Spectrum Brands Holdings Inc (SPB) 2013 Q2 法說會逐字稿

Good afternoon. My name is Merle and I will be your conference operator today. At this time, I would like to welcome everyone to the Spectrum Brands fiscal 2013 second-quarter earnings 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, Tuesday, April 30, 2013. Thank you. I would now like to introduce Mr. David Prichard, Vice President of Investor Relations. Mr. Prichard, you may begin your conference.

Good afternoon and welcome to Spectrum Brands Holdings' fiscal 2013 second quarter and first-half earnings conference call and webcast. I'm Dave Prichard, Vice President of Investor Relations for Spectrum Brands and moderator for today's call. Now, to help you follow along with our comments this afternoon, as some of you may have seen already, we have placed a slide presentation and it's on the event calendar page in the investor relations section of our website, which is www.SpectrumBrands.com. This document will remain there following our call so you can access it in the days to come as well.

So if we start with slide 2 of this presentation I just referenced, our call today will be led again by Dave Lumley, our Chief Executive Officer; and Tony Genito, our Chief Financial Officer, who will both provide opening comments and then conduct a Q&A session.

If we now turn to slide 3 and 4, our comments today include forward-looking statements. They include our outlook for fiscal 2013 and beyond. These statements are based upon management's current expectations, projections and assumptions and are by nature uncertain. Now, actual results may differ materially. Due to that risk, Spectrum Brands encourages you to review the risk factors and cautionary statements outlined in our press release dated April 30, 2013, and our most recent SEC filings and Spectrum Brands' most recent 10-K. We assume no obligation to update any forward-looking statement.

Also, please note that we are going to discuss certain non-GAAP financial measures in this call. Now, reconciliations of these on a GAAP basis for these measures are included in this afternoon's press release and 8-K filing, which are also both available on our website in the investor relations section.

For the second quarter of fiscal 2013, the Company reported a net loss of $41.2 million or $0.79 diluted loss per share on average shares and common stock equivalents outstanding of $52.1 million. This compared to a net loss of $28.7 million or $0.56 diluted loss per share in the year-ago quarter based upon average shares and common stock equivalents outstanding of $51.5 million.

By segment for the second quarter of fiscal 2013, the Global Batteries & Appliances segment reported net income as adjusted of $34.6 million versus $35.6 million a year ago. The Global Pet Supplies segment reported net income as adjusted of $16.4 million versus net income as adjusted of $14.8 million in fiscal 2012.

The Home & Garden business segment reported net income as adjusted of $20.6 million versus net income of $21.2 million as adjusted last year. Finally, the Hardware & Home Improvement segment reported net income as adjusted of $600,000 in the second quarter of fiscal 2013.

With that as background, I am now very pleased to turn the call over to our Chief Executive Officer, Dave Lumley.

Thanks, Dave, and thank you all for joining us this afternoon.

Turning to slide 6, we reported good results for Spectrum Brands, including the legacy business in the second quarter, which seasonally is our smallest quarter of the year. And HHI, our new hardware group, added an improved performance in its first full quarter as part of our Company.

Our markets remain challenged by a difficult macroeconomic environment highlighted by sluggish retail activity, tightening retail inventory management and, frankly, a stunned consumer. These consumers are juggling higher taxes, generally stagnant wages and higher everyday expenses. Still, we believe our Spectrum value model and our largely nondiscretionary, non-premium priced replacement products serves us well, providing consistent value to our retail partners and consumers worldwide.

With a solid first-half behind us, we remain on track to deliver another year of record growth and improved results from our legacy business along with the added growth from HHI.

On slide 7, our second-quarter net sales show an increase of 1%, including HHI in both quarterly periods. HHI and Global Pet reported revenue growth. Our legacy business sales were solid, impacted by the planned $10 million continuing exit of low-margin promotional business in North American Small Appliances. This is similar to past quarters.

We also had an expected shortfall in Home & Garden revenues given the difficult comparison with last year due to the very early and warm 2012 spring. Our net loss in the second quarter was driven by an inventory revaluation related to HHI and one-time acquisition and integration and restructuring costs.

Lower adjusted EPS of $0.44 in the second quarter versus $0.47 last year was due to an increase in non-cash stock compensation expense driven by employee stock-based award programs. Still, adjusted EBITDA results were solid. Including HHI in both quarters, adjusted EBITDA increased 4%.

Legacy Spectrum Brands' adjusted EBITDA of $103 million in the second quarter was the 10th consecutive quarter of year-over-year adjusted EBITDA growth. In addition, when you exclude negative foreign currency exchange, legacy business adjusted EBITDA grew 6% versus the prior year.

Finally, adjusted EBITDA margins also improved versus the prior year's quarter, both including HHI and for legacy Spectrum Brands alone.

Let's turn to slide 8. We continue to expect a fourth consecutive record year with measured growth in net sales, adjusted EPS, adjusted EBITDA and at least $200 million in free cash flow from legacy Spectrum Brands or before HHI, and with improvements weighted to the second half of the year. With HHI now in the fold, we see enhanced EPS and adjusted EBITDA and combined free cash flow approximating $240 million or nearly $5 per share in fiscal 2013 net of HHI's acquisition costs.

Deleveraging and strengthening our balance sheet is our top priority for use of cash. We plan to reduce our total leverage by approximately a half turn per year, starting with major debt reduction of at least $200 million in the last two quarters of the fiscal year, consistent with the peak period of our cash flow generation. Long-term, our objective is to maintain a total leverage ratio of 2.5 times to 3.5 times.

We manage Spectrum Brands to maximize sustainable free cash flow. In 2012 we delivered free cash flow of about $4 per share. In fiscal 2013, with HHI we have higher free cash flow target of about $240 million or nearly $5 per share. When you consider a likely refinancing of our $950 million of 9.5% senior secured notes in 2014, a significant decrease in our acquisition, integration and restructuring costs and include the free cash flow impact of HHI in fiscal 2014, there is an opportunity for Spectrum Brands to deliver free cash flow per share on an annualized run rate basis to perhaps $7 or more in about 18 months from now. That's compared to $4 per share in fiscal 2012.

Now let's turn to our individual businesses beginning with Global Pet Supplies, which is on your slide 9. Global Pet remains on track for another record year of sales and adjusted EBITDA in fiscal 2013. Second-quarter net sales increased 2.6% and 3.3% on a consistent currency basis from higher companion animal product sales in North American and Europe, especially our Dingo dog treats brand. Aquatics growth continued in North America. Adjusted EBITDA improved 5% following a similar 5% in the first quarter.

We are also very excited about many new products we introduced by Global Pet in the second half of 2013 across the world. That includes North America, Europe and Japan. We see solid results coming in the last two quarters of the year in both aquatics and companion animal from new products, select pricing actions, shelf space increases, new retail customers and a record annual level of continuous improvement to offset cost increases, all of which should enable Global Pet to deliver record performance again this year.

Now to Remington, which is our current personal care business, which is slide 10. Remington's second-quarter global net sales fell about 1% due to a one-time shaving and grooming shelf space cutback at a major retailer that continued on from the first quarter. We expected this, and it did impact the overall category at Remington. Without this, sales would have increased in the rest of our business.

We were pleased, however, with the continuing growth of Remington in Europe fueled by gains in shaving and grooming and higher sales in Latin America in hair care for women. These regions nearly offset the North America shaving and grooming issue. In the second half of this year, we have important new women's and men's distribution shipping the key North American retailer that will help drive Remington volume back up and showcase the brand's strength both in product innovation, advanced features and consistent performance.

We are also seeing good growth in Europe and our unique FDA-approved i-LIGHT hair removal product continues to gain traction in the US and Europe as a foundation for our development of a larger global consumables business in the next few years. We're also pleased to announce that very recently we got regulatory clearance for i-LIGHT in the large and promising market of Brazil with approvals pending in several other key Latin American countries. Remington is also a key platform for our increased Company-wide investment in global e-commerce and consumables, which we see as new vehicles for growth across Spectrum Brands.

In the Small Appliances category of Global Appliances, which is slide 11, the 3% sales decline was entirely expected and planned for from the continued elimination of low-margin promotions in North America totaling about $10 million, which I told you about earlier. We began this program last year, deliberately reducing sales by a total of $30 million in fiscal 2012 and another $20 million plus in this year's first quarter. It is clear this strategy is working in helping to improve legacy Spectrum Brands' gross margins. North American Small Appliances in the second quarter saw a more than 450 basis point gross margin improvement along with higher EBITDA following a similar performance in the first quarter.

Since North America is the largest geographic segment of this business, this turnaround has a particularly significant impact.

Elsewhere, I am pleased to report that growth continued. For example, Europe posted double-digit net sales growth, driven in large part from continued regional expansion in Western and Eastern Europe. Looking to the second half of the year, global platform products are entering the market successfully and category management has taken hold and working well. Cost improvement is a success story for global Small Appliances. Savings in fiscal 2013 are tracking twice the rate of fiscal 2012 as the business moves more fully onto Spectrum Brands' continuous improvement and global new product development processes.

With higher cost savings, new products, select pricing, distribution gains and strong expense control, we believe the business can more than offset continuing but moderating Asian supplier cost increases this year.

Now, on slide 12, let's talk about our Home & Garden division. Home & Garden reported solid sales of $102 million and adjusted EBITDA of $24 million for a strong 23% adjusted EBITDA margin, even while comparing to record results from last year's extremely early season. That is when the month of March was the warmest in more than 100 years in North America, pulling sales and profits forward from April. This year's performance also overcame the coldest March since 1996. It also represented a strong improvement from perhaps more comparable fiscal 2011 results and more normal weather when revenues were $90 million and adjusted EBITDA was $18 million, demonstrating how much this business has really grown. Strong, continuous improvement programs and operating expense management enabled first half EBITDA to be basically flat with last year despite the difficult second quarter comparison.

Still, cold, wet weather across most of the United States in April has delayed a full to the spring season, but it is the next 6 to 8 weeks that will define the 2013 lawn and garden season. Our Home & Garden products are well positioned in all categories, whether it be controls, households or repellents, and this is a result of share growth from distribution gains, strong promotions and value-based marketing programs such as Spectracide and an array of new products, including the new Black Flag product line.

We want to stress -- Home & Garden does not participate in the fertilizer, seed or mulch big bag business, having exited the category in 2009. As a result, we are strictly focused as a broad-based chemicals products supplier inside the home and outside in the lawn, garden and woods. Home & Garden as our highest margin business is intent on delivering improved results again in fiscal 2013.

Let's move to slide 13. Let's talk now about our Global Battery business. We expect another year of improved results for the business, which we view as a growth vehicle primarily through higher volumes from market share gains. Our battery business is a strong EBITDA-producing cash flow generator with steady performance. Continuing growth in our European VARTA battery business in the second quarter was driven by new customer listings, increased distribution in existing retailers and several promotions, along with continued geographic expansion. Our Latin American business, the alkaline and zinc carbon market leader in that geography, was impacted by the timing of retailer shipments in Brazil but is set for second half volume growth.

In North America, Rayovac market share increased in a competitive and challenged industry. Key retailers further tightened inventory levels and trend reorders. Competitor activities were focused on significant discounting and cautious consumers restrained post-holiday spending and were more price sensitive, given the higher taxes, stagnant wages and everyday higher expenses.

Despite this difficult consumer environment, Rayovac is the only branded battery to consistently deliver positive alkaline dollar share gains in each period over the past 12 months. Our long-term strategy of same or better performance for less price works. Our presence with prominent retailers worldwide has grown considerably in recent years. Value is winning. Retailers are embracing our Rayovac and VARTA batteries and lights. We will also see some exciting new battery products soon.

Our business succeeds in batteries by focusing capital on cost improvement to offset cost increases and inflation and maintain a flat cost of goods sold. We secure new distribution and expanded shelf space at existing customers and minimize and reduce expenses. Our goal remains help the retailer growth category, increase market share and provide the best value to consumers.

Finally, slide 14, our new Hardware and Home Improvement business, in its first full quarter with our Company, HHI reported second-quarter net sales and adjusted EBITDA growth of 11% each versus the prior year. Sales grew primarily from strength in US residential security and plumbing and some because of timing issues. Still, HHI is performing as expected with an early nudge from a slightly better US housing market and initial successes in a few targeted growth areas such as our smart key product line, the emerging home automation market, home improvement channels and international. The HHI integration is also progressing smoothly and ahead of schedule. We are confident in achieving the projected $10 million of synergies in the first two years and maybe a bit more.

We closed on the acquisition of the residential lockset business of Tong Lung in the Far East on April 8 and look forward to quickly integrating these assets and reaping the benefits of that business which promises to accelerate HHI's global growth initiatives.

In closing, with our expectations for a stronger second half in fiscal 2013, we remain on track for another record year for legacy Spectrum Brands. And, as evidenced by a solid second fiscal quarter performance, our HHI acquisition is off and running to a strong first year as part of Spectrum Brands. This will be our fourth consecutive year of year-over-year growth. We continue to build a multi-billion-dollar enterprise focused on increasing market share, retailer POS, margins and adjusted EBITDA while always running the business to maximize sustainable free cash flow.

Thank you, and now I'm going to turn it over to Tony Genito, our CFO, for some additional comments.

Thanks, Dave, and good afternoon, everyone. Turning to slide 16, let me first comment on our gross profit and margin in the second quarter. Our gross profit and gross profit margin of $323 million and 32.7%, which includes HHI, compared to $260 million and 34.8% a year ago for legacy Spectrum Brands only.

The gross margin decrease was driven by increased cost of goods sold of $26 million from the sale of inventory which was revalued in connection with the HHI acquisition, and that impacted the margin by nearly 300 basis points. This inventory revaluation offset solid gross profit margin improvement of more than 450 basis points from the previously announced exit of low-margin product sales in the North American Small Appliances business of nearly $10 million.

Excluding HHI and inventory revaluation, I'm very pleased to note that the gross profit margin for the second quarter of fiscal 2013 for legacy Spectrum Brands as adjusted for restructuring and related charges was 35.7% versus 35.1% last year.

Second-quarter SG&A expenses excluding HHI were essentially flat with last year's second quarter, similar to what we saw in the first quarter. Interest expense in the second quarter was $60 million compared to $69 million last year. The decrease was related to nonrecurring costs incurred with the replacement of our 12% PIK notes last year of $27 million and savings primarily related to the refinancing of those notes. This was offset by increased interest expense of $21 million from the additional debt financing for the HHI acquisition.

Now to our effective tax rate, which was an unusual 249% in the second quarter versus 142% a year ago. Our book income tax rate is impacted by our high level of profits in foreign jurisdictions. This means we provide for foreign income taxes even while having a book loss in the US. Our US book loss results from substantially all of our debt and our acquisition, integration and restructuring costs being incurred on our US legal entities. Since there is a valuation allowance against US deferred tax assets, we are unable to book any financial statement benefit related to our US domestic losses. This impact is magnified by the tax amortization of certain domestic indefinite-lived intangible assets. Because the tax expense on the indefinite-lived intangible assets is a fixed amount, the closer to zero our income is, the greater the impact is our effective tax rate.

Let me highlight a few more key items in our financial statements. Restructuring, acquisition and integration charges increased to $20 million in fiscal 2013 versus $12 million in 2012, primarily driven by the HHI acquisition. Cash interest for the second quarter of fiscal 2013 was $18 million compared to $28 million in 2012, which excludes the unusual items in 2012 related to the refinancing of our 12% PIK notes totaling $25 million of cash interest. The difference is due to timing and lower interest from the refinancing of our 12% PIK notes.

Cash interest for all of fiscal 2013 excluding one-time items of $23 million related to the HHI financing is expected to be approximately $185 million to $190 million.

Turning to slide 17, cash taxes for 2013 were $6 million compared to $10 million in 2012. The decrease of $4 million was due to timing. Based on the level of NOLs we expect to be able to utilize, we do not anticipate being a US federal taxpayer for the next five to 10 years. However, we will continue to incur foreign and a very small amount of state cash taxes. We have said that our normal annual run rate for cash taxes including HHI for a full year is expected to be $60 million to $70 million. In fiscal 2013, as we have indicated on our last quarter's call, our cash taxes are expected to be $65 million to $70 million including HHI for approximately three quarters, primarily due to the timing of payments between fiscal 2012 versus fiscal 2013 in Germany.

We ended the second quarter of fiscal 2013 in a solid liquidity position with $77 million drawn on our $400 million ABL working capital facility and with a cash balance of about $77 million. As of the end of the quarter, total debt at par was $3.263 billion.

Regarding our cash flow projections, given the strong cash flow potential of our businesses including HHI, our goal in fiscal 2013 is to generate approximately $240 million of free cash flow net of HHI acquisition costs, or nearly $5 per share. Our normal annual capital expenditures including HHI for a full year should be approximately $65 million to $70 million. However, in fiscal 2013, as we indicated on our last quarter's call, fiscal 2013 capital expenditures will be slightly higher, approximating $70 million to $80 million. More than two thirds of the spending represents investments in new production capacity, offset production infrastructure related to the integration of Tong Lung, technology infrastructure, new product development and cost reduction projects. We believe the investment we are making in fiscal 2013 will accelerate research and development, new product enhancements and new product introductions in 2014 and beyond.

Thank you and now I will turn it back to Dave for our Q&A session.

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

Bill Schmitz, Deutsche Bank Securities.

Can I ask you about -- because last quarter I think you talked about some interesting news on the distribution side in batteries. So is there anything you can share with us on that front? And then maybe, you know, there's some rumblings that there is little bit of dislocation at Wal-Mart in the battery quad, so can you just talk about what's going on there as well? And then I have a follow-up, please.

We don't discuss individual retailers. It's a deal we have with them. I can tell you by segment, we have had very good success in what I would call the home center segment and the two-step segment. I would tell you that we have not lost any distribution anywhere right now, of that -- of your comment.

That's really helpful. Do you have the same sort of shelf space now at the major retailers as you had last year with maybe some gains in some of the home centers? Is that directionally right?

As of today, yes.

Okay. And then have you ever thought about bringing the production for some of the Small Appliances back to the US? Because it seems like the wage inflation and the cost inflation and the freight inflation has been so high, is there an opportunity for you guys to on-shore some of that stuff?

We are looking into that. I think it's more of a North American opportunity, not necessarily US. And even in the Caribbean, not only in appliances but some of our other products, we actually moved products in the Home and Garden division into the Caribbean islands. We have moved products into Mexico and we are aggressively pursuing it. It will take time because the infrastructure for the parts, especially, of appliances are all in Asia. But I can see certain products, that happening. So everyone is working on it. It will take a while, though.

Okay, great, thanks. And then just lastly, what are you most surprised about with HHI? Because, obviously, the business is doing extremely well. So maybe where is that incremental growth coming from, and what did you find out that you didn't know during the due diligence process?

That's a great question, Bill. Basically, Dave and I had gone out to the HHI facilities, I guess it was the end of February, had a deep dive management meeting with the entire HHI team which went through each of the functions. And of course you do your due diligence process and you do what you do. But this was a deep dive with the management team, and I think the big opportunity that I walked away with -- and I don't want to speak for Dave, but I think he felt the same way -- is that we see quite a bit of opportunity where this business is very, very well-run with respect to cost improvement. But we see further opportunities with that as well as the opportunity for further benefits in the mass area.

Clearly, approximately 50% of the business is with the big-box home centers and not a very strong presence in the mass area, so we see that as an opportunity, especially considering the fact that we just closed on the acquisition of Tong Lung in April 8, which is a supplier of not only private-label but branded locksets and gives us a vertical integration, so to speak, that allows us to really enhance that and accelerate that opportunity.

So it was really another checkbox where not only did we see, as we talked about during the acquisition itself, the opportunity for geographic expansion, but also channel expansion, I think, and also the opportunity that, as well-run as the business is, we believe that there's further opportunities from a cost savings perspective within that business itself.

Great, thanks so much, guys.

Dan Oppenheim.

I was wondering if you can talk about the batteries in North America, talking about it based on the price competition. What is your sense -- any reason to think that we will see less of a competitive response there on the pricing side? How are you looking at that at this point?

I think that the pricing in batteries will stay very competitive for a little longer but I don't think it's sustainable at some of the things that have been going on. I think it will level out, if that was your question.

Okay, and then in terms of just Remington, in terms of the shelf space, wondering -- you talked about one time. How are you thinking about that in terms of just some underlying issues, making sure that you continue to gain shelf space? Do you think you will take on more as you have new products coming out here?

Yes. I think this is really just a bump in the road for Remington. If you were to look at its growth pattern, especially over the last few years, have been fantastic. This was a decision by a major retailer to try something new and credit them for trying that. But we think that the strength of Remington in shave-groom has returned and we have a very good opportunity in that. We also see increased sales online for these types of products and we have, obviously, the new consumable products that are haircare accessories and some of the other products we have in that area, i-LIGHT, that are really bolstering that group.

So we are very bullish on Remington. This is not uncommon; this happens from time to time in this category, and I think we will be right back on the track here, right this quarter. By next quarter, I think we are right back to where we were. So we are bullish on that.

Great, thank you.

Lee Giordano, Imperial Capital.

My question is on HHI. The 11% growth seems pretty impressive. When you look ahead, what should we think about for a normalized growth rate for HHI? I think you said there was a timing issue in there that might have boosted it. And then, secondly, how much of that growth is coming from the improvements in the housing market?

We would love it if they would grow double digits every quarter. I think a more realistic thing is probably the mid- to high-single digits. That's more normal. They did have some timing there in the quarter when some stuff shipped a little early that wouldn't normally. So I think you will see steady growth there.

Housing is, as we've told you, 25%, 30% of their sales, and it tends to lag seven, eight, nine months because they still have to build the -- I'm talking about new construction -- the locksets for that. So they tend to have to build a house and get it all ready and then put locks in. Right? So even though they are doing better than that, I don't think you are going to see a big, big impact from that for a while yet.

We are seeing better than we thought sales of our their smart key technology, which lets people re-key things. Right? We are seeing even some better results from their plumbing business. Really, if you looked at their sales there, they are pretty high, too. And that's driven by this universal trim system they have where you don't have to knock the wall out to change things in the shower.

So again, double GDP, something like that. And we are just learning, so we will see. But we are optimistic, but things take a little time here. They still a lot of integration to do. We want to manage this thing prudently and get everything set right. So I think it's good and I think it will continue to get better.

Great. And then secondly, just on product costs, can you talk about product cost trends? Are they still accelerating in China? I think you said they might have slowed a little bit. And then what is your ability to pass those costs onto retailers? Are you getting any pricing power?

First of all, they have moderated and they are slowing quite a bit. The amount of increases they have hit people with for the last two years hurt them, too. Those factories are in trouble. Their markets are slowing. Even with the demand they had within China, it's slowing. So I think we are going to see moderation on that, actually could create an opportunity for our appliance division next year.

More importantly, our ability to get that appliance businesses integrated like we have -- they are catching up and they are starting to cover price increases with really good global new product development cost increases. So I think we're going to catch that. I don't think we will be negative anymore as well. So that's good.

I would say to get pricing in most of our businesses, we can cover most of it with cost improvement and select pricing actions. The only place you really have some trouble doing that is small kitchen appliances because there's just so much capacity and so many brands and the ability of people wanting to give away continues to be around, which is why we took the big action on literally the number-one brand in America, Black & Decker, and the number-one grill brand, George Foreman -- just said look, we are going to charge what it's worth. So there was some pain there, in this $50 million of sales, but you have seen to increase in the EBITDA and that and the reduction in working capital. So somebody else wants to lose all that money, we are going to let them do that.

We are very excited, Lee, with respect to the appliance business because, as we said back when we acquired the business, it takes about 2.5 to 3 years to be able to hit on all cylinders with respect to the cost improvement side of things and that, as you recall, the business had done a -- prior to our acquisition, had done a very good job of thinning the herd with respect to eliminating SKUs and eliminating brands that were not profitable.

However, we really began in earnest the cost improvement processes, really in end of 2011, and we are starting to see the dividends of those pay off. And we were very excited -- keep in mind that North American appliances was always the sore spot with respect to appliances, and we are doing very good in Europe and Latin America. But we saw a 300-plus basis point improvement in gross margin in the first quarter and it was a 400-plus basis point improvement in North America this quarter. And this is really driven by the superb work on the cost improvement initiatives that we are now getting those dividends that we invested in earlier.

That's great, thanks a lot.

(Operator instructions) Hamed Khorsand, BWS Financial.

I just wanted to ask you, any market share gains for the wet shave and the female personal-care lines?

In the haircare accessories, we have significant gains at the top two retailers in the United States; I mean really, really significant gains. We went from zero, we were in the teens already in market share in overall North American and into new markets. We got a very early, big win in the UK as well at their super retailer, too. So we are very happy about that.

In wet shave, remember, we are still in the development and testing of that, so that -- we won't really have a lot this year. In i-LIGHT, of course, we have built a substantial business, and that is growing in every market we are in. Okay?

Okay.

So that is doing very well, and then we have all these new products coming behind it. So that's an exciting future for us and I think we have just scratched the surface.

And just to tag onto what Dave said, in Dave's prepared remarks, you heard that we received the approval of i-LIGHT in Brazil, which is a large market. So we are very excited about that as well.

On the i-LIGHT product line, are you going about that, the same kind of strategy with your personal care Remington line, or are you taking a strategy of more of like a small appliance kind of distribution base?

No. In fact, we are doing what I would call the new model. We are developing a lot of -- dedicating a lot of resources and spending to e-commerce first in all the markets and then some direct TV, and then we will go to specialty and then finally to mass. This product lends itself more under that pyramid.

So we are -- literally, it's a multi-channel approach and then we have replacement bulbs which we can sell into all those channels and online. So we are using all the channels, which makes it an exciting product as you can customize the channels and price differently with different add-ons.

Plus, it kind of brings along the Remington product line. You still have to shave first before you use it, whether it's wet shave or dry shave. It's still -- you can still use other products in conjunction with it, and then we can add value added, whether it's our new hair accessories line or our dryers, straighteners and whatever. So exciting, exciting future.

And last question -- Tony, on the R&D line, what kind of volatility should we expect from your spending going forward?

There really shouldn't be too much volatility in that line in any way, shape or form. I think, if you look at the P&L that -- if you go to the earnings release, you can see that R&D was up a little bit this quarter versus last quarter. That was the investments that we were making that Dave alluded to in the consumables side of primarily the Remington business and in the e-commerce business. So I think, once those investments are made, which we talked about those in last quarter's call, then we will see more of a, I'll say, quote-one quote, normal return to the R&D line.

Okay, great, thank you.

Karru Martinson, Deutsche Bank.

So when you guys started out talking about the stunned the consumer juggling higher taxes, stagnant wages and higher everyday expenses -- unfortunately, I don't think any of us to see any of that changing. So I'm wondering what gives you the confidence in your guidance here as you look forward into the second half of the year.

Because we've had major distribution wins that are all going to go into place in the second half and ship, number one. So we are going to be in a lot more points of distribution than we are now. We have some newer products that actually have better features and benefits that will cost the same or less, at the same time. Three, what's going on with the consumer now is completely opposite of what's going on with the stock market because they don't, evidently, own any of the stock that everyone else is making their money on. This is something I heard directly from one of our top retailers who said, so they are seeing the consumer trade down and want more and buy things on promotion.

That's our model. So that's why we feel so good about it. So this isn't a hope that this happens. If you are in place, priced right and you have more of it while this is going on, you should sell a lot more. And that's why we feel confident about this.

Okay, makes sense. When we look at the exit of the low-margin small appliance product lines, at $10 million for the quarter, what should we think of that as an annualized number? I'm sorry if I missed that, if you gave that.

Yes, it will total out, we're just about done, $50 million. So as we look forward to 2014, we can get some of that back, right, on an annualized basis at acceptable margins for promotions, rather than what this was at. So that's actually an opportunity in 2014.

Okay. Is that business right now going to private label? Is it going to competitors? Or, is that just kind of a void on the shelf?

Two things happened. They did go with some other, lesser brands than Black & Decker and George Foreman. It didn't work too well. They just didn't do it because they didn't make money, either, the retailers. So there's no sense in selling a George Foreman grill for $9.95. I mean, as a joke, I'm going to Yankee Stadium tonight; I think that's how much a beer cost. So that's probably not a good promotional approach.

A beer at Yankee Stadium will cost you more (laughter). Just lastly, on Latin America, the battery market, we've had a lot of irrational pricing. We're looking for second-half growth. Is that pricing environment -- in particular, in Brazil, is that stable? Are we seeing a return to the norm there?

I would say that we are halfway back to normality. There are still some irrational things going on tied to something that has nothing to do with batteries. There's a World Cup and Olympics coming there, and there is all kinds of activity for those companies to have their products do well in the marketplace. So I think, as that passes, we will see more rationality into it.

Remember, down there, there's a fourth battery company that we compete with in Panasonic. And they just happened to be involved with one of those, and then one of the other big battery companies, owned by a very large firm, is the sponsor of the other one. So I do think that you will see that get better.

There's other things going on down in Brazil. There's a movement of one type of battery, which we call heavy-duty or zinc carbon, to more alkaline sales as that country and that consumer has more money to spend. So that's going on, too, and that's more expensive. So indirectly, you sell less of them. I know they cost more, but they buy less of them, but they do last longer. So there's a lot going on there.

But as battery markets go, Latin America is a fraction of the size and total sales as America or Western Europe.

thank you very much, guys, I appreciate it.

Okay, operator, it looks like we have exhausted all the questions that are in the queue. With that, I want to thank Dave Lumley and Tony Genito once again for handling the call today. And with that, we have reached the conclusion of the call. On behalf of Spectrum Brands, all of us here want to thank each of you for participating in our fiscal 2013 second-quarter earnings call this afternoon. You have a good rest of the day and we will talk to all of you next quarter. Thank you again.

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