Good morning. My name is Zetania, and I will be your conference operator today. At this time, I would like to welcome everyone to the Spectrum Brands’ Fiscal 2019 Fourth 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. [Operator Instructions]. As a reminder, ladies and gentlemen, this conference is being recorded today, Wednesday, November 13. Thank you. I would now like to introduce Mr. Kevin Kim with Spectrum Brands. Mr. Kim, you may begin your conference.

Thank you, Zetania. Welcome to Spectrum Brands Holdings fiscal 2019 Q4 earnings conference call and webcast. I’m Kevin Kim, Divisional VP of Investor Relations and moderator for today’s call. To help you follow our comments, we have placed a slide presentation on the Events Calendar page in the Investor Relations section of our Web site at www.spectrumbrands.com. This document will remain there following our call. Starting with Slide 2 of the presentation, our call will be led by David Maura, Chairman and Chief Executive Officer; Doug Martin, Chief Financial Officer; and Randy Lewis, Chief Operating Officer. After the opening remarks, we will conduct the Q&A session. Turning to slides 3 and 4, our comments today include forward-looking statements including our outlook for fiscal 2020 and beyond. These statements are based upon management’s current expectations, projections, and assumptions and are by nature uncertain. Actual results may differ materially. Due to that risk, Spectrum Brands encourages you to review the risk factors and cautionary statements outlined in our press release dated today, November 13, 2019 and our most recent SEC filings and Spectrum Brands Holdings’ most recent 10-Q and 10-K. We assume no obligation to update any forward-looking statement. Also, please note we will discuss certain non-GAAP financial measures in the 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 Web site. I will now turn the call over to David Maura.

Thanks very much, Kevin. Thanks everybody who’s joining us on the phones today. Good morning. I’m extremely pleased to update everyone today on our progress. As we stated 12 months ago, the goal is to stabilize our company in 2019 and position it for growth in 2020, and today we are confirming that. We have stabilized our business in 2019, and we are returning to profitable growth in 2020. We ended fiscal 2019 on a very strong note. The fourth quarter, in fact reflecting the best quarterly top and bottom line year-over-year growth of the entire year, has given us significant momentum as we enter 2020. We also have a significantly stronger balance sheet, we have tremendous amount of liquidity, and we delivered on our full year adjusted EBITDA expectations. Our management team is focused on delivering stability – we focused on delivering stability in '19, and we emphasize the importance of execution, investment, and the resetting of our Home and Personal Care appliance business. Despite the added challenges in 2019 tariffs, the difficult selling season for our Home and Garden business, our teams rose to the challenge and overcame all the external headwinds that were presented to us in 2019. Pet had a fantastic year posting both healthy top and bottom line growth. Home and Garden benefited from shelf space gains, and while HHI's revenues were somewhat below expectation, the team at HHI was able to deliver on their profitability goals for the full year, in fact expanding EBITDA margin by 20 basis points. Additionally, the team worked through the divestiture of our Battery and global Auto Care businesses, and very importantly kicked off a multi-year Global Productivity Improvement Plan which we now expect to generate over $100 million of run rate savings in the next 18 to 24…

Thanks, David, and good morning, everyone. Turning to Slide 9 and a review of Q4 results from continuing operations beginning with net sales. Net sales increased 1.9%. Excluding the impact of $12.5 million of unfavorable foreign exchange, organic net sales grew 3.2% with growth in Global Pet Care, HHI, and HPC being partially offset by a decline in Home and Garden. Gross profit fell 3.5%. Gross margin of 33.7% decreased 190 basis points as higher input costs, tariffs and accelerated depreciation relating to a decision at the end of the year to close a – close certain Latin America plants were partially offset by positive pricing and productivity. SG&A expense of $232 million decreased 7.5% or 23.4% of net sales this year compared to 25.8% a year ago, driven by lower HRG merger-related costs and other cost-control efforts. Operating loss was driven by the impairment of Home and Personal Care goodwill and other intangible assets of about $151 million, higher input costs and tariffs, higher depreciation and amortization, and higher restructuring charges related to the Global Productivity Improvement Plan. Net loss and diluted loss per share were driven by the operating loss, partially offset by an income tax benefit, the unrealized gain on our Energizer common stock, lower interest expense and a smaller loss from discontinued operations. Adjusted diluted EPS of $1.13 increased 10.8% due to lower interest expense and lower adjusted average shares outstanding. Turning to Slide 10. Q4 interest expense from continuing operations of $37 million decreased $20.7 million driven by lower debt levels. Cash taxes during the fiscal year were approximately $53.9 million, comparable to last year. Depreciation, amortization and share-based compensation from continuing operations of $55.7 million increased from $33.6 million last year primarily due to higher share-based compensation and the impact of HPC depreciation and…

Thanks, Doug. Good morning, everyone, and thank you all for joining us today. I will open by reiterating David’s comments that we are very proud of our combined accomplishments during the fiscal 2019 year in the face of material headwinds. We’re excited about the future outlook of the platform as benefits start to deliver from our Global Productivity Improvement Program execution. Now to walk you through the results of each of the business units. Turning to Slide 14 and Hardware and Home Improvement. The fourth quarter reported net sales and organic sales increased 1.1% and 1.3%, respectively, while adjusted EBITDA improved 3.5%. Despite the softer U.S. housing market and slowing remodeled activity, residential security sales benefited from new product innovations on both electronics as well as mechanical products offerings features from our Smartkey technology. In the quarter, we were very pleased with the successful launch of our new cloud platform, the new mobile app. This proprietary system will be crucial to future projects in the connected security market making it easier for a consumer to have real-time access and control of a lockset anywhere that has Internet connectivity. The recent launch of Aura, our new Bluetooth-enabled lock under the industry leading Kwikset brand is just one of several examples of products that will sit within this new ecosystem. Looking forward, we are very excited about the outlook on electronic deadbolt and smart locks in 2020, given the relatively low but fast-growing U.S. residential adoption rates. More importantly, we are excited about our electronics product roadmap and the new innovations that we will add to our ecosystem in 2020 and beyond. Similar to this year and going forward, we expect our moderate new build activity but nonetheless we are confident in our ability to grow with our market leading brands, excellent…

Thanks, Randy. Thanks, Doug. Look, before going to Q&A I’ve got to take a moment to just say, hey, thanks to Doug Martin. Doug has served us for five years and without his steady hand in execution this year, I wouldn’t have been able to have got the divestitures done, the TSAs implemented. Doug has been a great team player, a great business partner and I just want to thank Doug publicly for his five years at Spectrum Brands and wish him the very, very best in his next endeavors. Also, Dave Prichard has been with us for about nine years and he is also retiring in December and we want to thank Dave Prichard for all his many contributions here at Spectrum Brands. I also want to welcome onboard Jeremy Smeltser who’s already hit the ground running and is knee deep in Galileo – sorry, Global Productivity Improvement Programs and I just really welcome Jeremy to the team who has joined us October 1. The transition was exceedingly smooth, so again that’s a big thank you to both Doug and Jeremy. So Dave, Doug, Jeremy from all of us at Spectrum Brands thank you. And I’ll turn it over to Kevin for follow-up questions.

Great. Zetania, let’s just dive right into Q&A.

[Operator Instructions]. Your first question comes from the line of Bob Labick with CJS Securities.

Good morning and congratulations on a nice fiscal '19 and also to Doug and Dave on their pending retirements and next ventures.

Thanks, Bob.

So, I wanted to start with the GPIP and maybe you could just expand a little bit. Obviously, you’re progressing very well, and you have some very big expectations for savings. Can you talk about how you plan to balance the reinvestment back into the company in incremental marketing versus R&D versus other things? Where are the savings going and how will they ultimately drive future growth?

Look, I’ll lay out the big strokes and then I’ll turn it over to Randy for more details. Look, our initial cut at this was I wanted to get about $100 million of productivity flowing through the P&L, and we initially wanted to drop about half of that to our shareholders and reinvest the balance into R&D, innovation, new product development, and marketing. So, as I’ve been seeing, and I think it’s been 18 months since I took on this new endeavor, I really want to focus the company towards more of a sales and marketing organization and really drive organic growth and get to better places. And so, it’s really a mindset shift. It’s really a new way of doing business, but the next couple of waves that we’re going to go through quite frankly, Bob, are going to be about automation really bringing IT enablement. Jeremy Smeltser actually has got a fantastic background. He’s done this before. And so, the ability to get data quickly, slice the data, analyze the data, make faster, quicker, better decisions is going to bring a lot of prosperity to us and all our stakeholders, and that’s kind of where we’re going. Those are the broad strokes. I think to be blunt given the tariff situation, we’ll be less than honest with you if we didn’t tell you, look, we’re unfortunately going to be using a lot of the global productivity improvements in 2020 to just offset these unfortunate tariff headwinds, which we view is transitory but they are nonetheless really affecting our reported earnings in a negative way. And so, we’re using more of those savings than we’d like temporarily to offset those. I think that would be the only commentary I’d give around it. Randy, if you want to expand?

Yes, Bob, I would just say the key thing for us is that we’re efficient with this reinvestment. So, we’re focusing very heavily on capability development within the organization so that we can ensure that the money that we are choosing to put back into the business is going to have a positive return for all of us. So, it’s kind of broad based and it varies from one business to another based upon where we are in different stages of that process, but we are most focused on ensuring that we’re chasing the right innovation based upon real data insights from consumers and not from the traditional approaches within the CPG companies, and then being more efficient with that development, and then last being able to effectively engage the consumers and the retailers and the storytelling around that innovation. So, it’s going to be a measured pace. We don’t expect to be at the full investment run rate until well into the next fiscal year, but we are already seeing benefits from the beginning of those reinvestments.

Okay, great. It’s very helpful color. And then we’ve talked about this a little bit on previous calls, but can you talk a little bit about the online strategy and penetration and how you’re targeting incremental online growth in fiscal '20 and beyond?

Yes, Bob, that’s one of the key work streams within the Global Productivity Improvement Program is omni-channel operations, and it’s really key that we don’t separate out online as being different than brick and mortar. And so, the mindset change here is that we talk omni which is having all aspects of opportunities to interface with our consumers, engage in one overall encompassing strategy. And so, we are building very key capabilities with data scientist analytics that are driving us forward, different behaviors in that space but that’s one of the areas that will be center-led across the four businesses as we go forward into this year.

Okay. Super. Then last one from me, and I’ll get back in queue. Obviously a terrific year on the pet side. One of the things that’s also been discussed previously was some of the operating efficiencies I guess at the European tolling businesses. Any update on improving those operations in fiscal '20 or beyond or where that stands?

So across the European business, we’ve done a substantial amount of work over the course of fiscal '19. It’s kind of tied up in the strategy of globalizing our businesses. We talked earlier in my prepared remarks about streamlining with better decision making within the businesses, and that’s part of the previous matrix structure that we had 18 months ago or so that kept us from being aligned on strategies. And so, we’ve driven a substantial amount of cost out of our European business within Pet and seen substantial improvements in the effective rates of that business as a result of that. So, overall, we’re going to see really good margin expansion in that business, and that’s a main driver of it is the European restructuring.

Great. Thanks very much.

Thanks, Bob.

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

Great. Thanks. Good morning and congrats to Doug and Dave. First question is actually on the savings and the tariffs. So, you’ve got 100 million of savings coming in the next call it one and a half to two years; 80 million to 85 million in incremental tariffs, it’s a little higher than you had originally anticipated. So, as you think about the deployment of those savings, how much is pricing contributing to that? And to the extent that you have these savings, what’s your view on what – if there’s a pull and push, like are they coming equally from reinvestment versus dropping to the bottom line or are you going to make sure you protect the reinvestment and maybe less flows to the bottom line? I’m just trying to understand your thought process on that. Thank you.

Yes, let me take the headline. Randy will do the details as usual. Look, I am wildly proud of our team to do 567 million of EBITDA in '19, to be staring at a wave of another 80 million plus of tariffs in 2020, the run rate numbers we gave you we’re not there yet and/or by the way we’re going to step up investment in marketing spend by another 22 million box run rate, probably half of that at least to hit the balance of what’s left of 2020, we are not backing away from doing what is right for the company long term. Another words – let me state it another way. We could manufacture $600 million EBITDA number in 2020 if all we wanted to do is impress the Street. We want to run this business like owners and we want to continue to invest for the long haul. And so we will continue to prioritize reinvestment in R&D, innovation and marketing until we get the top line results that this company is capable of. I’ll stop there and I’ll let Randy clean up any mistakes I made.

Good morning, Olivia. So I would tell you to think of pricing varying by business unit based upon kind of the channels with competition and the strength and positioning of the brands. But overall the offsets on pricing are the largest portion of offsets that we have to the tariff headwinds. And so when we look at the remaining savings coming out of the Global Productivity Program, you’re exactly right. We have a strong bias to protect those reinvestments. We obviously have to balance that across all of our stakeholders, but as David said we are highly committed to the messaging that we’ve been giving the last 18 months, which is we’re changing the focus and we want to be much more concerned about where we’re going to be in two and three years and where we’re going to be in the next quarter.

That makes sense. Thanks. I appreciate that. And then on cash flow, it was nice to see that it stabilized a bit and to see the improvement that you’re expecting for next year. But it was a little bit low relative to our expectations. So, first, what didn’t go quite as you anticipated for fiscal '19, particularly relative to last quarter’s commentary? And then what are the big drivers of the improvement in fiscal '20 beyond the savings program? And should we expect more improvement in first half versus second half given the comps or will it still be primarily second half loaded?

Just clarify that. Cash flow, you mean free cash flow, EBITDA, what are you talking about?

Free cash flow.

Free cash flow, Olivia, in 2019 as you know was kind of difficult to see through two, given the divestitures and the discontinued operations and allocation of interest expense across the two. It actually came in pretty much where we expected it to overall. When you think about the working capital impact in discount [ph], which I know you don’t have visibility to, but that’s really where we expect it to come in. Because we had so much cash in the balance sheet at the end of year though, we have not – and we have done this earlier, and if we dial back on some factoring programs which are really cost effective from a capital structure management perspective weren’t necessary when we were sitting on cash. So if there was any one thing that was different than our expectations, it would have been that.

Also, look, I think from my seat, right, we’re trying to generate $100 million of productivity savings but we’re spending $100 million of cash restructuring to get it, that’s not a bad payback, right? If the $100 million of savings is in perpetuity and you paid for it – it paid for itself in less than 18 months, that’s probably a good allocation of capital organically. I mean that as an understatement obviously. I think that’s really good allocation of capital. But clearly those cash restructuring charges that are embedded in our midpoint of 250 of free cash flow, they are going to roll off. And so obviously as you get into 2021, you have a pretty nice free cash flow left. So I’m pretty bullish on not only the free cash flow for 2020 but the free cash flow growth going forward if that helps.

Yes. Thank you.

Your next question comes from the line of Sam Reid with Wells Fargo.

Awesome. Thanks so much guys for taking my questions and let me add my congrats to Doug and Dave as well. A quick question here on Global Pet again this quarter. I wanted to get a sense as to how this growth compares to the underlying category, especially in the U.S. because it really does seem strong given the somewhat mature nature of the underlying product segment? And then along those same lines, could you walk us through any shelf space gains you might be getting there as well? Thanks.

Look, I think our Pet business as you know is mismanaged for a number of years. I think our Pet business was just a collection of me doing acquisitions. I think over the last two to three years under – actually last year under JP, John’s taken over that business. He’s got a team that’s got incredible vision and passion for innovation. I think I’ve spoken to you publicly – I was early. Most of the past 18 months I was talking about how Pet was going to turn and it took a little longer to turn, but I would just tell you we’ve got a team that’s really walking the talk when it comes to real R&D, real new product development. I was at the Pet Expo Show down at Orlando. I think I mentioned this on a previous public call and we had three years worth of new product offering, a real product roadmap with really innovative stuff. So, look, we are absolutely outperforming the category and we’re going to continue to outperform the category because we have what the customer wants. We’re bringing news and excitement and innovation and we’re just getting started. So congrats to John and the entire Pet division. We are extremely proud of them and looking forward to the best yet to come out of Pet. Randy can add details.

I think you said it well, David. Sam, we are going above the category. We would look at the U.S. category where we compete and expect CAGR there in the 2.5% to 3% range. Obviously, our last two quarters have been well ahead of that and that’s indicative of all the efforts that David just talked about. And we have a very clear strategy that we’re trying to get to there and we’re starting to deliver on that.

Awesome. Thanks so much guys for the color. It’s really helpful. Wanted to maybe sneak another one in just quickly on HHI. Just kind of how much of the growth during the quarter was reflective of pricing specifically? And how is that pricing may be impacting your volumes in this segment as you take that? Thanks so much.

We’re going to be careful on pricing because we have competitors that listen in and all the rest of that fun stuff and we’re public. Look, we did take pricing in that division, right. We’re number one market share position. We’re dominant brands. We are the clear leader. I would tell you that this is not an inelastic place to play. And so you got to be really cut. Clearly, we have a very interest rate sensitive housing market. As you guys remember, I think it was this time a year ago I think I spooked everybody on housing saying I was seeing a slowdown, which we did experience. I think we’re working much better with our retail partners. I want to thank our retail partners. We have recently seen some POS uplift due to some of our pricing programs and we are very excited about some of the new digital lock offerings we’re coming out with and we launched our own cloud, which is basically allowing us to have a ubiquitous offering. I think one of the things we want to focus on going forward in HHI is bringing clarity at point of sale. Digital locks are really just where the growth is. We’re the leader there. We want to continue to be the leader. We want to put more chips on that table. But it’s still confusing for a DIYer to go there and know whether they need a Zigbee, a Z-Wave, a HomeKit, Google, Apple, WiFi, Bluetooth. And so we need to continue to bring clarity there and help the customer at the point of sale. But we expect another solid year out of HHI. We wish housing was a little bit better. As opposed to last year we kind of see multifamily slowing down. We think kind of the single family space is doing okay. Clearly with full employment and interest rates where they are, that’s very supportive of household formation. But we remain number one and we’re going to continue to invest behind that business.

Awesome. Thanks so much. I really appreciate it.

Your next question comes from the line of Ian Zaffino with Oppenheimer.

Hi. Thank you very much. David, I just kind of want to key in on your comments about the stock being undervalued. Is there a target you have out there for the buybacks or maybe just broadly speaking what’s sort of the pace for the buyback and what should we sort of expect of that going forward? And then I have a follow up.

The lower the price, the more we’ll buy. The higher the price, the less we buy. Look, we have the Board and I have a view on what our intrinsic value is. I’ve been in this space for about 20 years. I’ve never seen the discrepancy between what people call value stocks and growth stocks. And in the consumer product space, the delta between what somebody calls growth at 2% or 3% and valued at – a lot of companies are reporting negative 2%, it’s 10x, 20x EBITDA deltas. It’s ridiculous in my mind. And so I look at our business, I look at our free cash flow, I look at our brands, I look at the portfolio of assets we have and we think that shrinking the float makes sense at these levels. I think anybody that would look at where we trade on a multiple EBITDA or free cash flow yield, hopefully their HP-12C works as good as mine.

Okay. Thanks. And then also just touching on – some of the hair care distribution losses that you experienced last year, are there new products out there that you’re going to be launching to maybe backfill some of those losses or maybe you recoup some of those losses, or how do we kind of think about just that --?

Absolutely. We just won back category captain at a fantastic retail partner. We didn’t love kind of the shelf space we had even after that. We’re having those conversations. Randy can tell you about – we have a plethora of new product launches that we’re excited that are coming out. We didn’t just enter into an agreement with Manchester United for Europe. We’ve got a lot of new exciting Remington – Remington is one of our best known brands in our entire portfolio and the growth we’ve experienced with women’s hair care has been explosive and – our European teams have just been doing a much better job to be completely brutally honest with consumer insights. But now we got a brand new team running the United States since February, April. It’s almost 100% new leadership team and that’s where we’re putting our money, consumer insights and marketing. And you’re going to see a complete re-launch of George Foreman in a couple of months.

Yes. Ian, this is Randy. I would say to follow-up David’s comments, we feel like we’ve had a very strong capability in product development for quite a while, but we weren’t necessarily pointing that capability in the right direction with regards to either what the consumer was wanting or how to ensure that we were managing our portfolio across our retail customers very well. I’m extremely proud of the new team and what they’ve been able to do to not only figure out how to get the right insights to point our capabilities very strategically but also digging in and having tough conversations with our fantastic partners and we’ve not been in the current position with regards to partnership with key retailers in my history with the company. Very strong and it was still very difficult conversations in today’s world, but we’re now playing in the space as far as that relationship that we haven’t been for quite a while. So it’s products, it’s also relationships, it’s also the data that David talked about as far as bringing to them the analytics about how to optimize their category and we’re going to do extremely well with that. And then just in the Remington business, we talked about the Manchester United partnership and that has been phenomenally successful so far. We’ve got over 300 activations in 25 different countries with that approaching 1 million consumer engagements. We’re seeing very positive returns with perception and intent to buy as a response to that. So we’re very happy with that.

All right. Thank you very much.

Your next question comes from the line of Faiza Alwy with Deutsche Bank.

Hi. Good morning and congratulations from me to Doug and Dave’s retirement. So my question is if I look at Slide 18, it feels like there are a lot of sort of interesting things going on at Spectrum, a lot of change going on and I just wondered if --

That’s an understatement.

Yes, so I wanted to hear from you, Dave, and maybe from Randy a little bit in terms of how are you ensuring that you had a lot of execution issues a couple of years ago, so how are you ensuring that you don’t run into those types of problems again?

Look, I hate looking in the rearview mirror. I would say most of the guys in this room – let’s just look forward. Look, I think a lot of those mistakes – going forward we are going to make sure we measure twice, cut once. We are doing this with a fantastic partner within A.T. Kearney. We are using on any given day 40 to 70 FTEs from ATK. This is a management team that is no longer looking to reduce cost by issuing simple what they call reduction in force. We are looking to educate our employees to help them become the best versions of themselves they can. We’re looking to put IT, automation, big data in front of them to help them drive decisions to be much more efficient. And so it’s just a new mindset. It’s a new way of doing business. Yes, it’s a lot of change but it’s being underwritten exceedingly well and honestly I owe a debt of gratitude to Randy and Doug and Jeremy and Ehsan Zargar and all the operational leaders for partnering with an outside team that helps double check, dot every i, cross every t, and honestly hold us accountable. It’s very hard to oneself. It’s extremely beneficial to have an outside third party in everyday working with you, hand-to-hand, locked arms to go achieve a goal and I think that would be the best way I could describe the different approach that’s being taken this way as opposed to the missteps of the past that you referenced.

Faiza, this is Randy. I believe you and I spoke about this maybe a few weeks back and I think it’s a great question. David’s exactly right. This is a completely different company than two and a half years ago when those previous projects were undertaken. And this is an internally executed transformation but we’re doing it in a very collaborative way. We’re doing it with a fantastic partner. We’re doing it with tremendous amount of oversight. And it’s just a different environment completely. I’m highly confident in our ability to execute these initiatives and to do so with net positive results along the way. We’ve got new leadership in three of our four businesses. We’ve got substantial new talent enhancements within the senior leadership of each of the individual businesses. We’ve got new people leading our corporate initiatives. All of this has been done with an eye on creating the right type of environment to foster this change.

Great. Thank you and good luck.

Thank you so much. I appreciate it.

Thanks.

Your next question comes from the line of William Reuter with Bank of America.

Good morning. You laid out the two-year target for run rate basis for the Global Productivity Improvements. Do you know what you’re going to be achieving in fiscal year '20, so what will be in the fiscal year '20 P&L?

That’s for us to know and you just find out at the end of the year.

Okay, sounds good.

And good job with the question.

You guys have talked a lot about the expectations that you’re going to continue to have better growth of the electronic deadbolt, smart locks, et cetera. I guess can you talk a little bit about what percentage of your products are – in the HHA segment are those products and what type of growth rates you expect maybe either this year or over the next couple of years?

Will, it’s not big enough. The denominator is still too small. That’s why we’re trying to grow it. But I don’t know if Randy wants to give any detail. I don’t know if we’re going to break that out or not.

Yes. We don’t really break that out but it is clearly the fastest growing segment within that space both for the category and for ourselves. And so we’re really excited about this cloud that I talked about and the technology that supports that on the backend. I think as David mentioned, all of the confusion in this space, this gives us an opportunity to really cut through that and make it very simple and easy and reliable for consumers to make a choice and to be happy with it. We’ve got the new Bluetooth lock Aura that we launched a few months ago. It’s doing extremely well, already clipping along at $7 million of revenue rate in just the first couple of months and we’ll be launching another major new lock in that space within the next four to six weeks and that one has even more potential. So it’s our fastest growing segment, our biggest, strongest focus.

And then lastly, you did a pretty good job of laying out both your expectations for free cash flow this year as well as what you guys are going to do in terms of share repurchases. I guess it would imply that more or less your leverage target is around where you are right now? Is that how you guys are thinking about things?

To the extent – William, this is Doug. To the extent that we do in fact make the Energizer payment back later this year and do execute up to $250 million of share repurchase, then we’d probably add about a half a turn of leverage there.

Okay. That’s all for me. Thank you.

Your next question comes from the line of Carla Casella with JPMorgan.

Hi. Thanks for taking the questions. One question looking into the holiday quarter. Any impact we should think year-over-year from just the number of department store closures that have gone on since last holiday?

No. Don’t worry about us on the department store end. I think we’re fine. What we want to be very open about is that we do expect a divot in our first quarter. Tariffs are impacting us and they’re going to hurt us mostly on the frontend of fiscal 2020. So we expect a divot in Q1. We expect to make it up Q2, Q3, Q4. So again, I’m not a big fan of guidance but we do want you to understand the pacing of the year. Tariffs will hurt us a lot more in the frontend and then our productivity savings will flow in the back and that’s how we’ll get to the full year guidance we gave you.

Okay, great. And then looking at those tariffs, can you give us just a little more color by segment, like which segments will be most impacted in the beginning part of the year?

I think right now this stuff coming off the boat, we’re having to pay higher tariffs on is maybe both in our appliance unit and quite frankly HHI.

Okay, great. And then the plant closure that you mentioned, is it completed or could we expect any kind of inventory safety stock or other as we go into the coming quarter?

These are relatively low –relatively small rawhide plants and they’ve been planning this for a while. It’s been – in fact, they’re closed and production has been shifted to new supply and we have no inventory issues here at all.

Okay, great. And then just one last one on the M&A front, you mentioned – M&A versus asset sales. You mentioned shedding some assets in Pet. What categories are the most unproductive and what could be timing on exiting – would it be a category exit or just certain brands or certain products?

Well, I think you’re probably referring to my prepared comments. This is Randy. And what I was alluding to there on productive assets were those manufacturing facilities throughout Latin America.

Oh, great. Okay. Thank you for clarifying. That’s all I have. Thanks.

Thanks, Carla.

Your final question comes from the line of Karru Martinson with Jefferies.

Good morning. Just to be clear, the adjusted EBITDA guidance of 570 to 590, that builds in the 80 million to 85 million of tariffs that you expected this year?

Yes, it does.

Okay. And then --

We’re not ashamed [ph].

Yes. List 4b, that would be above and beyond that?

That’s correct.

Okay. And I just wanted to get a sense – so when we talk about the dividend in the first quarter, how much of these stranded costs remain? And what’s the pace of getting those out of the P&L here, or is it all --?

Sure. Karru, this is Doug. It’s a number that we won’t disclose publicly, but it’s also not a huge number. It’s a headwind for us and we’ve been working against it. As we have exited some TSAs with Energizer, Energizer has exited TSAs with us, but this is also being addressed by the Global Productivity Improvement Program. And we started this work well before the deals were closed. And the only governor on it is our timing on the exits across the different markets around the world. So it’s in there. It’s in the guidance. It’s being addressed. Just thought it was important to mention the timing and the impact of the phasing of it on our quarter.

Okay. And just lastly when you guys look at Home and Garden, are you seeing shelf – shelf share gains when it comes to roundup?

This is Randy. We are seeing some gains especially in home centers with our brands and I think it’s more to do with our relationships with the products and the investments that we’re putting behind our brands and necessarily anything else, but I can tell you again relationships were strong. Product innovation pipeline is strengthening and we’re working very well with those key customers as well as the mass channel, and I think that’s the main driver of our gains there.

Okay. And I’d just like to add my thanks to Doug and Dave here for their service. Thank you.

Thank you.

Thanks, Karru.

Thank you. With that, we’ve reached – go ahead, operator.

There are no further questions at this time.

Thank you, Zetania. With that, we’ve reached the top of the hour. So we’ll conclude our conference call. Thank you to David, Doug and Randy. On behalf of Spectrum Brands, thank you for participating in our Q4 2019 earnings call.

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