to really consider the weather. And of course, we're mentioning it in this case as a positive impact, but at the same time for instance in Auto Care we have it as a negative in the A/C PRO business. So it also goes both ways. But coming back to your question, I think really the success of Home and Garden is very simple that they are executing our value strategy, offering superior value both to the consumer and the retailer. And that allows us to gain shelf space, gain the trust in the consumer in recurring repeat business we are gaining share. The second point is also that the continuous focus on innovation, bringing innovation to the market. Doug mentioned earlier our AccuShot is extremely well and actually production capacity limitations are holding us back to even exploit it to a bigger extent. So both elements, focus on our value strategy plus innovation help us grow in the category.

Okay. Thanks for that. Two other quick ones. Andreas, how do you think about capital allocation decisions with respect to investment behind these businesses? So, you're basically kind of picking your top ideas, whether that's in Auto Care at the moment or going after some of the attractive opportunities you have in pet in Europe. So, you're potentially getting some of these businesses which are kind of GDP growers and reinvesting some of the profitability from that behind your best ideas. Or are these sort of more decentralized where you're reinvesting with profitability from those businesses? I'd be curious to get your response on that. Douglas L. Martin - Chief Financial Officer & Executive Vice President: Kevin, this is Doug. And we think about capital allocation a lot. We spend a lot of thinking about it, both from an M&A perspective, also from a geographic perspective and then inside of each of the businesses. And we don't think of the businesses as five businesses the way you see them; we think of them in terms of their product categories and their innovation capabilities and opportunities and the margins that can be attached to those opportunities. So we get all that information in periodically. We obviously do it formally once a year through the annual operating plan process. But throughout the year, we're evaluating an investment roadmap and especially where we're going to deploy capital internally that can provide a healthy return and help us either drive cost improvement across the business and/or, in some cases, innovation. So that's the way that we think about it. Each business has its list of opportunities, but they come together at the center level for prioritization and resource allocation.

Okay. Thanks, Doug. That's helpful. One more quick one, more housekeeping. The Auto Care margin in the quarter I guess looked a little bit light relative to the low 30% sort of EBITDA margins that we understood the business to be. Some of this is reinvestment, some of this could be timing. How is the profitability in that business for the quarter? Was that in line with your expectations? Douglas L. Martin - Chief Financial Officer & Executive Vice President: It was in line with our expectations. And it was, as you know, a very short part of...

Yeah. Douglas L. Martin - Chief Financial Officer & Executive Vice President: ...their quarter. So, we're still very confident in the margin structure that we bought.

Okay. Thanks for the time. Douglas L. Martin - Chief Financial Officer & Executive Vice President: Thank you.

Your next question comes from the Bob Labick with CJS Securities. Your line is open.

Good morning. This is actually Robert Majek sitting in for Bob. Andreas Rouvé - Chief Executive Officer: Good morning, Robert. Douglas L. Martin - Chief Financial Officer & Executive Vice President: Hi.

You mentioned GDP type revenue growth on the new Global Auto Care business. In broad terms, what's the possible growth rate in EBITDA for 2016 maybe over three years to five years? Douglas L. Martin - Chief Financial Officer & Executive Vice President: Well, this is Doug, Robert. The EBITDA, the growth rate that I mentioned earlier is just kind of on the base business and the opportunity Andreas has talked about is in international expansion and in channel expansion. So, we expect to do something in excess of that over time on the whole business. We haven't guided externally on margin expansion. But if you think about the fact – consider the fact that we do have very good established distribution, transportation, back office services, and most importantly selling and marketing organizations in 26 countries in Europe, and 12 countries in Latin America. There is not a huge investment – incremental investment to feed the Global Auto Care businesses through those existing channels – those existing geographies. So, we think we can manage really nicely in the same margin zone.

Thank you. That was helpful. And you highlight your 35% tax rate for adjusted earnings. Can you tell us how long you think NOL will last given the acquisitions and if you think you will have an effective rate 30% after that? And if you could what tax strategies are you exploring to lower the post-NOL effective rate? Douglas L. Martin - Chief Financial Officer & Executive Vice President: We're actually engaging in a lot of work now to lay the groundwork for managing taxes in a way that is lowest globally right now today. In fact, we had (45:28) join us to lead tax. He has got a lot of experience in both public accounting and consumer products, and is going to bring a lot of value to the company and is digging right in. And so we are laying that groundwork, so that when the NOLs expire in, kind of, the four-year to five-year period is what we're currently thinking, we'll continue to drive a tax rate that we – it's hard to look out five years, but we're expecting that to be in the mid-20%s given everything we know right now.

Great. Thank you.

Your next question comes from Ian Zaffino with Oppenheimer. Your line is open. Ian A. Zaffino - Oppenheimer & Co., Inc. (Broker): Hi, great. Thank you. Douglas L. Martin - Chief Financial Officer & Executive Vice President: Hi, Ian. Ian A. Zaffino - Oppenheimer & Co., Inc. (Broker): How are you guys doing? Question would be on the Small Appliances, growth was very good there, how much of that was driven by, I guess, new channels that you're trying to push into, how much is also driven by some of the new appliances that you've introduced whether it's the blender, the pizza oven, and then, as far as an innovation standpoint, what do you have behind those two products anything else that we should look for, or anything else that would drive future growth? Thanks. Andreas Rouvé - Chief Executive Officer: No, I think, the part – and if I may start first talking about the European expansion. There it is basically that we have a very strong position from the UK, and we are taking advantage of that and rolling it out across Continental Europe. So, a big chunk of the growth in Europe comes from the regional expansion. And there again, we are doing a kind of the safe approach focusing first on the strongest categories and then launching in the second and third step the second and third categories out of Small Appliances. So that's part of our strategy. We are doing the same approach in Latin America. Now in addition to that, we are also looking at how can we improve our market penetration, for instance, we're launching new categories, Doug mentioned, the slow cooking. We have innovation for instance in fast pizza oven. We have other categories like in the blending, in juicing where we are investing quite significantly and where we believe that we can continue to grow. So it is I would say both elements are contributing about half to the growth, half regional expansion going into more countries, more channels, and second half being launching new categories. Ian A. Zaffino - Oppenheimer & Co., Inc. (Broker): Okay, great. Thank you very much.

Your next question comes from Carla Casella with JPMorgan. Your line is open.

Hi. Just one housekeeping question that I missed was the amount outstanding under your revolver and the availability? Douglas L. Martin - Chief Financial Officer & Executive Vice President: Right now, the availability is full. We're paying down debt as you know, this part of the year for us, so the revolver usage now is very, very low.

Okay. And, then on the battery side – just on the promotional environment, do you feel like given some change in management and ownership at the competitors, do you feel like there should be a lot more rational or less promotional environment as we go into the back half? Andreas Rouvé - Chief Executive Officer: Again, I would love to know their opinion on it. But we can only hope. And as I mentioned earlier, in the battery category, no one is going to consume more batteries because the prices are lower. So, right now that's the destruction of value. And that's where we assume that there will be a more rational behavior in the category.

But you're not seeing any as of yet? Andreas Rouvé - Chief Executive Officer: It is probably a little bit premature to say so. But I would say, and also – and in all transparency, I think also globally some of our competitors are hit same as we are from currency. So they are also going to face similar pressure as we have in the category. So I would say there's also very strong internal motivation for them, also to try to protect margins and improve profitability in the category.

Okay. Great. And then just on the M&A front you've got a lot that you've completed this year, are you still getting a lot of opportunities to look at coming across to desks? Douglas L. Martin - Chief Financial Officer & Executive Vice President: Well, yeah, obviously we have a funnel that we've developed over the years and have businesses on our radar, and you know, Chairman of our Board, David Maura, is very involved in that part of our strategy and others. So we see things clearly. But, we've done we think a really nice job integrating the small – relatively smaller – the three relatively smaller acquisitions this year and integrating them into our systems and into our go to market structures and we are getting off to a really good start in a really focused way on the Global Auto Care business. And that's where our attention is right now. We don't expect to do anything meaningful if anything in the M&A space.

Okay, great. Thank you.

Your final question comes from the line of Kevin Ziets with Citi. Your line is open.

Hey, good morning. Thanks for squeezing me in. I guess somewhat of a high-level question with the focus on product development and seemingly on higher price point items. I'm wondering if this is somehow informed by your view, I guess on your key markets that you are in and sort of the economic outlook for those markets. And if it's at all a pivot from the Spectrum value model, that's been successful for so long. Andreas Rouvé - Chief Executive Officer: Again, I think the point is the value model will not change. And that value model is very simple, we offer the consumer a better product at a given price point, but this can mean better value at different price points. That means also in a higher price point, we can apply a value proposal. And I think that's exactly part of the more, more, more strategy that we want to protect opening price points, list price points. But also go in addition to higher price points. So therefore I think this is not a kind of different approach. It is in opposite a kind of broadening it and applying it to more categories and different price points. I am not sure was there a second part of your question or wasn't?

Just I was asking about whether your view on some of the key economies that you trade-in and whether you have a more positive outlook and whether that's driving the price points as well? Andreas Rouvé - Chief Executive Officer: I think, the point is – and there again, this could be only a personal belief or kind of really macroeconomic trend that we do see because of the growth of the Internet of e-commerce that we see consumers becoming better educated. And therefore we believe that long-term superior value is a critical success factor because the consumers know what they are buying, they are getting the reviews online. So therefore I think it is a key element and therefore it will be a long-term element of our strategy.

Okay. Can you talk about the FUSION product itself, and the traction that you're getting there, maybe how the higher end price points are doing for the category in general? Just I know historically it hasn't – higher performance batteries haven't necessarily taken a huge amount of market share, so I am curious to your outlook there? Andreas Rouvé - Chief Executive Officer: No, actually the latest news and data which we are receiving the high-performance alkaline is in fact growing quite nicely, you know whereas the standard alkaline is shrinking modestly. So therefore there is a shift in the product. And it is also understandable if you look at the major devices where you need batteries. You're having more and more digital applications coming to the market, which do have a different, let me say power need than if you look at more some of the older applications like remote controls and so on. So therefore also the consumer, as a matter of fact, needs higher performance batteries and therefore we see again a shift slowly, but steadily occurring.

Okay. Great. And then my last question was on the A/C PRO timing, is that something that you pick up in the September quarter, or given the seasonality of the business is it sort of lost sales just because of the weather? Andreas Rouvé - Chief Executive Officer: Actually, we are seeing – right now, because it is nice and hot, right now, POS is picking up extremely strong, but of course, it is always a question of the retailer how are they managing the category, when are they stopping to reorder. But in the current environment, it is performing quite nicely.

Okay. And you're still comfortable with the base business EBITDA of around $140 million? Douglas L. Martin - Chief Financial Officer & Executive Vice President: Absolutely.

Okay. Great. Thanks, guys. Good luck. Andreas Rouvé - Chief Executive Officer: Thank you. David A. Prichard - Vice President, Investor Relations & Corporate Communications, Spectrum Brands Holdings, Inc.: Okay. Thanks, everybody. We just about reached the top of the hour, and with that we will now conclude our conference call. I certainly want to thank Andreas Rouvé and Doug Martin, and on behalf of all of us at Spectrum Brands we want to thank you for participating in our fiscal 2015 third quarter earnings call this morning. Have a great day. Thank you, again.