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Spectrum Brands Holdings Inc (NYSE:SPB)
Q4 2019 Earnings Call
Nov 13, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Zetania and I will be your conference operator today. At this time I would like to welcome everyone to the Spectrum Brands Fiscal 2019 Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder ladies and gentlemen this conference is being recorded today Wednesday November 13. Thank you.

I would now like to introduce Mr. Kevin Kim with Spectrum Brands. Mr. Kim you may begin your conference.

Kevin Kim -- Divisional Vice President, Investor Relations

Thank you Zetania. Welcome to Spectrum Brands Holdings' Fiscal 2019 Q4 Earnings Conference Call and Webcast. I'm Kevin Kim Divisional VP of Investor Relations and moderator for today's call. To help you follow our comments we have placed a slide presentation on the event calendar in the Investor Relations section of our website at www.spectrumbrands.com. This document will remain there following our call. Starting with slide two of the presentation. Our call will be led by David Maura Chairman and Chief Executive Officer; Doug Martin Chief Financial Officer; and Randy Lewis Chief Operating Officer. After their opening remarks we will conduct the Q&A session. Turning to slides three and 4. Our comments today include forward-looking statements include our outlook for fiscal 2020 and beyond. These statements are based upon management's current expectations projections and assumptions and are by nature uncertain.

Actual results may differ materially due to that risk. spectrum brands encourages us to review the risk factors and cautionary statements outlined Our press release data today, November 13 2019. And our most recent SEC filings and spectrum brands holdings most recent 10 Q and 10 K, we assume no obligation to update any forward looking statements. Also, please note we will discuss certain non GAAP financial measures in the call. reconciliations on a gap basis for these measures are included in today's press release and AK filing, which are both available on our website.

I will now turn the call over to David Moore.

David M. Maura -- Executive Chairman and Chief Executive Officer

Thanks very much Kevin. Thanks everybody who's joining us on the phones today. Look good morning. I'm extremely pleased to update everyone today on our progress. As we stated 12 months ago the goal is to stabilize our company in 2019 and position it for growth in 2020. And today we are confirming that. We have stabilized our business in 2019 and we are returning to profitable growth in 2020. We ended fiscal 2019 on a very strong note. The fourth quarter in fact reflecting the best quarterly top and bottom line year-over-year growth of the entire year giving us significant momentum as we enter 2020. We also have a significantly stronger balance sheet. We have a tremendous amount of liquidity. And we delivered on our full year adjusted EBITDA expectations. Our management team is focused on delivering stability. We focused on delivering stability in '19 and we emphasized the importance of execution investment and with the resetting of our Home & Personal Care appliance business despite the added challenges in 2019 of tariffs the difficult selling season for our Home & Garden business our teams rose to the challenge and overcame all the external headwinds that were presented to us in 2019. Pet had a fantastic year posting both healthy top and bottom line growth.

Home & Garden benefited from shelf space gains. And while HHI's revenues were somewhat below our expectation the team at HHI was able to deliver on their profitability goals for the full year in fact expanding EBITDA margin by 20 basis points. Additionally the team worked through the divestiture of our battery and global auto care businesses and very importantly kicked off a multiyear global productivity improvement plan which we now expect to generate over $100 million of run rate savings in the next 18 to 24 months. The vast majority of these savings will be redirected to reinvest in our base businesses to further foster future growth and to offset additional tariff cost pressures as we enter fiscal 2020. We believe with the actions taken over the past 18 months we have set the new foundation of Spectrum Brands which will enable us to deliver significant long-term value creation and produce sustainable growth going forward. I would be completely remiss not to pause and take an opportunity to thank all 13000 of our employees globally. These Spectrum Brands associates around the world not only helped me and the senior team with the divestitures that we've previously mentioned but also implemented our global productivity improvement plan and maintained their passion and commitment to helping build a faster smarter stronger Spectrum Brands of the future.

We would have not been able to complete over 3 billion in assets, sales, divestitures, deliver on our commitments under the TSA is to Energizer pay off overhead. Far dead in just the past 10 months, while at the same time investing behind all our business without the relentless focus of everyone on the team. I'm very very proud and honored to be associated with each one of you. And for all the -- our partners employee partners who are dialed in I want to thank you sincerely from the bottom of my heart. Thank you so much for all your efforts in '19. If I could turn your attention to slide seven. 2019 accomplishments plans going forward are as follows. First of all we delivered $567 million of adjusted EBITDA in fiscal '19. And we overcome headwind -- we overcame headwinds from tariffs a softer U.S. housing market challenging weather and FX. Secondly we materially improved our capital structure. Our net debt declined from over 5.2x to 3.1x as we sit here today. At the end of 2019 our total -- our net debt to EBITDA was 3.1x which hit our target. And this accomplished the divestiture of 2 business units which allowed for debt reduction of $2.4 billion.

Third we decreased our average borrowing rates. We most recently extended the duration of our liabilities by tendering for the majority of our 6 5/8% notes and issuing $300 million of new 10-year paper at 5% extending duration and lowering our cost of capital. Fourth we returned $350 million through share repurchases of $269 million and dividends of $86 million. The Board of Directors and I currently believe that our shares are materially undervalued relative to our intrinsic worth. As such we're announcing this morning plans to repurchase up to an additional $250 million of our shares. We will continue to maintain prudent leverage as we expect to generate approximately $250 million of free cash flow in the current fiscal year. As we enter the new year our drive for vision clarity and focus remains firm. Our passion to simplify our business model and to run our company like true owners with much greater efficiency and higher returns has only increased. We plan to grow both organic sales and EBITDA in 2020 and beyond. After stabilizing the company in 2019 I am very pleased to report to you all that we expect all 4 of our business units to grow in 2020. Our Spectrum 2020 guiding principles remain vision where we're taking the company; clarity what we prioritize; and focus how we execute. This is our pathway to a consumer-driven mindset. We will accept nothing but outstanding quality and service while increasing innovation and marketing investments behind our brands. These actions are driving a culture of greater accountability much quicker decision-making. And with an experienced and energized leadership team refreshed with new talent and focused on operational excellence we're positioning our company for improved sales earnings and sustainable free cash flow growth.

Now you'll hear more from Doug on the financials and Randy will give you an update on the business units. Over to you Doug.

Douglas L. Martin -- Executive Vice President and Chief Financial Officer

Thanks David and good morning everyone. Turning to slide nine and a review of Q4 results from continuing operations beginning with net sales. Net sales increased 1.9% excluding the impact of $12.5 million of unfavorable foreign exchange. Organic net sales grew 3.2% with growth in Global Pet Care HHI and HPC being partially offset by a decline in Home & Garden. Gross profit fell 3.5%. Gross margin of 33.7% decreased 190 basis points as higher input costs tariffs and accelerated depreciation relating to a decision at the end of the year to close a -- closure of Latin America plants were partially offset by positive pricing and productivity. SG&A expense of $232 million decreased 7.5% or 23.4% of net sales this year compared to 25.8% a year ago driven by lower HRG merger-related costs and other cost control efforts. Operating loss was driven by the impairment of Home & Personal Care goodwill and other intangible assets of about $151 million higher input costs and tariffs higher depreciation and amortization and higher restructuring charges related to the global productivity improvements. Net loss and diluted loss per share were driven by the operating loss partially offset by income tax benefit the unrealized gain in our Energizer common stock lower interest expense and a smaller loss from discontinued operations.

Adjusted diluted EPS of $1.13 increased 10.8% due to lower interest expense and lower adjusted average shares outstanding. Turning to slide 10. Q4 interest expense from continuing operations of $37 million decreased $20.7 million driven by lower debt levels. Cash taxes during the fiscal year were approximately $53.9 million comparable to last year. Depreciation amortization and share-based compensation from continuing operations of $55.7 million increased from $33.6 million last year primarily due to higher share-based compensation and the impact of HPC depreciation and amortization this year as a result of moving the unit back into continuing operations. Cash payments for transaction and restructuring and related charges for Q4 were $9.5 million and $6.7 million respectively versus $21.1 million and $36.8 million respectively last year. Higher cash spend last year was driven primarily by the HHI DC consolidation and divestiture activity. Moving to the balance sheet slide 11. We completed Q4 in a strong liquidity position including $779 million available on our $800 million cash flow revolver and a cash balance of $627 million. Debt outstanding was $2.4 billion down 50% from last year. And as a reminder over the course of 2020 we plan to repay the previously disclosed $200 million to Energizer in connection with the divestiture of our Varta business.

And we'll complete the redemption of the remaining $117 million of 6 5/8% bonds this week. Capital expenditures were $18 million in the quarter versus $19.3 million last year. Now turning to slide 12 and our 2020 guidance. Spectrum Brands expects low single-digit reported net sales growth with foreign exchange expected to have a slightly negative impact based on current rates. Adjusted EBITDA is expected to be between $570 million and $590 million and this guidance includes global productivity improvement plan benefits and the impact of tariffs that are currently in place. Now from a phasing perspective we expect Q1 to be negatively impacted by the annualization of tariffs and stranded costs related to the divestitures. We expect growth in the remaining 3 quarters of the year. Fiscal 2020 adjusted free cash flow from continuing operations is expected to be between $240 million and $260 million.

Depreciation and amortization is expected to be between $200 million and $210 million including stock-based compensation of between $55 million and $60 million versus $54 million in 2019. Full year interest expense is expected to be between $140 million and $150 million including approximately $10 million of noncash items. Restructuring and transaction-related spending is expected to be between $90 million and $100 million. And capital expenditures are also expected to be $90 million and $100 million including productivity plan improvement enabling capability investments. Cash taxes are expected to be between $45 million and $55 million and we do not anticipate being a significant U.S. federal taxpayer during fiscal 2020 as we continue to use net operating loss carryovers. We ended the year with approximately $800 million of usable federal NOLs. And just as a reminder for adjusted EPS we use a tax rate of 25% including state taxes.

Now I'll turn it over to Randy for a more detailed look at the business unit performance.

Randal D. Lewis -- Executive Vice President and Chief Operating Officer

Thanks Doug. Good morning everyone and thank you all for joining us today. I want to open by reiterating David's comments that we are very proud of our combined accomplishments during the fiscal 2019 year in the face of material headwinds. We're excited about the future outlook of the platform as benefits start to deliver from our global productivity improvement program execution. So now let's walk through the results of each of the business units. Turning to slide 14 in Hardware & Home improvement the fourth quarter reported net sales and organic sales increased 1.1% and 1.3% respectively while adjusted EBITDA improved 3.5%. -- despite the softer U.S. housing market and slowing remodel activity residential security sales benefited from new product innovations in both electronics as well as mechanical products offering features from our Smartkey technology. In the quarter we were very pleased with the successful launch of our new cloud platform and new mobile app.

This proprietary system will be crucial to future projects in the connected security market making it easier for the consumer to have real-time access and control of their locksets anywhere they have Internet connectivity. The recent launch of Aura our new Bluetooth-enabled lock under the industry-leading Kwikset brand is just one of several examples of products that will sit within this new ecosystem. Looking forward we are very excited about the outlook on electronic deadbolt and smart locks in 2020 given the relatively low but fast-growing U.S. residential adoption rates. More importantly we are excited about our electronics product road map and the new innovations that we will add to our ecosystem in 2020 and beyond. Similar to this year going forward we expect more moderate newbuild activity but nonetheless we are confident in our ability to grow with our market-leading brands excellent service levels product quality in both the new construction and repair and remodel markets. Now to Home & Personal Care which is slide 15.

Fourth quarter reported net sales increased 1%. Organic net sales grew a solid 4.2% while adjusted EBITDA declined 17.2%. Sales growth reflected sequential improvements from the mid-single-digit declines through the first 3 quarters of the year that have been driven by prior year hair care distribution losses in the U.S. We previously communicated 2019 to be a year of resetting this business. The division's new leadership team installed in February of this year has done an excellent job as rebalancing cost structure and with the objective of accelerating profitable growth has undergone a comprehensive review of its guiding strategy. In short our way forward can be summarized as a renewed commitment to support our trusted brands of Remington Black & Decker Russell Hobbs and George Foreman in a global sense by being a cost-effective producer of compelling and innovative products that benefit consumers' every day lives. Additionally our biggest ever investment which established Remington as the official global styling partner of Manchester United is already enhancing the brand in markets around the world.

And our insights driven innovation pipeline gives us great confidence we have a product roadmap that will drive accelerated sales growth going forward. For example, the team is investing internationally. Drive awareness of the innovative Remington pro and straight there styler that features unique twisted plates, enabling consumers to straighten for corals with one also the team is building excitement around our new market leading George Foreman indoor grill series. As an example, we have a much anticipated new product, which is launching in the back half of fiscal 2020 There's already received committed widescale distribution will be supported by a dedicated new advertiser. There's so much more to come. We believe this renewed focus new leadership on supporting our brands and investing behind fewer bigger better products will lead to growth in 2020 and beyond. Moving to Global Pet Care which is slide 16. Fourth quarter reported net sales increased 7.9% and adjusted EBITDA increased by 30.3%. Excluding currency impact sales grew 9.2% in the quarter and we saw strong growth in our top regions.

On a full year basis all 5 global regions delivered solid growth driven by the continued globalization of the business team's processes and strategies. In fiscal '19 our strongest growth came across the portfolio with our strategic core brands collectively growing 16% on a year-on-year basis. Our dog chews business continues to perform well. We are taking share across the globe. In the U.S. which is our largest market we picked up 2 share points as our chews brands experienced double-digit POS growth in tracked channels which was twice as strong as the overall category. Across pet we continue to work to optimize global manufacturing reduce the supply chain costs and optimize brands and SKUs to improve our margin structure. Our pet team is committed to shedding unproductive assets and focusing activities to invest more time and resources into our top growth brands. This will help position our pet care business well given the future category growth projections due to increasing participation rates and the passion of pet owners and caregiver base everywhere. Turning to Home & Garden which is slide '17. Fourth quarter reported net sales decreased 4.3% and adjusted EBITDA decreased 1% primarily due to weather that was less conducive to insecticide sales.

Despite these results full year sales improved 1.6% and we grew our share again in the category largely due to strategic alignment with customers and strong growth in herbicides and repellents categories. In 2020 our targeted growth will be driven by new products and by marketing support that will convert consumers newly entering the category. We continue to believe strongly that the barriers to entry remain high in this business and our value proposition to consumers with strong brand equities and increasing investments in product development and marketing will accelerate Home & Garden growth rates and continue our market share. Turning to slide 18. We also wanted to provide an update on our global productivity improvement plan. This program continues to be our most important strategic initiative at this point. Through its efforts we are changing our operating model to allow quicker more globally aligned decision-making within each of our businesses driving more focused and relevant product innovation with enhanced consumer analytics and R&D processes.

And we're also centralizing and standardizing the functions that support those commercial operations with a very strong focus on process efficiency and technology enablement. Savings from these changes along with significant benefits from new center-led sourcing processes are creating funding that we will reinvest in higher levels of marketing and further technology enhancements. Since our last call we have completed wave 1 of our strategic sourcing work stream with over $35 million of run rate savings phased in during fiscal 2020. And we've initiated wave 2 that is expected to deliver even more savings in it. Additionally we have begun executing changes in our international commercial structures. And we're improving gross margin rates in our Global Pet Care business through the closure of Latin American manufacturing plants. We now expect the gross annualized savings from sourcing and other global productivity improvement program cost improvements to be at least $100 million and that these savings will be at full run rate within the next 18 to 24 months. In the short term these benefits will also be used to help offset the estimated $80 million to $85 million of incremental tariff headwinds in fiscal '20.

We look forward to continuing to provide more details on the GPIP benefits on our future calls. Now to David.

David M. Maura -- Executive Chairman and Chief Executive Officer

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

And I'll turn it over to Kevin for follow-up questions.

Kevin Kim -- Divisional Vice President, Investor Relations

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

Questions and Answers:

Operator

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

Bob Labick -- CJS Securities -- Analyst

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

David M. Maura -- Executive Chairman and Chief Executive Officer

Thanks Bob.

Bob Labick -- CJS Securities -- Analyst

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

David M. Maura -- Executive Chairman and Chief Executive Officer

Look I'll lay out the big strokes and then I'll turn it over to Randy for more details. Look our initial cut at this was I wanted to get about $100 million of productivity flowing through the P&L. And we initially wanted to drop about half of that to our shareholders and reinvest the balance into R&D innovation new product development and marketing. So as I've been saying I think it's been 18 months since I took on this new endeavor. I really want to focus the company toward more of a sales and marketing organization and really drive organic growth and get to better places. And so it's really a mindset shift. It's really a new way of doing business. But the next couple of waves that we're going to go through quite frankly Bob are going to be about automation really bringing IT enablement. Jeremy Smeltser actually has got a fantastic background. He's done this before.

And so it's just the ability to get data; quickly slice the data; analyze the data; make faster quicker better decisions is going to bring a lot of prosperity to us and all our stakeholders. And that's kind of where we're going. Those are the broad strokes. I think to be blunt given the tariff situation we'd be less than honest with you if we didn't tell you look we're unfortunately going to be using a lot of the global productivity improvements in 2020 to just offset these unfortunate tariff headwinds which we view as transitory but they are nonetheless really affecting our reported earnings in a negative way. And so we're using more of those savings and we'd like temporarily to offset those. I think that'd be the only commentary I'd give around it. Randy if you want to expand?

Douglas L. Martin -- Executive Vice President and Chief Financial Officer

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

Randal D. Lewis -- Executive Vice President and Chief Operating Officer

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

Douglas L. Martin -- Executive Vice President and Chief Financial Officer

Yes Bob that's one of the key work streams within the global productivity improvement program is omnichannel operations. And it's really key that we don't separate out online as being different than bricks and mortar. And so the mindset change here is that we talk omni which is having all aspects of opportunities to interface with our consumers engage in one overall encompassing strategy. And so we are building very key capabilities with data scientist analytics that are driving us for different behaviors in that space. But that's one of the areas that will be center-led across the 4 businesses as we go forward into this year.

Bob Labick -- CJS Securities -- Analyst

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

Douglas L. Martin -- Executive Vice President and Chief Financial Officer

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

Bob Labick -- CJS Securities -- Analyst

Great, thanks very much.

Randal D. Lewis -- Executive Vice President and Chief Operating Officer

Thanks, Bob.

Operator

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

Olivia Tong -- Bank of America -- Analyst

Please, thanks for joining and congrats to Doug and Dave. First question is actually on the savings and the tariffs. So you've got $100 million of savings coming in the next let's call it 1.5 to 2 years. $80 million to $85 million in incremental tariffs it's a little higher than you had originally anticipated. So as you think about the deployment of those savings how much is pricing contributing to that? And to the extent that you have these savings what's your view on what -- if there's a pull and push like are you -- are they coming equally from reinvestment versus dropping to the bottom line? Or are you going to make sure you protect the reinvestment and maybe less flows to the bottom line? I'm just trying to understand your thought process on that.

Kevin Kim -- Divisional Vice President, Investor Relations

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

Douglas L. Martin -- Executive Vice President and Chief Financial Officer

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

Bob Labick -- CJS Securities -- Analyst

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

David M. Maura -- Executive Chairman and Chief Executive Officer

Well I'll just clarify that cash flow you mean free cash flow EBITDA? What are you talking about?

Olivia Tong -- Bank of America -- Analyst

Free cash flow.

David M. Maura -- Executive Chairman and Chief Executive Officer

Free cash flow Olivia in 2019 as you know was kind of difficult to see through 2 given the divestitures and the discontinued operations and allocation of interest expense across the 2. It actually came in pretty much where we expected it to overall when you think about the working capital impact in discount which I know you don't have visibility to. But that's really where we expected it to come in because we had so much cash on the balance sheet at the end of the year though did not. And we have done this earlier in the year. We dialed back on some factoring programs which are really cost-effective from a capital structure management perspective but weren't necessary when we were sitting on cash. So if there was any one thing that was different than our expectations it would have been -- it would have been that.

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

Olivia Tong -- Bank of America -- Analyst

Yes. Thank you.

Operator

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

Sam Reid -- Wells Fargo Securities -- Analyst

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

David M. Maura -- Executive Chairman and Chief Executive Officer

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

Randal D. Lewis -- Executive Vice President and Chief Operating Officer

I think you said it well David. And Sam we are growing above the category. We would look at the U.S. category where we compete and expect CAGR there in the 2.5% to 3% range. Obviously our last 2 quarters have been well ahead of that and that's indicative of all the efforts that David just talked about. And we have a very clear strategy that we're trying to get to there and we're starting to deliver on that.

Sam Reid -- Wells Fargo Securities -- Analyst

Awesome. Thanks for color. It's helpful. I wanted to maybe sneak in another one and just quickly on HHI. Just kind of how much of the growth during the quarter was reflective of pricing specifically and how is that pricing maybe impacting your volumes in this segment as you take that?

David M. Maura -- Executive Chairman and Chief Executive Officer

I think we want to be careful on pricing because we have competitors that listen in and all the rest of that fun stuff and we're public. Look we did take pricing in that division right? We're #1 market share position. We're dominant brands. We are the clear leader. I will tell you that this is not an inelastic place to play. And so you've got to be really cut. Clearly we have a very interest rate-sensitive housing market. As you guys remember I think it was this time a year ago I think I spooked everybody on housing saying I was seeing a slowdown which we did experience. I think we're working much better with our retail partners. I want to thank our retail partners. We've recently seen some POS uplift due to some of our pricing programs. We are very excited about some of the new digital offerings we're coming out with. And we launched our own cloud which is basically allowing us to have a ubiquitous offering.

I think one of the things we want to focus on going forward in HHI is bringing clarity at point of sale. Digital locks are really just where growth is. We're the leader there. We want to continue to be the leader. We want to put more chips on that table. But it's still confusing for a DIY-er to go there and know whether they need a Zigbee a Z-Wave or a HomeKit Google Apple Wi-Fi Bluetooth. And so we need to continue to bring clarity there and help the customer at the point of sale. But we expect another solid year out of HHI. We wish housing was a little bit better. We see as opposed to last year we kind of see multifamilies slowing down. We think kind of the single-family space is doing OK. Clearly with full employment and interest rates where they are that's very supportive of household formation. But we remain #1 there and we're going to continue to invest behind that business.

Sam Reid -- Wells Fargo Securities -- Analyst

Awesome. Thanks so much. I really appreciate it.

Operator

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

Ian Zaffino -- Oppenheimer & Co. -- Analyst

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

David M. Maura -- Executive Chairman and Chief Executive Officer

Well the lower the price the more we'll buy the higher the price the less we'll buy. No look I have -- we have -- the Board and I have a view on what our intrinsic value is. I've been in this space for about 20 years. I've never seen the discrepancy between what people call value stocks and growth stocks. And in the consumer product space the delta between what somebody calls growth at 2% or 3% and value that a lot of companies reporting negative 2%. And I mean it's 10 20x EBITDA deltas. It's ridiculous in my mind. And so I look at our business. I look at our free cash flow. I look at our brands. I look at the portfolio of assets we have. And we think that shrinking the float makes sense at these levels. I think anybody that would look at where we trade on a multiple of EBITDA or free cash flow yield hopefully their HP 12C works as good as mine.

Ian Zaffino -- Oppenheimer & Co. -- Analyst

Okay. And then also just touching on sort of the hair care distribution losses that you experienced last year are there new products out there that you're going to be launching to maybe backfill some of those losses or maybe you recoup some of those losses? Or how do we kind of think about just that [Indecipherable]

David M. Maura -- Executive Chairman and Chief Executive Officer

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

Randal D. Lewis -- Executive Vice President and Chief Operating Officer

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

Ian Zaffino -- Oppenheimer & Co. -- Analyst

Thank you very much.

Operator

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

Faiza Alwy -- Deutsche Bank -- Analyst

Yes. Hi, good morning, and congratulations from me too on Doug and Dave's retirement. So my question is just if I look at slide 18 it feels like there are a lot of sort of interesting things going on at Spectrum a lot of change going on. And I just wanted to hear from the both...

David M. Maura -- Executive Chairman and Chief Executive Officer

That's an understatement.

Faiza Alwy -- Deutsche Bank -- Analyst

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

David M. Maura -- Executive Chairman and Chief Executive Officer

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

Randal D. Lewis -- Executive Vice President and Chief Operating Officer

Faiza this is Randy. I believe you and I spoke about this maybe a few weeks back and I think it's a great question. David is exactly right. This is -- it's a completely different company than the 2.5 years ago when those previous projects were undertaken. And this is an internally executed transformation but we're doing it in a very collaborative way. We're doing it with a fantastic partner. We're doing it with a tremendous amount of oversight and it's just a different environment completely. I'm highly confident in our ability to execute these initiatives and to do so with net positive results along the way. We've got new leadership in 3 of our 4 businesses. We've got substantial new talent enhancements within the senior leadership of each of the individual businesses. We've got new people leading our corporate initiatives. All of this has been done with an eye on creating the right type of environment to foster this change.

Ian Zaffino -- Oppenheimer & Co. -- Analyst

Great, thank you and good luck.

David M. Maura -- Executive Chairman and Chief Executive Officer

Thank you so much, appreciate it.

Operator

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

William Reuter -- Bank of America -- Analyst

Good morning. You laid out the two-year target for a run rate basis for the global productivity improvements. Do you know what you're going to be achieving in fiscal year '20? So what would be in the fiscal year '20 P&L?

David M. Maura -- Executive Chairman and Chief Executive Officer

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

William Reuter -- Bank of America -- Analyst

Okay sounds good.

David M. Maura -- Executive Chairman and Chief Executive Officer

Good job. Good job with the question.

William Reuter -- Bank of America -- Analyst

You guys have talked a lot about the expectations that you're going to continue to have better growth of the electronic deadbolts smart locks etc.. I guess can you talk a little bit about what percentage of your products are in the HHI segment are those products? And what type of growth rates you expect maybe either this year or over the next couple of years?

David M. Maura -- Executive Chairman and Chief Executive Officer

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

Randal D. Lewis -- Executive Vice President and Chief Operating Officer

Yes Bill I would tell you we don't really break that out but it is clearly the fastest-growing segment within that space both for the category and for ourselves. And so we're really excited about this cloud that I talked about and the technology that supports that on the back end. I think as David mentioned all of the confusion in this space this gives us an opportunity to really cut through that and make it very simple and easy and reliable for consumers to make a choice and to be happy with it. We've got the new Bluetooth lock Aura that we launched a few months ago. It's doing extremely well already clipping along at several million dollars of revenue rate in just the first couple of months. And we're -- we'll be launching another major new lock in that space within the next 4 to 6 weeks and that one has even more potential. So it's our fastest-growing segment and our biggest strongest focus.

William Reuter -- Bank of America -- Analyst

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

Douglas L. Martin -- Executive Vice President and Chief Financial Officer

To the extent that -- William this is Doug. To the extent that we do in fact make the Energizer payment back later this year and do execute up 100 -- up to $250 million of share repurchase then we probably will add about 0.5 turn of leverage there.

William Reuter -- Bank of America -- Analyst

Okay, that's all for me. Thank you.

Operator

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

Carla Casella -- JPMorgan -- Analyst

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

David M. Maura -- Executive Chairman and Chief Executive Officer

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

Carla Casella -- JPMorgan -- Analyst

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

David M. Maura -- Executive Chairman and Chief Executive Officer

Yes I think right now the stuff coming off the boat where we're having to pay higher tariffs on is going to be both in our appliance unit and quite frankly HHI.

Carla Casella -- JPMorgan -- Analyst

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

Douglas L. Martin -- Executive Vice President and Chief Financial Officer

These are relatively low -- relatively small rawhide plants and we've been planning this for a while. In hact they're closed and production has been shifted to new supply. And we have no inventory issues here at all.

Carla Casella -- JPMorgan -- Analyst

Okay. Great. And then just one last one on the M&A front you mentioned --- M&A versus asset sales. You mentioned shedding some assets in pet. What categories are the most unproductive? And what could be the timing on exiting? Would it be a category exit or just brand certain brands or certain products?

Randal D. Lewis -- Executive Vice President and Chief Operating Officer

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

Carla Casella -- JPMorgan -- Analyst

Oh great. Okay. Thank you for clarifying. I thought I had Thanks.

David M. Maura -- Executive Chairman and Chief Executive Officer

Thanks for

Operator

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

Karru Martinson -- Jefferies -- Analyst

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

Randal D. Lewis -- Executive Vice President and Chief Operating Officer

It does.

David M. Maura -- Executive Chairman and Chief Executive Officer

Yes it does.

Karru Martinson -- Jefferies -- Analyst

Okay. And then the...

David M. Maura -- Executive Chairman and Chief Executive Officer

It's not assumed .

Karru Martinson -- Jefferies -- Analyst

Yes. List 4B that would be above and beyond that?

David M. Maura -- Executive Chairman and Chief Executive Officer

That's correct. Okay.

Karru Martinson -- Jefferies -- Analyst

And I just wanted to get a sense on -- so when we talked about the dividend in the first quarter how much of these stranded costs remain? And what's the pace of getting those out of the P&L here? Or is it all once it's in tarrifs?

Douglas L. Martin -- Executive Vice President and Chief Financial Officer

Yes. Sure. Karru this is Doug. We -- it's a number that we're not -- we won't disclose it publicly but it's also not a huge number. It's a headwind for us and we've been working against it as we have exited some TSAs with Energizer. Energizer exits TSAs with us. But this is also being addressed by the global productivity improvement program. And we started this work well before the deals were closed. And the only governor on it is our timing on the exits across the different markets around the world. So it's in there. It's in the guidance. It's being addressed. I just thought it was important to mention the timing and the impact of the phasing of it on our quarter.

Karru Martinson -- Jefferies -- Analyst

Okay. And just lastly when you guys look at Home & Garden are you seeing shelf -- shelf sheer -- shelf share gains when it comes to roundup?

Randal D. Lewis -- Executive Vice President and Chief Operating Officer

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

Karru Martinson -- Jefferies -- Analyst

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

Douglas L. Martin -- Executive Vice President and Chief Financial Officer

Thank you.

David M. Maura -- Executive Chairman and Chief Executive Officer

Thanks Karru.

Kevin Kim -- Divisional Vice President, Investor Relations

Thank you. And with that we've reached...

Randal D. Lewis -- Executive Vice President and Chief Operating Officer

Go ahead operator.

Operator

There are no further questions at this time.

Kevin Kim -- Divisional Vice President, Investor Relations

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

Operator

[Operator Closing Remarks]

Duration: 58 minutes

Call participants:

Kevin Kim -- Divisional Vice President, Investor Relations

David M. Maura -- Executive Chairman and Chief Executive Officer

Douglas L. Martin -- Executive Vice President and Chief Financial Officer

Randal D. Lewis -- Executive Vice President and Chief Operating Officer

Bob Labick -- CJS Securities -- Analyst

Olivia Tong -- Bank of America -- Analyst

Sam Reid -- Wells Fargo Securities -- Analyst

Ian Zaffino -- Oppenheimer & Co. -- Analyst

Faiza Alwy -- Deutsche Bank -- Analyst

William Reuter -- Bank of America -- Analyst

Carla Casella -- JPMorgan -- Analyst

Karru Martinson -- Jefferies -- Analyst

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