Spectrum Brands Holdings Inc (SPB) 2021 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the First Quarter 2021 Spectrum Brands Holdings, Inc. Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Mr. Kevin Kim. Thank you. Please go ahead.

Great. Thank you so much, Jerome. I'm Kevin Kim, Divisional Vice President of Investor Relations and moderator for today's call.

To help you follow our comments, we've placed a slide presentation on the Event Calendar page in the Investor Relations section of our website 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 CEO; Jeremy Smeltser, Chief Financial Officer; and Randy Lewis, our Chief Operating Officer. After their opening remarks, we will conduct the Q&A.

Turning to Slides 3 and 4. Our comments today include forward-looking statements, which 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 February 5, 2021, and our most recent SEC filings and Spectrum Brands Holdings' most recent annual report on Form 10-K and quarterly reports on Form 10-Q. We assume no obligation to update any forward-looking statements.

Also, please note we will discuss certain non-GAAP financial measures on 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.

And now let me call -- turn the call over to David Maura.

Well, thank you, Kevin, and good morning, everyone. We appreciate you joining us this morning.

Before I get started today, I want to take a moment to speak directly to our employees and our partners around the world. Thank you. I want to thank you for your commitment to our company. You have embraced both our Global Productivity Improvement Program and the spirit of our servant leadership culture. You have persevered through a global pandemic to deliver excellent financial performance for our stakeholders. Because of you, the new Spectrum Brands is emerging now as a more efficient, focused, productive and consistent operating company. We are a company on the move again and it's all because of your hard work that's now beginning to pay off. So again, I thank you.

We can now turn to Slide 6. Our financial results for the first quarter reflected another quarter of exceptional top line growth and operating leverage, with adjusted EBITDA doubling to $204 million. This growth was a combination of delivering on strong demand for our products as a home essentials company and restocking of retailer inventory levels.

More importantly, our first quarter performance reflected yet another quarter of operational excellence as we focus on delivery of consistent results for our long-term stakeholders. Additionally, during the quarter, we repurchased 43 -- I'm sorry, $42.3 million worth of Spectrum Brand shares. And by the end of January, we sold our remaining Energizer shares, which further strengthens our balance sheet and adds to our liquidity position.

Our first quarter sales growth of 31% reflected growth across all business units with another quarter of strong POS and improved supply chain performance. As discussed on our prior earnings call, all of our businesses continued to benefit from supply chain recovery, particularly in our Hardware & Home Improvement business, which was a big contributor to this quarter's results with sales up 37% or $111 million. We achieved double-digit growth across all business units and our e-commerce sales growth was over 54% this quarter.

If I turn your attention to the bottom line, Q1 adjusted EBITDA doubled, which reflects productivity improvements across all business units from our Global Productivity Improvement Program and favorable mix as well as our supply chain continuing to drive output and improve our service levels. As we outlined during our last earnings call, our reinvestment continues to reignite the flywheel of new product launches and improve our top line organic growth rate. It is expanding our margins and it is driving greater profitability and cash flow generation throughout our company.

If I could turn your attention now to Slide 7. During the first quarter and now into the second quarter, like many CPG companies, we have started to experience transportation- and commodity-related inflation significantly higher than our original expectations for the year. And at this point in time, we estimate the impact of this at approximately $70 million to $80 million for our full year. But it's a rapidly changing environment particularly for ocean freight.

However, despite these headwinds, our strong start to the year and continued strong POS give us confidence in raising our earnings framework to reflect high single-digit net sales and adjusted EBITDA growth. And as we said at the start of the year, we still expect that growth to be front half-weighted.

If I can move you to Slide 8 now, as I said last quarter, we believe we are better positioned today than we have ever been to drive demand as a home essential company with customers needing and desiring our brands and products more than ever. Our first quarter performance reflects another quarter of wins. And we expect to continue winning in the future as the flywheel of investing in consumer insights, innovation, marketing propels our brands and products to new heights. We will continue to focus on execution of our winning playbook, leveraging our strong manufacturing and distribution footprints.

On Slide 9, going forward, our capital allocation priorities will continue to focus on: One, allocating capital internally to our highest-return opportunities and this includes strengthening our brands through consumer insights, research development, new innovation, new product launches and advertising and marketing, all to drive vitality and profitable organic growth. Two, we will continue to plan to return cash to our shareholders via both dividends and opportunistic share repurchases. And third, we will remain disciplined on the M&A front with tuck-in strategic acquisitions that are both synergistic and help drive significant value creation. This includes our focus on our target leverage ratio in the 3 to 4x range.

You're going to hear more now from Jeremy on the financials. And Randy will give you a more in-depth update on the additional business unit insights. So let me turn the call over to Jeremy at this time.

Thanks, David. Good morning, everyone. I'll turn to Slide 11 for a review of Q1 results from continuing operations, beginning with net sales. Net sales increased 31.4%. Excluding the impact of $11.3 million of favorable foreign exchange and acquisition sales of $20.3 million, organic net sales increased 27.8% with growth across all 4 business units.

Gross profit increased $153.2 million. And gross margin of 36.9% increased 600 basis points driven by higher volumes in all business units, improved productivity from our Global Productivity Improvement Program and favorable mix. SG&A expense of $258.7 million increased 14.2% at 22.6% of net sales with the dollar increase driven by improved volumes as well as higher advertising and marketing investments.

Operating income of $123.5 million was driven by improved volumes and profit margins and lower restructuring spending. Net income and diluted earnings per share were primarily driven by the operating income growth. Adjusted diluted EPS improved to $2.13 driven by favorable volumes, improved productivity and positive product mix. As David said, adjusted EBITDA doubled from the prior year driven by growth across all 4 business units.

Turning now to Slide 12. Q1 interest expense from continuing operations of $36.7 million increased $1.9 million. Cash taxes during the quarter of $8.2 million were $6.3 million lower than last year. Depreciation and amortization from continuing operations of $35.7 million was $6 million lower than the prior year.

Separately, share and incentive-based compensation decreased from $14.5 million last year to $8.1 million driven by the change in incentive compensation payout methodology we discussed last quarter. Cash payments for transactions were $12.1 million, up from $4.6 million last year. Restructuring and related payments for Q1 were $11 million versus $38.6 million last year.

Moving to the balance sheet. We had a cash balance of $224.5 million and approximately $585 million available on our $600 million cash flow revolver at the end of the quarter. Total debt outstanding was approximately $2.5 billion, consisting of approximately $2.4 billion of senior unsecured notes and approximately $162 million of finance leases and other obligations. Additionally, net leverage was approximately 3.4x compared to our net leverage target range of 3 to 4x.

During the quarter, we repurchased 600,000 shares of our stock for $42.3 million. Also, we sold 1.4 million shares of Energizer stock for proceeds of $60.5 million and held just under 300,000 shares at quarter end. Since the quarter closed, we sold off our remaining Energizer shares. Capital expenditures were $11.8 million in Q1 versus $18.7 million last year.

Turning to Slide 13 and our earnings framework for 2021. We now expect high single-digit net sales growth in 2021 with foreign exchange expected to have a slightly positive impact based on current rates. We continue to expect growth to be first half-weighted.

Adjusted EBITDA is also expected to grow high single digits. This includes benefits from our Global Productivity Improvement Program; approximately 11 months of results from the recent Armitage transaction, which last year generated about $80 million in revenue; and incremental net tariff headwinds of about $25 million to $30 million driven by the expiration of previously disclosed retrospective tariff exclusions in 2020 and our higher volumes. In addition, as David mentioned, we have also now factored in an additional $70 million to $80 million of cost inflation.

Fiscal 2021 adjusted free cash flow from continuing operations is still expected to be between $250 million and $270 million. And this includes a strategic investment in inventory levels. Depreciation and amortization is now expected to be between $180 million and $190 million, including stock-based compensation of approximately $30 million to $35 million.

Full year interest expense is expected to be between $140 million and $145 million including approximately $6 million of noncash items. Restructuring and transaction-related cash spending is now expected to be between $60 million and $70 million.

Capital expenditures are expected to be between $85 million and $95 million. Cash taxes are expected to be between $35 million and $40 million. And we do not anticipate being a significant U.S. federal cash taxpayer during fiscal 2021 as we continue to use net operating loss carryforwards. For adjusted EPS, we used a tax rate of 25%, including state taxes.

Regarding our capital allocation strategy, we continue to target net leverage -- our net leverage range of 3 to 4x adjusted EBITDA.

As it relates to our 2021 earnings framework, please keep in mind a few additional factors: First, we are planning for incremental advertising investments of approximately $20 million in fiscal 2021 as we continue to raise awareness, consideration and purchase intent.

Second, recall that Q1 results this year included the benefit of 6 additional selling days due to previously outlined changes in our fiscal calendar. This has a converse impact in Q4 2021 with 6 less days. It's important to recognize this modeling nuance results in a natural deceleration of growth in Q2 2021 compared to the prior year.

Third, the inflationary pressures we expect this year, which is higher than our forecast by $70 million to $80 million. And fourth, adjusted EBITDA is also expected to be negatively impacted by the absence of Energizer dividend income.

Now I'll turn it over to Randy for a more detailed look at our operations.

Thanks, Jeremy, and thank you all for joining us today. I'm obviously very excited to provide my comments today. And I'll focus on the review of each business unit to provide detail on the underlying performance drivers. I will also update you on the current overall cost environment and touch on our Global Productivity Improvement Program.

So overall, we continue to see significant benefits from our operating model transformation as well as the addition of significant new talent in key strategic roles. Additionally, in Q1, all 4 businesses saw improved supply chain performance and resulting higher service levels. These factors helped drive double-digit sales growth in each business. And our productivity gains and operating leverage led to record growth in adjusted EBITDA.

Now let's dive into the specifics for each business. Starting with Hardware & Home Improvement on Slide 15. First quarter reported net sales increased 37.3% and organic net sales increased 36.8%. This sequential improvement was driven by continued strength in POS and improved supply, which allowed us to fulfill the majority of our previously disclosed open back orders. Net sales grew substantially across security, plumbing and builders' hardware categories.

Adjusted EBITDA increased 129.4% primarily driven by the positive volumes, productivity improvements and favorable mix, partially offset by COVID-19-related costs and higher marketing investments. This represented another strong quarter of sales growth resulting from our manufacturing and supply chain teams elevating production well above the pre-COVID rates.

While retailer inventory and open orders returned to more normal levels, we expect sales in Q2 and beyond to moderate from the large 19% and 37% growth rates over the most recent quarters to something more in line with regular POS levels. We also expect a natural moderation of margins from a more normalized product mix going forward as well as increasing cost pressures. Additionally, recall the significant tariff exclusion benefit in Q2 of last year, which represents a net headwind in Q2 of this year.

Going forward, we continue to expect demand in 2021 to benefit from our new product introductions, incremental advertising investments and enhanced promotional activities. This includes the continued benefit from incremental plumbing and security orders from Clayton Homes, a top builder of manufactured modular and site-built homes in the U.S.

Fundamentals across both the repair and remodel and new build channels continued strong. And our incremental advertising dollars for our Kwikset and Pfister brands are continuing to add to POS gains.

Our storyline focuses on Microban, which incorporates antimicrobial technology into product coatings; SmartKey technology, which allows users to rekey their own locks to any Kwikset key in about 15 seconds. And we remain very excited about our Halo Touch product, a biometric- and WiFi-enabled smart lock with voice assistant capability through Alexa and Google Assistant.

Now to Home & Personal Care, which is Slide 16. Q1 financial performance, seasonally the most important quarter of the year for HPC, reflected a strong holiday season. Reported and organic net sales increased 17.5% and 15.8%, respectively. Adjusted EBITDA increased 39.8% to $50.9 million.

Net sales was driven by strong growth in both small appliances and personal care as well as growth across all regions. This includes the return to growth of our Latin American region, which was particularly hard hit by COVID-19.

From a subcategory perspective, growth was driven by continued strength from home cooking products as well as the return to growth in hair care products. EBITDA was driven by higher volumes, productivity improvements, favorable pricing programs and mix, partially offset by increased marketing investments.

Q1 represented the sixth consecutive quarter of year-over-year top line growth, exceeding last year's strong holiday selling season. Strong sales momentum has continued from that holiday season into the second quarter with growing demand for our home essential products.

Additionally, we believe incremental demand in the U.S. is also benefiting from recent stimulus spending. While fill rates have improved, our supply chain teams remain focused on service levels given the heightened demand.

New product introductions in this category from the Remington brand with Wet2Style in the Americas and Hydraluxe in Europe are driving hair appliance category growth again. And teams continue to seize growth opportunities across cooking, food prep and breakfast preparation. We see strong growth from air-fry toaster ovens from the Black & Decker brand. And our investments in the George Foreman Smokeless Grill continue to pay strong dividends.

Our focus in 2021 will remember -- will remain on consumer-led, insights-driven products and continuing to incrementally invest in our brands and hair ranges across more markets than ever before.

Moving to Global Pet Care, which is Slide 17. Q1 represented another strong quarter of financial performance with reported net and organic sales growth of 33.9% and 21.9%, respectively. And adjusted EBITDA grew 70.2%. Top line growth was driven by both the aquatics and companion animal categories as well as growth in all regions. Higher EBITDA was driven by volume growth and productivity improvements partially offset by higher advertisement and marketing investments.

Q1 was also the ninth consecutive quarter of year-over-year growth on the top line and seventh consecutive quarter of bottom line growth. In addition to this consistent performance, our Global Pet Care team continues to build its worldwide market leadership position in the core categories of Aquatics, Dog Chews, Pet Grooming and Pet Stain & Odor.

Recall that we added Armitage Pet Care to our portfolio a few months ago. And this acquisition is creating an excellent platform for continued international expansion of our fast-growing chews business as Armitage is well established in the U.K. grocery channel and offers an attractive assortment of not only dog but also cat chews, treats and toys.

Our Global Pet Care team remains confident that 2021 and beyond will benefit from the continued execution of our global growth strategies, coupled with the strong category growth fundamentals, particularly the sustained demand for consumables given all the new pet parents in companion animal and all the new hobbyists who have recently entered the aquatics and reptile categories. These are long-term commitments and bode well for the future demand of our products.

And finally, Home & Garden, which is Slide 18. First quarter reported net sales increased 79.3%. And adjusted EBITDA increased $13.7 million from a loss in the prior year. The top line grew across controls, household insecticides and repellents driven by strong POS as well as early orders across mass distributor and online channels stocking up for the spring season. The EBITDA increase was driven by significant volume growth, favorable mix and productivity improvements despite headwinds from COVID-19-related costs.

The second quarter should also benefit from strong retail orders heading into the prime selling season. While weather and POS performance in our peak season remain unknown, we are positioned very well to maximize results given our increased production capabilities and our customers' early inventory build. We will also further increase our investment in advertising and consumer engagement in this business as well as launch meaningful consumer-led innovation in the second quarter.

We plan to continue to invest more advertising dollars to tell our story around the brands of Spectracide, Cutter, Hot Shot and EcoLogic along with incremental research dollars to deliver even more new and innovative products. We believe these actions will further enhance our vision to be the recognized leader in providing consumers the best solutions to conquer nature's challenges and enjoy life. This is only possible with the continued focus on our distinctive combination of brands plus formulations and registrations supported by efficient manufacturing and strong customer relations.

The fundamentals in this business remain strong with solid profitability and high barriers to entry. We are confident that our strong brand equities and increased investments in product development and marketing will accelerate our long-term growth rates.

Now let's turn to our internal growth and efficiency efforts with our global productivity improvement program. Turning to Slide 19. We continue to be laser-focused on execution as Q1 delivered productivity improvements across all business units. We also remain resolute on using these savings to reinvest back into the businesses to deliver long-term sustainable organic growth. This program continues to be our most important strategic initiative as we transform into the new Spectrum Brands.

I also wanted to address the recent changes in input costs and overall inflation. At this point, these pressures are expected to be higher than we originally planned for the year by about $70 million to $80 million driven primarily by freight and other material cost inflation. We are addressing these headwinds with a coordinated and consistent strategy based upon our initiatives developed through our GPIP program.

We are working in concert with our supplier partners to offset this inflation and have many additional mitigation actions that are being executed in each of the businesses. Pricing will be included in these actions to the degree required. And we believe our leadership position and recent brand investments are positive backdrops to those conversations.

As Jeremy alluded to earlier, these headwinds are currently included in our earnings framework for the year. And we will remain diligent in our operating discipline to minimize the impacts.

This quarter also, e-commerce grew by more than 54% and represented more than 16% of overall net sales. Additionally, our digital teams continue to leverage data for the early identification of consumer trends of new product and sales opportunities and create promotional content that appeals to those consumers.

In summary, to end my section, I want to acknowledge a sensational quarter of progress on our operating culture and strategic initiatives across SPB and to thank our 12,000-plus employees for all they are doing to make us a better, faster and stronger Spectrum Brands. This includes all that they are doing to deal with the pandemic conditions, which we greatly appreciate.

Now back to David.

Thanks, Randy, Jeremy, and thank you, everyone, for joining us today. Given that we've covered quite a lot on the call, let's conclude with the key takeaways on Slide 21.

First, our Q1 financial results reflected exceptional top line growth and operating leverage. Adjusted EBITDA doubled to $204 million. And our performance demonstrated another quarter of consistent execution for our long-term stakeholders.

Second, we continue to prioritize a strong balance sheet and strong liquidity. And we're targeting net -- continue to target net leverage in the range of 3 to 4x. And we have maintained over $800 million of total liquidity.

Third, our year-to-date performance in the businesses give us the confidence to raise our net sales and EBITDA earnings framework to high single-digit growth compared to fiscal 2020.

We believe we are well positioned financially and operationally to continue to grow. We will continue to be laser-focused on our employees, our consumers, our retail partners and our shareholders.

It is extremely gratifying to me and the team to be able to deliver these exceptional results given all the hard work to transform our operating model and to invest for future growth. Spectrum Brands is back. And I am extremely proud of our team. And I'm excited about our future.

I want to again thank all of our employees from our front-line workers in the factories and distribution centers to the many other teams around the globe that have been working from home. I'm eternally grateful for all the sacrifices you've made to navigate our company successfully through these challenging times of the past 12 months. Thank you for your time. Thank you for your continued support.

I'd like to turn the call back over to Kevin so we can take any questions you may have.

Great. Thank you, David. Jerome, let's jump right into Q&A.

(Operator Instructions) Your first question comes from the line of Olivia Tong with -- from Bank of America.

Congrats on a great quarter. I wanted to get a little bit more color on the key drivers of the sales beat, whether -- and it probably changes depending on the division. But how much is from better underlying category growth versus the initiatives that you've made to gain market share, not needing as much promotion, maybe the innovation hitting better than you had expected, catch-up taking -- not taking as long as you expected? Just if you could just walk through some of those things so we can think about how customer views have changed in your categories or for your brands, that would be helpful.

Olivia, thanks so much. Appreciate the question. Look, first and foremost, I think this is -- this quarter is really just the culmination of a lot of hard work that's been done behind the scenes over the last 2 going on 3 years. We have really repositioned the operating model of this company to listen very carefully to consumers.

We have completely rearranged the innovation, the R&D functions to be consumer insight-driven. We are launching products that our customers and our end consumers want. Every business unit is taking market share now. So we are outperforming category growth.

And we are marketing. We are telling our story to the consumer. We are demonstrating to them that not only we are a home essential company, not only are we making it better and more fun to live your life in and around your home and in your yard and with your pet, et cetera, but we're creating products that consumers now desire. And the company has moved from a push model to a pull model. And I'm just extraordinarily grateful for all the efforts of all our employees to make this happen.

But that's what I'll say about it. I'll flip it over to Randy if he wants to give you any additional color. But we're doing things in a very sustainable manner. I would tell you we really are reinvesting. We are not -- even now with additional cost inflation, the temptation is to, boy, do we really want to continue to make these additional dollars in advertising and marketing. And I can tell you affirmatively, we will lean into that. We are a company on the move again. And we are very much interested in having long-term sustainable growth organically.

So I hope that addresses at least some of your questions.

Olivia, it's Randy. Just a little bit additional color on that. We would say maybe 1/3 of the increase was catch-up across the business units on the supply chain performance. And that was more heavily weighted in our HHI business, where we think we're pretty healthy with regards to the current backlog. There's a little bit of additional catch-up opportunity in Q2 but for the most part, we're there.

But then outside of that, there was also a little bit of benefit in Home & Garden from the standpoint of just the optimism around the potential category for the year and a lot of retailers are leaning in ahead of time. But the balance of the growth was spread across all the businesses.

And as David said, we believe that we're in a good share-growing position in most all of our categories in all of our businesses. And so we're seeing -- it's category by category. But as you've heard in my comments, we've seen a return to growth in Latin America in HPC. We've seen return to growth for hair care products, which has been really hard hit for most of the pandemic. And so the strength of the category is solid across almost all our businesses.

Great. That's super helpful. And you sound super optimistic about a couple of different areas within your portfolio. So I just wanted to get your view on your current portfolio and how all the pieces go together because you obviously know at one point in time, you had planned to part ways with a portion of your portfolio than shelve that plan. So if you could just talk through the portfolio makeup and how you're thinking about that would be great.

Well, I mean, the beauty, Olivia, of the new operating model that we've transformed to over the last 24 months is that we've got a front end that supports really well most consumer products, even durables and consumables. And so the model works well. And so we were able to evaluate the assets based upon their growth potentials and across the board.

I mean it's different factors but we saw substantial growth in housing starts in December, far exceeding what we were expecting. And so that housing market continues to be strong. Repair and remodel categories that follow that continue to be very strong. And so we like the fundamentals in that business. We think there's a lot of opportunity for us to grow our plumbing business as we shift and focus more on wholesale. And we're seeing great results from the many new lines and new aesthetics that we're bringing into that category.

In appliances, it's been a long turnaround but it's really there right now. And so that team is just hitting on all cylinders and really starting to leverage from the globalization of the strategy. We're seeing all of those brands perform extremely well.

We've got great relationships in our retail spaces that we didn't necessarily have 24 months ago. And so that one's, again, very comfortable.

Pet is just -- it's been the darling for us for many -- couple of years, many quarters now but there's still runway there. As an example, our Nature's Miracle brand and our top chews brands in the U.S. are just now starting to launch into the European theater. And we're using the Armitage acquisition as leverage to accelerate that. So there's a lot of runway remaining.

And the most amazing thing in Pet for me for the last 3 quarters has been the growth in Aquatics. And this is a growth not only in consumables but these are large tanks. Our manufacturing facility has been going all out on 55-, 60- and 75-gallon tanks since early summer. And so people are making substantial commitments to this space, which lead into long-term consumables revenue streams for us.

And then Home & Garden, the transformation there is a little longer in time line because of the product registration process. And so many of the things that we're really excited about there on products are still ahead of us. But the transformation just as far as the attitude and the leadership are taking hold. And our retailers are really starting to see us differently in that space. So I'm really happy with the portfolio right now. That's my view.

Got it. Are there areas where you think it might make sense to quickly get bigger like via an acquisition? And on the flip side, are there areas where you may consider divesting to simplify the portfolio or fund growth in other areas of the portfolio?

Look, I think right now, right, I mean, we've kind of achieved a state velocity from operating improvement metric standpoint. I think all businesses are performing very well. And I think our outlook is confident.

Look, I -- we've been buying back shares. We bought a lot of shares this quarter. Despite our shares starting to recognize the hard work that's been done under the hood, I think our stock price is still cheap and has a lot of upside to it.

And so we're thrilled. We've got some new investors in the shares. We are exceedingly grateful to some of our largest stakeholders like Fidelity for giving us the time to turn the business around and now demonstrate significant improved earnings profile.

Look, I think we'll continue to be laser-focused on deleveraging the balance sheet, getting the top line sales growing faster and obviously expanding margin now as we get operating leverage throughout the businesses.

Look, where things make sense strategically, if there's some opportunity to create a ton of value for stakeholders, we're open to that. We -- I consider this team to be pretty self-aware. And -- but we've worked really hard and made a lot of sacrifices to get to where we are today.

And I think right now, it's continue to execute, continue to deliver consistent results, continue to pay down debt, continue to get organic growth faster than competition, take market share. And if something comes up and it creates a lot of value for our stakeholders, we're wide open. So that's how we look at the world.

Your next question comes from the line of Nik Modi from RBC Capital Markets.

So just -- I wanted to just quickly clarify what Randy said. Did I hear it right that you guys are now caught up at retail? It just seems like this is a moving target because demand for the categories has been so strong. So I just wanted to make sure I got that right. And then...

Nik, let's just stop there. So look, we caught up a lot in the last quarter. We're still chasing demand, okay? Let's be clear about it. We are still working our tails off to get our service levels up. POS remains exceedingly strong across the businesses. And we believe we are now taking share in all 4 business units. So again, that's the bedrock that gives us the confidence to tell you that we're comfortable with our framework being raised to high single-digit growth despite a number of external -- negative externalities, mainly freight inflation.

So yes, let's be clear. We worked really, really hard on the supply chain side. That's why you hear me complementing our employee base repeatedly today. It is unbelievable that the challenges that they have met and then exceeded time and time again. So grateful to everybody with our logistics, our sourcing networks, our production facilities.

But no, we haven't filled it all. And we're continuing to restock even in this quarter some additional inventory service levels and working very hard to be laser-focused on servicing our customers with excellence and getting those fill rates even higher. So still work to do and still chasing demand.

I cut you off. You had more to your question.

Yes. No, no. It was just kind of a -- the bigger picture question was on M&A, David. Is there any perspective you can give us in terms of what you're seeing in the marketplace? Do valuations look better today than they did 1.5 years ago? I just wanted to get your sense of the landscape.

Yes. I mean, Nik, you know me well. I spent my first 10 years in Spectrum kind of that's -- really, that was my main focus was kind of M&A. We built the CPG powerhouse. But -- and I was very gratified with it all the way through 2017.

Obviously, I took it very personally, the disappointment that the company faced in 2018. And I've made it a -- the #1 goal of mine professionally was to change the culture of the company, give it vision and direction and purpose and clarity and really get the buy-in from essentially a new team, where you have the C-suite essentially new except for me, and really empower all the different operating companies.

And then look, we built this and shout-out to Tim Goff. I mean we built out this Comm Ops group, which is really collaborative across all the 4 business functions. And it's just doing a tremendous job with us trying to listen to our customers and use those insights to drive the vitality of our product launches. And I think that's the greatest thing we've done is just transform the culture of the company and now the numbers are starting to follow soon.

In terms of the M&A market. Look, I think that while our operating performance is now starting to really show through, I think compared to private sector multiples, public company multiples, I think our companies remain undervalued. I think we're very attractive for investors to enter even now. I think our shares have a lot of room to run. I think that there's still a tremendous amount of liquidity in the world. Private equity is sitting on a ton of fresh powder. The stock market has exploded. And so there's just a lot of people chasing assets.

So I would tell you that from my old M&A days, I kind of see the world long a lot of liquidity but short assets. And they need operating assets that perform to fill the investment demand that's out there. And that continues to solidify in my view that Spectrum remains a very attractive equity to take an ownership position in our company because I think we have a lot of upside.

On the M&A front, I think big strategic stuff remains, in my book, expensive but where we can do tuck-in acquisitions that are highly accretive and strategic in nature and build our franchise. I think we're wide open there.

I'm sure people on the call want to ask me about rumors in the marketplace. We're just not going to comment on them. But if there's opportunities to create greater value with other things down the road, again, we're a software team that want to create a ton of value for stakeholders. So we'll see what the future holds. I hope that is enough color.

Your next question comes from the line of Bob Labick from CJS Securities.

Congratulations on really fine results, particularly the record margins. Great stuff. I just wanted to clarify your guidance because, obviously, the implications for EBITDA declines for the balance of the year. You talked about the incremental $70 million to $80 million of inflationary headwinds. I'm assuming that since mid-November.

And the question is does that reflect any mitigation on your part. Is that a net number? Or is that the total number? And then you expect to mitigate it somewhat but you're leaving that to be upside from the guidance. I'm trying to wrap my head around those moving parts.

Sure. Yes, Bob. So I would say really kind of mid-December, we started to see the signs, particularly on the inbound ocean freight side. Things really accelerated in January. Obviously, there's been lots of articles documenting this well.

The $70 million to $80 million is really kind of the gross inflation that we see as compared to our original expectations for the year. We have a little bit of mitigation built into the updated earnings framework. But admittedly, we've been somewhat cautious on that because a lot of that work is still ahead of us. And obviously, we're using spot rates for the most part, current spot rates on inbound, which is a big spend for us. Obviously, there's some level of potential variability in that as well. But we're just trying to be really transparent with what we've put in the numbers.

Okay. Great. That's helpful. And then kind of my bigger picture question is obviously with COVID and supply chains and everything else, the growth rates have moved on. You gave us some good color to understand it a little bit. But I was hoping you could take a step back and just give us a sense of your thoughts around the underlying growth characteristics by segments once volatility subsides. Where -- what we should be thinking about over the next 3 to 5 years, again, forgetting the short-term volatility around it?

That was such a good question. I'm going to give it to Randy.

Bob, I think it varies a lot by business unit and also by the category in the region. But again, I think we would anticipate in the appliance segment the kind of normalization and attenuation with some level of overall increase as lifestyles change. In the hardware area, just the general people investing in homes and driving the technology, we still continue to feel like that is going to be a good grower for us. And that's probably the one that -- again, as I mentioned, there's a lot of activity through this COVID pandemic that has long-term implications on the consumables portion of that business.

And then in Home & Garden, from a category perspective, we continue to see it as a great place to be more moderate growth that we expect a lot of new entrants into the category. There's been an awful lot of people moving not only out of the cities and into the suburbs but also moving from the north to the south. So we're seeing millions of people moving into our more target areas as far as product and region. And so we would anticipate that to continue to grow faster than what it has over the last several years.

Yes. That's a good point.

If that helps, Bob.

Got it. No, that's great. I appreciate it. I'll get back in queue.

Your next question comes from the line of Chris Carey from Wells Fargo Securities.

Can you just comment maybe on what you're seeing so far in the calendar year-to-date? I mean housing data looks good. Garden trends, I know it's -- we're in a seasonally slower period but we are starting to get to the period where retailers are going to be stocking up inventory as you noted. Pet ownership increased during the pandemic. The tracked channel data looks good. I appreciate it's smaller for Spectrum. But certainly, there's some momentum there.

And so I'm trying to frame that trends seem pretty good this quarter-to-date as well and maybe just get a feel for how you're seeing things. And specifically, that means the back half remains the swing factor here. And I wonder if over the past couple of months, your visibility into what you can do in the back half of the year has improved. Obviously, you've raised the guidance today -- but so really just this concept of what you're seeing year-to-date and whether you've got any improved visibility into the back half trends?

You sound like me in our weekly calls. I'm always asking all the different teams and business units that question. And I'm always asking them, "Do you see a pullback yet? Are things subsiding? Is demand reverting to the mean?" And to be honest, we're still chasing demand across the board.

I think there's times where I have thoughts about the vaccine gets rolled out, and everybody's -- wants to go back to life as normal. And so travels should boom and everyone's going to leave their home and go to the south of France and have a good time.

But look, I think the more we experience the journey we're on and we see what's going on in terms of people's day-to-day lives, I think there's some real permanence to wanting to live in a more renovated, better home. I think -- I'm not trying to be negative but I mean this is one pandemic. Will there be one in the future, another one? I mean I think people are just valuing home and home-based activities. And I don't think everyone is going to go back to work all of a sudden.

I think commercial real estate is probably a tough place to be for a long time. I don't think everyone is going to go back to the office even when you can go back to the office in cities like New York, et cetera.

So I think this whole enjoy your yard, cook at home, get your house in immaculate shape with remodel work yourself or as Randy is talking about was a very good comment. I mean you see a lot of movement in household formation around this country that is really beneficial to us as a remodeler and a renovator and playing with your pets. And it's -- look, we'll tell you when we see it. But right now, things look good on the demand front. Randy, you want to -- Jeremy, comment?

Yes. I mean we certainly got more confidence in the back half of the year than we had 90 days ago based on POS continuing. I think to the first part of your question, strong year so far in the calendar year. So that said, I think it still makes sense for us to have some caution in the back half because to David's point, we don't know exactly how things are going to moderate.

I think it's interesting as we kind of watch each and every CPG company report and talk about the level of uncertainty that they have. But I think it's not an inconsequential raise to our net sales and our earnings framework from 3% to 5% up to high single digits. I think that's appropriate for now. And we'll see how things progress over the next 90 days.

Okay. Very helpful. And then just the follow-up here is I think the $70 million to $80 million, that was a gross number for the incremental transportation and commodity inflation costs. But you also said, I believe, that there were potential mitigation actions you could take, whether that is pricing. Potentially, there's some other incremental cost saves that you could unlock in the business.

I realize it's still early days because this really accelerated in December. But can you just give us a flavor of the sorts of actions that you might be able to take and potentially frame the amount of this incremental inflation that you might be able to offset if successful?

Yes. Look, I appreciate what you said there because it is fast and sudden and recent. And so we're still getting our head around it because mid-December and now or not -- there's not a lot of time in between there.

I think look, we've said pretty clearly, we've been working with our suppliers to mitigate this. We don't -- raising prices is kind of the last thing we want to do. But I think it will probably be necessary given what we're seeing. And again, we just -- we don't want to get over our skis. And we don't want you to get over your skis with the outlook.

So I think we want to deal with what we're seeing in front of us. We want to be very transparent with you, our investment community. But at the same time, the top line looks really good. We're getting a lot of operating leverage in the business.

I'll pass it to Randy if he gives us any further color he wants to give you.

Yes. Chris, I was just going to say I don't think we're going to start talking about the numbers of the mitigation or the offsets. There are lots of activities that are ongoing all the time as far as cost improvement programs and continuation of our GPIP benefits. But it is a material amount of costs that are coming at us. And we're just going to have to wait and see, as David said, how successful we can be in mitigating some of that.

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

Congratulations from me too on a really, really good quarter. So I just wanted to dig a little bit deeper on HHI. And the first question was I was wondering if you could talk about how POS has trended in that quarter just given the volatility in the quarterly results. And we don't really have access to a lot of the POS data. So I know you've talked about strong POS. But I'm wondering if you could either directionally quantify it or talk about the trend that you've been seeing over the last, call it, a year or so?

This is Randy. I would say, over the last year, it's been just a crazy rollercoaster. And so what we're trying to do is to look at the last 90 to 120 days when supply has become more consistent and predictable. And what we've seen is a very nice correlation to POS continuing to grow as inventories at retail continue to get healthier. And some of our strongest POS in that business unit has occurred just in this calendar year in the last 5 weeks.

And so it's really hard for us to get a read on the underlying details of what's causing everything. But again, we've had substantial new product launches. We've had new resets in 2 of our top retail partners. We're getting much better product in those set mixes. And again, we're supporting it with more advertising and promotion and promotional spends with some of our best retail partners.

And so it's all of those things combined that's driving the POS gain. And just to give you some sense, security and plumbing, both up very nicely in January into the mid-20s.

Okay. That's super helpful. And then just on the GPIP and the tariffs. I was wondering if you could talk about like where you are on the -- I know you've talked about $150 million run rate savings on the GPIP program. I don't think you mentioned sort of where you are at this point in time and sort of how much is left.

And then similar thing on tariffs, where you talked about I think it was $25 million to $30 million of incremental tariffs. And I think there's a 2Q headwind. Could you talk about how much is left just to help us model the rest of the year?

Yes. So on the tariffs, we're -- we have most of that still ahead of us for the year given the comp issue for us. So the majority of that is going to happen. It will start happening in Q2 but majority in Q2 and Q3.

And with regards to the GPIP program, I think we've said we'll be pretty close to run rate by the end of the year. But we haven't been given midyear updates. But it's not too far off of a linear program for this year.

And your next question comes from the line of Ian Zaffino from Oppenheimer.

Great. Great to see e-commerce growing super fast here. Can you maybe give us an idea of where you're seeing that growth? Is it more in the specialty channel? Is it more on just the general e-retailing level? And then as you look forward, what sort of mix should we expect e-commerce to become as part of the company's overall sales?

Yes. I mean I think in e-comm specifically, we're seeing the growth across all e-comm channels. So not just dedicated e-comm but also as brick-and-mortar has gone online as well. So the good news there is that we're a little bit agnostic to which particular channel that goes to.

As you know, over the past couple of years, in particular, we've gotten away from having really specialized to certain channels. So that's been good for us. I think last year, for the full calendar year, we were about 16%. I think total sales were e-comm, relatively consistent here in the first quarter. It actually grew as the year progressed last year.

Total percentage, I think difficult to tell. But I think a business like ours, we can certainly see moving to -- across the portfolio to a quarter over the coming couple of years. But it's a little bit different by business.

Home & Garden for example, while it's growing there, that's a type of product a lot of people want immediate gratification. They would go to the store and buy it and use it same day. So it's a little bit different by business but we're performing well in all 4 of them on e-comm.

Okay. And then just, Dave, when you talked about tuck-ins and acquisitions, what type of dollar amount are we thinking here? Is there a top on what you would actually invest in a tuck-in? Just kind of ballpark. And I know you don't have a crystal ball but any kind of color you could give would be great.

Yes. Look, I think, again, we're striving very, very hard here to really excel in the operations across all 4 lines of our business and our company. And that is the #1 allocation of capital as to internal returns. We also believe that, like I said earlier, the share price remains a great opportunity for new investors to come in even at today's levels based on where I see valuations elsewhere.

And so we've heard from our investor base. And we're listening that leverage is important to them. It's important to us. And March of 2020 and the pandemic and the financial market reaction is still fresh in our minds. And so a strong balance sheet, strong liquidity still of paramount importance to us.

Look, if there's great tuck-in acquisitions, we -- I'd definitely like to do something Home & Garden. We've been looking pretty hard in the hardware side. The pet space, obviously, we've been successful there. I just think a continuation of that, which are -- you got to do the same amount of diligence, whether it's a $2 million EBITDA business or a $50 million EBITDA business.

Yes. I wouldn't want to give a range on the size of a deal. It's just if the valuation is right, we can tuck it in and effectively double the EBITDA in the first 24 months on it and really bring down that purchase multiple and then strengthen the franchise from a strategic standpoint. We're wide open to deploying that capital. But again, I think we want to continue to just deliver consistent excellent operating performance for our stakeholders and to continue to reward our shareholders right now with a lot of organic growth. That's our focus.

And that concludes our question-and-answer period. I would now like to turn the conference back to the company for any closing remarks.

Thanks, everybody, for joining us today. We appreciate it. Kevin and I will be available today and Monday as well to answer any further questions. Have a great day.

Thanks, everyone.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.