Jarden's CEO Discusses Q4 2012 Results - Earnings Call Transcript

| About: Jarden Corporation (JAH)

Jarden Corporation (NYSE:JAH)

Q4 2012 Earnings Call

February 14, 2012 08:45 am ET

Executives

Martin E. Franklin – Executive Chairman

Ian G. H. Ashken – Vice Chairman and Chief Financial Officer

James E. Lillie – Chief Executive Officer and Director

Analysts

William Chappell – SunTrust Robinson Humphrey

Lauren Lieberman – Barclays Capital

Jason Gere – RBC Capital Markets

Joseph Altobello – Oppenheimer

John Faucher – JP Morgan

Arnold Ursaner – CJS Securities

Andrew Burns – D.A. Davidson

Operator

Good morning, ladies and gentlemen, and welcome to the Jarden Corporation's conference call. This morning's call will begin with management making some formal remarks. When they have concluded, a question-and-answer period will follow. (Operator instructions) I will now turn the call over to Rachel Schacter of ICR.

Rachel Schacter

Good morning, and thank you for joining us for Jarden's 2012 fourth quarter and full year results conference call. In accordance with Regulation FD or fair disclosure, we are webcasting this conference call. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Jarden is strictly prohibited.

Before we begin, please take note of our cautionary statement regarding forward-looking statements at the end of our earnings press release issued today. All forward-looking statements made during this conference call are based on currently available information, our actual results could differ materially from those predicted. However, we undertake no obligation to update any such statements, whether as a result of new information, future events or otherwise. For more information, please also refer to the risk factors discussed in Jarden's Form 10-K.

Please note that the company has posted supplemental financial data slides to its website and is providing reconciliations of certain non-GAAP to comparable GAAP financial measures in its earnings release, its current report on Form 8-K in connection with the earnings release, and on its website. The presentation can be downloaded on the section for investors on Jarden's website under the Presentations heading. And now I would like to turn the call over to Executive Chairman, Martin Franklin. Martin, please go ahead.

Martin E. Franklin

Thank you. Good morning and thank you for joining us to discuss our fourth quarter and full year 2012 results. Hopefully you've had a chance to review our earnings release issued earlier today. With me on the call today are Ian Ashken, our Vice Chairman and CFO; and Jim Lillie, our CEO.

We are once again pleased to deliver strong results for the fourth quarter, finishing the year with record revenues, record adjusted earnings per share, and strong free cash flow driven by solid performance across all of our business segments. Ian and Jim will cover the quarter and year-end results in more detail.

Our sustained growth in sales and profitability over more than a decade has been driven by an intense focus on product innovation in all of our businesses, supported by the power of our diversified portfolio of brands that consumers trust, and the hard work and dedication of our employees.

As we look to the future, investing in our businesses to drive consistent profitable growth remains our top priority. Our businesses continued to generate cash in excess of our investment needs during 2012. We chose not to pursue any major acquisitions during 2012 as we believed our own business was the best investment available, purchasing over $550 million worth of our stock during the course of the year.

Another priority is to keep our bank leverage ratio at or below 3:1 at the end of the year and again we met this goal in 2012. We continue to view our own stock as an attractive investment opportunity compared to many of the outside acquisition opportunities we see, and with approximately $130 million remaining on our stock buyback authorization, we anticipate seeking authorization for a new program once this is completed.

We also completed Jarden’s first convertible note offering in 2012, which was a timely and successful addition to our capital structure. We believe the positive reaction of the markets during 2012 to all facets of our capital structure is a strong endorsement of our long-term view of our balance sheet, and our investment needs, as well as our philosophy of accessing the capital markets on an opportunistic basis.

As noted on our last quarterly conference call, we completed two tuck in acquisitions in the third quarter, one in Brazil and one in Europe. On December 31, we closed on an additional tuck in acquisition of US-based Lifoam Industries, as well as acquiring two product lines, one in the US for backcountry safety equipment, and related products under the Backcountry Access or BCA brand, and one for a line of baby through toddler products in the French market under the Babysun brand.

Lifoam represents annual revenues of approximately $100 million, and generated historical EBITDA margins consistent with Jarden’s overall margins. Lifoam is a leading B2B and B2C business, servicing the healthcare, commercial and retail distribution channels.

Lifoam offers an array of temperature controlled products and packaging complementary to our disposable entertaining products by Diamond brands, and we believe it offers the opportunity for future growth across different distribution channels. The Lifoam business will be combined with our branded consumable segment. We continue to be active in the evaluation of acquisition targets and expect to continue to opportunistically invest in companies and/or brands that add strategic value to our portfolio. We also remain focused and disciplined in assessing which targets meet our criteria.

As you have heard me say in the past, management’s job is to run the company for our shareholders. We are therefore pleased to note that Jarden was among the top five performing consumer stocks in the S&P Consumer Staples Index on a 1, 5 and 10-year basis based on price appreciation.

Additionally, Jarden was the number one performing consumer stock in 2012. While we are happy with these results, we remain of the view that our best years are still very much ahead as we strive to deliver the full potential of Jarden and the value of our business model and brand portfolio.

Jarden is unique in the composition and diversification of our brand and product portfolio, which provides us with superior opportunities for growth, and we believe create natural hedges, which contribute to more predictable results. I would now like to hand the call over to Ian.

Ian G. H. Ashken

Thank you, Martin. As a reminder, consistent with our quarterly practice, in addition to our press release we have posted additional information relating to our financial performance in Q4 and full year 2012 on our website. We have also continued to disclose both as reported and as adjusted results separately in our press release.

For the fourth quarter, net sales increased 4.7% on an actual basis and 3.5% on an organic basis. For the full year 2012, organic net sales increased 2%. As you can see from our supplementary slides, we reported organic growth in each of our business segments for the quarter and on a full-year basis. Jim will cover individual segment performance in more detail.

For 2013, we expect that we will be within our long-term average target range of 3% to 5% organic net sales growth. Adjusted gross margin increased by 50 basis points for the fourth quarter, and 70 basis points for the full-year compared to 2011, exceeding our goal for the year.

In addition to the continuous improvement programs, and mix changes that typically drive gross margin expansion, we benefited from a more benign commodity cost environment in 2012 than in the last several years. We anticipate that we will be able to deliver further gross margin improvements in 2013. As adjusted SG&A expense decreased from 17.5% of sales in Q4 of ’11 to 17.4% of sales in Q4 of ’12, while increasing from 18.5% of sales for full year 2011 to 18.7% of sales in 2012.

As noted at the beginning of the year one of our goals starting in 2012 was to have a portion of the gross margin improvement we have experienced drop to the bottom line rather than being absorbed by increased investment spends or other SG&A items. We are pleased to report that segment earnings for the quarter increased 46 basis points to 12.6% of sales, and increased approximately 30 basis points to 12.2% on a full-year basis.

In 2013, we’re aiming to deliver approximately half of any gross margin improvement to expansion of the EBITDA margins. Adjusted fully diluted EPS for the fourth quarter increased 33% to $1.28, and increased 22% to $4.17 for the full year.

Our earnings per share growth reflected the company’s strong operating performance and the benefits from our stock repurchase activity. Cash flow from operations for 2012 increased by 13% to $480 million as compared to $427 million in 2011, reaching the goal we set at the beginning of the year by $50 million. This strong performance was based on increased operating profits and the success of our focus on working capital improvement, while maintaining the investment levels needed to continue to grow.

For 2013, we have set ourselves a goal of $500 million of cash flow from operations as we believe that we can continue to benefit from working capital improvements, in addition to investing for growth in our business. We ended the quarter with a bank leverage ratio below our three times target, despite the over $250 million spend on acquisitions during the second half of the year, and having invested over $550 million of cash to repurchase shares of our common stock during 2012.

As previously stated, our intention is to maintain this ratio at or below three times at the end of each year. As adjusted net interest expense increased to $46.5 million in the quarter compared to $44.9 million in the same period in the prior year. This increase is due to the high levels of debt primarily resulting from our convertible notes offering in September 2012.

For 2013, we currently expect as adjusted net interest to be in the range of $185 million to $195 million for the full year. In addition to our normal adjustments for intangible amortization, OID interest and the tax effect of these items, we recorded three additional adjustments in the fourth quarter. Our GAAP results include a non-cash share-based compensation catch-up charge of $33.6 million, a stock compensation associated with performance-based restricted stock awards granted in 2010 related to achieving the goal of $5 per share adjusted EPS by the end of 2014.

As an accounting policy, the achievement of this goal is now probable. This reflects the strong performance by Jarden during 2012 and the positive outlook. Going forward, the quarterly charge for this award of a little under $3 million per quarter will not be reported as an adjustment to GAAP earnings, but given the catch up nature of the Q4 charge we have adjusted [for] in 2012.

I should note that that excluding the $33.6 million, we still expensed $33.5 million of non-cash stock-based compensation in 2012, compared to $23.8 million in 2011, and this number is currently anticipated to increase to approximately $61 million in 2013, given the increase in our stock price over the last year, new restricted stock awards, the increased number of employees, and the additional $11 million on the 2010 awards.

We are able to absorb this increase in the annual EPS guidance we will provide. However, the impact is weighted towards the first quarter with over half of the annual expense being in the first quarter. Therefore, while we expect to report year-over-year increased revenue and operating profit excluding the non-cash compensation charge in Q1 2013, adjusted EPS is expected to be below Q1 2012.

As mentioned on our last conference call, we have also adjusted for approximately $21 million in charges related to the rationalization of our international manufacturing facilities, including approximately $3 million of accelerated depreciation flowing through the cost of goods sold.

We have also recorded approximately $5 million in transaction, acquisition and integration charges primarily related to the Lifoam acquisition, which was completed on December 31. We anticipate a profit in inventory adjustment in Q1 2013 of approximately $6 million to $7 million and a further manufacturing rationalization charge related to the current project of $15 million to $25 million in 2013, primarily in the second half of the year.

As you may have seen, Venezuela announced last week that it was devaluating its currency by approximately 50%. We had highlighted the likelihood of (inaudible) charge regarding Venezuela our during 2012 conference call. While we are ahead of the curve as no charge was recorded last year.

We now anticipate recording approximately $30 million non-cash charge in Q1 2013 related to the balance sheet revaluation and related cost of sold inventory non-revaluation expense. We expect our 2013 adjusted EBITDA will also be lower than 2012 by approximately $10 million to $15 million, or approximately $0.10 a share as a result of the devaluation.

We have taken this impact into account in the guidance Jim will provide for 2013. Jarden has historically paid approximately half of its book taxes in actual cash taxes, and this was illustrated again in 2012 when we paid $91 million in cash taxes versus our adjusted tax provision of $177 million.

At the end of 2012, we have utilized all the acquired on balance sheet tax NOLs, but still have approximately $100 million of unrestricted on balance sheet Jarden loss carry-forwards, and over $350 million of usable off-balance-sheet NOLs relating to the preacquisition period of American Household.

These AHI loss carry-forwards are restricted to $30 million to $35 million of use per year. This amount does not flow through our GAAP rate as the losses are of balance sheet, but will flow through our normalized effective tax rate, lowering the rate going forward by approximately 200 basis points to 33%. While this is still considerably higher than our 2012 actual cash tax rate of 18%, it reflects the value of the off-balance sheet loss utilization going forward over the foreseeable future.

Other considerations for modeling our 2013 performance include the impact of year-over-year fluctuations in the euro and other currencies, which based on current projected rates we anticipate will lead to a net sales reduction of $10 million to $25 million in 2013 versus a reduction of $108 million in 2012.

We anticipate our average cost of borrowing will be flat between 2012 and 2013 at approximately 5.5% and that capital expenditures will continue to be approximately 2% to 2.5% of sales. As always, our goal in 2013 is to deliver consistent profitable growth and the momentum from a strong Q4 has put us on course for a good start. Our target of achieving $5 of adjusted earnings per share by the end of 2014 remains unchanged.

I now like to pass the call over to Jim.

James E. Lillie

Thank you Ian and good morning everybody. As both Martin and Ian mentioned we are very pleased with the strong results of our businesses, in which they delivered during Q4 and the full year of 2012. It is gratifying that our strategies and disciplined execution is yielding results in both in increased profitability, and improved working capital.

Our performance is once again a testament to the value of our diversified portfolio of brands and products in our geographic diversification, which creates natural hedges within the group that minimizes dependence on a single brand, product or region. As you will recall, Jarden’s annual growth objectives include growing organic net sales within our long-term average range of 3% to 5%, expanding gross margins by approximately 50 basis points, increasing adjusted earnings per share by at least 10% and increasing cash flow from operations through continuing improvements in working capital management, as well as increases in our operating profits.

In addition, in 2013, as many of you may have heard already, we will also be focused on improving and leveraging our SG&A so that expansion in gross margins also yield improvements in our operating margins over the next several years.

Leveraging our infrastructure as we have grown has always been a focus for us, but there remain additional benefits to be realized in the SG&A category. We’re increasing our focus on infrastructure as well as leveraging the talent of our people, and prioritizing investment dollars across Jarden towards identified targeted growth initiatives, including international expansion.

Having exceeded our goals for gross margin expansion, adjusted earnings per share improvement and cash flow generation in 2012, we are now focused on delivering yet another year of strong financial performance for 2013. Based on the current outlook and taking into account the impact of the Venezuela devaluation, the normalized effective tax rate and non-cash compensation charges Ian outlined, we are providing guidance for as adjusted diluted earnings per share for 2013 in the range of $4.55 to $4.70 per share.

Turning back to 2012 results, each of our four business segments reported organic growth for the fourth quarter, as well as positive organic growth for the full year 2012. In addition, many of our businesses continue to win industry and product awards, which serve as an independent validation of the effectiveness of our product development efforts.

These awards can be viewed on our website jarden.com. As expected, our Consumer Solutions segment reported organic growth of over 3% for the quarter, and close to 2% for the year, with continued strong contributions from the sale of Oster branded products, including blenders, coffeemakers and mixers, and continued strong demand in the single served coffee segment, where Mr. Coffee is the number two selling brand.

We also saw encouraging initial sales of our new draft beer sold with the Draftmark tap system, which is marketed by Anheuser-Bush in Consumer Solutions. Consumer Solutions also realized growth in the slow cooking category, with sales of Crock-Pot branded products driven by new products and media campaigns in 2012. The Outdoor Solutions segment returned to organic growth during the fourth quarter, and was also able to show organic growth for the year despite the challenges discussed previously within winter sports coming of the poor 2011-2012 ski season.

Each of our businesses within Outdoor Solutions performed well during the quarter, with particularly strong growth from Pure Fishing, primarily led by higher-than-expected sales of new fishing rods and reel products under the Abu Garcia and Shakespeare brands. Targeted growth initiatives for Team Sports include our newly updated line of football helmets under the Rawlings brand with now having 10 players at the Super Bowl wearing the new line of Rawlings energy helmets compared to none last year, and our tailgating initiative, which continues to meet a need for retailers and consumers in the market.

Jarden Technical Apparel, where you may recall we implemented a multi-year plan in 2010 to double the revenues, again delivered double-digit revenue growth for the full year boosted by several new products and styles in jackets and gloves, including the top-selling Precip Jacket available in styles for men and women.

Marmot also opened another flagship retail store in November in Chicago. These stores are an important part and an important element in driving awareness to consumers, and showcasing the brand and products, and we anticipate opening a new store in Greenwich, Connecticut among other locations in 2013.

Our Branded Consumables segment reported strong organic sales improvement of over 5% for the quarter and over 4% for the year and also reported strong earnings improvement. This outstanding performance was led by our fresh preserving business, driven by their media and awareness campaigns to increase the number of households buying fresh preserving products, as well as better-than-expected sales of the Ball FreshTECH electric appliance for fresh preserving.

Our First Alert business also posted a strong performance led by the sales of smoke and CO detectors in part resulting from legislation in both California and Washington State, which became effective in January of this year, as well as benefiting from an improvement in the housing market. Within our home and family baby care business, NUK branded products and new products in both bottles and cups performed above expectations.

Our businesses continue to perform as expected internationally, but as we have commented in the past, for 2012 we budgeted conservatively in certain countries with known economic weaknesses, and will continue to do so until the outlook for growth looks more stable.

We took the same approach for 2013 and believe we were poised to seize market opportunities as they evolve. 2013 overall will be built on the foundation laid over the last several years and as we begin to execute our 2013 strategic direction, a few ingredients will be key to achieving our goals. First, each of our business segments is aligned with the macro goals and has developed micro strategies for meeting or exceeding these goals.

Next our focus on investments and targeted growth initiatives to achieve above fleet average top line and profitability growth will continue to be a high priority. Third, we will drive continuous improvement activities within each business, including manufacturing efficiency improvements and SKU rationalization initiatives among others. And finally as I discussed earlier, we will continue to leverage our scale in supply chain platforms with increased emphasis on SG&A leverage opportunities.

By focusing on our macro goals, investing in our products and our people, concentrating on our micro-execution, and staying true to Jarden’s DNA and values, we believe that we are very well positioned to meet our goals and objectives for 2013 and well into the future.

With that update I would now like to turn the call back over to Martin.

Martin E. Franklin

Thank you Jim. Finally I am pleased to announce that today the board of directors has decided to implement a 3-for-2 stock split to become effective on or about March 18, 2013. We believe in the company’s ability to continue to deliver consistent profitable growth, and that a stock split at this time sends a strong message about the board and management’s belief in Jarden’s future success.

For the coming year, we are particularly excited to deliver many innovative new products at compelling value to enhance the everyday lives of our consumers. I would like to thank our customers, suppliers, employees, business partners and stockholders for their continued support.

Operator, we would now like to answer to open the call to any questions.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from Bill Chappell with SunTrust.

Martin E. Franklin

Hi Bill.

William Chappell – SunTrust Robinson Humphrey

Good morning. Can you just talk a little bit about kind of organic growth targets and especially looking back, I mean 3.5% is obviously fine in the fourth quarter, but doing only 2% for the full-year was below kind of your evergreen target. Can you help us understand how we bridge the gap from 2% to get back to that 3% to 5%, and what you are seeing in terms of near-term order patterns out of retailers to get you comfortable there?

Ian G. H. Ashken

Sure. Now, it is a very good question. Obviously we were challenged in the third quarter of this year, because of the – of 2012, because of the challenge with snow in 2011, 2012, but if you look back at Jarden over the last 3 years, our average organic growth was 4.3% and so the 3% to 5% is always kind of a target for an on average performance over the long haul, and I think we are right in line and towards the high side of that.

And so, you know, the things we dealt with last year were weather related, they weren’t operationally related, and so we feel good about the direction we are headed in 2013 and beyond. And just believe that was an anomaly to winter that we knew well about.

William Chappell – SunTrust Robinson Humphrey

Okay. So, the thought is with normalized kind of weather trends as we go into this year that should get you back to the 3% to 5%?

Ian G. H. Ashken

We are planning 3% to 5% for this year. You know, I think a lot of people have talked about the winter weather, and winter doesn’t get solved on December 31. It is really kind of an 18 month pattern that will work itself through. So, we have a relatively conservative outlook for winter sports heading into 2013. We still see some challenges, snow is late, but that’s embedded in our 3% to 5% outlook for the year.

William Chappell – SunTrust Robinson Humphrey

Okay, and then just on Venezuela, I just want to make sure I’m doing that right, you are saying it's a $0.10 hit which is reflected in the guidance of $4.55 to $4.70 for this year.

Ian G. H. Ashken

That’s correct Bill.

William Chappell – SunTrust Robinson Humphrey

And that will all be reflected in the first quarter.

Ian G. H. Ashken

Yes.

William Chappell – SunTrust Robinson Humphrey

Okay. And then just one other thing…

Ian G. H. Ashken

Hold on, the charge I spoke too quickly – the charge will be reflected in the first quarter. Obviously, the reduction in EBITDA will be spread out through the year, because the profitability of that business when you convert the [bull] in the lower exchange rate just goes down.

William Chappell – SunTrust Robinson Humphrey

I have just forgotten, but the Venezuela business is largely appliances or is it more third, fourth quarter weighted?

Ian G. H. Ashken

It's 80% in the appliance category. Mother's Day is actually a big deal in Latin America, so it's a Q2, Q4 business weighting, but I think if you model it pretty flat across the four quarters and that business today is less than $100 million for us post devaluation. So, hopefully, this will be the last time we are discussing Venezuela.

William Chappell – SunTrust Robinson Humphrey

Hopefully. Ian, last question just on the SG&A front as we are looking this year, are you looking forward to stay flat on a percentage basis or can you actually see some margin improvement?

Ian G. H. Ashken

Well, for us the SG&A is really the balancing number because obviously we certainly over the last three years, we've been investing percentage wise more in our business. We are not anticipating that. So, the overall percentage obviously a big difference as I said in the prepared remarks, we expect to take approximately half of what we do at the gross margin level to the bottom line. So, depending on where that comes out. SG&A, it will be up or down within sort of 10 basis points.

William Chappell – SunTrust Robinson Humphrey

Okay, great. Thank you.

Martin E. Franklin

Thanks Bill.

Operator

Next we will go to Lauren Lieberman, Barclays.

Lauren Lieberman – Barclays Capital

Thanks. Good morning.

Martin E. Franklin

Good morning Lauren.

Ian G. H. Ashken

Hi.

Lauren Lieberman – Barclays Capital

Just I wanted to check the moving piece is right for this year in terms of the guidance. So, Venezuela, which Bill just covered it's about a $0.10 hit. The tax rate is about a $0.15 benefit and then the incremental compensation charge is about $0.10. Is that right?

Ian G. H. Ashken

Well, the incremental – if you're taking it from $33.5 million up to $61 million it's more than that in terms of the impact from the non-cash compensation charges.

Lauren Lieberman – Barclays Capital

Okay. So it's not just thinking about it as a $3 million per quarter. That's what I was using.

Ian G. H. Ashken

No.

Lauren Lieberman – Barclays Capital

Okay. So what were those numbers again, I'm sorry Ian, it was…

Ian G. H. Ashken

The charge in '12 was $33.5 million that went through the as adjusted numbers. The charge in '13 that goes through the as adjusted numbers will be approximately $61 million. And so we're absorbing that in the guidance. We're absorbing the Venezuela, and obviously there is a benefit from the tax, which you just commented, that's correct.

Lauren Lieberman – Barclays Capital

Okay. So then what was – I think you said there was something though in the incentive comp that was $3 million per quarter?

Ian G. H. Ashken

Yes, that is the – what we call the 2010 awards. So of the increase from $33.5 million to $61 million, approximately $11 million of that will just be in 2013 and then it will go back to a lower level after that in 2014. But we're including that in the numbers.

Martin E. Franklin

In the guidance.

Ian G. H. Ashken

Yes.

Lauren Lieberman – Barclays Capital

Okay, okay, got it. Okay, then on JCS can you guys talk a little bit about just how holiday was fourth quarter, where you think inventory levels are heading into this year and just overall read for that, because that category has been a little bit lumpy and I think in the US pretty soft overall, even though Latin America has been great, so just an update on that business would be good. Thanks.

James E. Lillie

So as I said the performance met our expectations for the quarter. Going to the consumer, the takeaway beginning in and around Black Friday was actually pretty healthy. We had a level of reorders above the prior year in the month of December, and I think inventories are at a rational level.

They are not under-stocked, they are not over-stocked, they are really where they want to be with all retailers focusing on their working capital numbers and their year-end of January 31, taking kind of a low inventory position in January, which we fully expected in the business. As you look out into Q1 of 2013, we expect the business on a global basis to be performing in line with our expectations and we are expecting incremental growth from JCS this year as we move into new countries and new opportunities with distribution.

So all in all not losing any sleep about inventory positions or consumer takeaway, I think across all our businesses, if you look at our weighted average price points, and recognizing that we sell seasonal staples, and we have products people both want and need. I feel very good about overall inventory positions and POS coming out of the fourth quarter with expected dips in inventory in January as I said earlier, but POS performance in line with expectations.

Lauren Lieberman – Barclays Capital

Okay, great. All right, I will leave it there. Thank you.

James E. Lillie

Thanks Lauren.

Operator

And our next question is from Jason Gere of RBC Capital Markets.

Jason Gere – RBC Capital Markets

Okay, thanks. Ian, obviously the big questions were just on reconciling the EPS, thanks for kind of clarifying then. I guess I just want to talk about the competitive environment, what are you seeing out there and going back to Bill’s question about going from 2% to that 3% to 5%. And the focus I guess on some of the SG&A. So, I’m just wondering is there more of a shift that you are seeing to promotional spending and I know you are in so many different categories, but just generally speaking can you talk about the balance between advertising needs and promotional spending that you are seeing at your retail accounts and how that’s factored into the 3% to 5% sales guidance that you are providing for the year?

James E. Lillie

Yes, look I think that promotional spending is in line with how it's been over the last couple of years. We are not seeing retailers shifting more to kind of at once dollars, promotional spiff activity. I think that there is much more (inaudible) opportunities for us as certain retailers are focusing on innovation. And since we've been spending about $1 million plus a day on innovation, product development, and marketing initiatives, I think we are poised for success at many of these retailers that are very much interested in having new and improved products out there.

So I'm not seeing any real shift overall to promotional activity, advertising dollars. You know, obviously we are focused on direct-to-consumer opportunities on the Internet and utilizing our brands for direct selling opportunities. I talked earlier last year about Marmot as an example. Marmot.com goes live I believe towards the end of the third quarter this year, and so obviously the Internet is an important growth tool, especially as we focus on emerging markets.

Jason Gere – RBC Capital Markets

Okay, and then I guess just I think I know you guys talked about 2012 you did some smaller tuck in type acquisitions. I was just wondering if you could provide us little more of an update. We haven't really heard much about Mapa and I know it's blended into the portfolio, but can you talk about that and has the Mapa deal kind of precluded you from doing larger acquisitions as you – obviously are right now looking to lever up your balance sheet and you've done that with buying back your stock, but just the thoughts on kind of bigger acquisitions down the road?

Martin E. Franklin

Yes, this is Martin. I wouldn't say that Mapa Spontex acquisition, which was a great acquisition for us and has been a good great addition to the portfolio, both from a personnel perspective, a product brand perspective, and a financial perspective, but to say it held us back from doing something else would be inaccurate.

The reality is we've got plenty of capacity both financially and organizationally to absorb small, medium and large acquisitions but we are and always have been purely opportunistic, and quite frankly we have found particularly in a low – in this low interest rate environment opportunities that are more compelling than our own stock to be few and far between. And you know, our disciplines when it comes to acquisition criteria, valuation being a very important component of that.

We have just not seen what we would describe as really compelling opportunities that are better than our own stock. So we don’t need to make any acquisitions at all. We've never modeled acquisitions in our organic or any other kinds of growth plans. The reality is we can achieve all of our objectives without buying anything. And if we generate so much cash today, if we don't find anything to buy just today our preference is to buy our own stock, because where rates are, where we've positioned our balance sheet, a lot of our cash flow is excess cash flow.

So we are looking to put it to work and if it's not being put to work for an acquisition because the valuations don’t make an outside acquisition attractive, we still see even at today's stock price and the appreciation we've had over the last year, we still see our multiple as relatively attractive and relatively low compared to our peers. So that's where we can continue. But just to be clear, we don’t feel restrained or constrained in any way, shape, or form.

Jason Gere – RBC Capital Markets

Okay, thanks. I will hop out of the queue.

Martin E. Franklin

Okay. Thanks Jason.

Operator

And we will go to Joe Altobello with Oppenheimer.

Joseph Altobello – Oppenheimer

Hi guys. Good morning.

Ian G. H. Ashken

Hi Joe.

Joseph Altobello – Oppenheimer

Since Jason ended there, I will start there on the usage of cash for this year. Obviously, you gave the guidance of $4.55 to $4.70 on the EPS line. What are you assuming in terms of the use of cash for the $1 billion you guys have on the balance sheet? Is there a further share repo in that, is there the calling of the 8% notes for example.

Martin E. Franklin

Let me answer a couple of that. That’s two questions asked, the first one is our forecast that we have given for the year, remember we are in the first quarter management’s job is to drive value, hopefully every year we have been able to drive incremental value in the business because of corporate activity as apposed to just the operational activity.

So, you know that doesn’t make any assumptions as to what we are going to be doing in terms of acquisition oriented, whether it would be our stock or other companies. So, there is opportunity obviously in the balance of the year. And when we are ready to talk about what we intend to do with our cash, obviously we will indicate that to the market.

It's like clear obviously from the bond perspective, there are bonds that are a high coupon. We got 8% bonds that are coming up in May that where their core protection will expire. And obviously if the bond market is there, and we think the opportunity set is right, then we see that we can create incremental value by calling those bonds and replacing them with orders or just using our cash. We will do so. But as is always the case, we don't sort of talk about what we are going to do until we are ready to do it.

Joseph Altobello – Oppenheimer

Okay that is helpful, and just turning to outdoor sports, obviously the winter last year was a bit of a headwind, it looks like it might be a bit of a tailwind this year. Do you expect it to be a tailwind or just sort of neutral versus 2012?

Ian G. H. Ashken

No, as I said earlier I think to Lauren's question, you know, this is really kind of an 18 month recovery. The vast majority of our retailers are small independents, mom and pops and so we didn't really have great snow up until the end of December into January, the ski shows are February, March, April where you take all the bookings and then we build the inventory.

And I think the vast majority of these retailers have a cautious outlook because they are not well financed, not well capitalized. And so I think this year which is a little bit different than in prior years, we'll probably build a little extra inventory in the event. It's a healthy snow season, which will counterbalance the retailers taking a conservative outlook. So that we have products there that we are confident will move, should the snow arrive, but again we are budgeting conservatively across winter sports.

Martin E. Franklin

Yes, this is Martin. I want to put it in perspective. You know, we'll just talk about ski. We are a $7 billion company. It's 6% of – 5% or 6% of our sales. So, let's not overemphasize it. It's incorporated in our 3% to 5% organic growth for 2013 with that conservative view already in mind.

Joseph Altobello – Oppenheimer

Got you. Okay, thanks guys.

Martin E. Franklin

Welcome.

Operator

And our next question is from John Faucher with JP Morgan.

Martin E. Franklin

Hi John.

John Faucher – JP Morgan

Thanks.

Martin E. Franklin

Welcome to the call.

John Faucher – JP Morgan

Good morning. Thank you. I just want to follow-up a little bit on the gross margin outlook for 2013 and can you talk about it where you view it relative to your targets, and then also you know, I'm assuming there is going to be sort of transactional impact from Venezuela and that's included in your guidance. So, can you give us a little context on that? Thanks.

Ian G. H. Ashken

Thanks John. Good question. You know, coming off a very good year in 2012 and kind of again looking at the three-year average going back '12, '11 and '10, we were just above 40 bps on average. I think that we are going to be in that 40 bps to 55 bps range this year. Commodities, a slight headwind, but nothing unexpected.

The volatility of 2009, 2010 is gone. I think, as we introduce new products and kill SKUs that have a lower gross margin, we are still going to fight the fight. So, I think, it's going to be in line with that average three-year rate, somewhere right around 50, and that's how we've budgeted the year and that's where we expect we'll land.

John Faucher – JP Morgan

Okay, and does that include – should we model some of the Venezuela impact on the transactional side through the gross margin line and that's included in that guidance?

James E. Lillie

Venezuela is included in all guidance.

John Faucher – JP Morgan

Okay, great. Thank you.

James E. Lillie

Thanks John.

Operator

And next we will go to Arnie Ursaner with CJS Securities.

Arnold Ursaner – CJS Securities

Hi, good morning. I'm backing up Charlie who is out. A couple of very, very quick mechanical questions, Lifoam, did you indicated had $100 million of revenue?

James E. Lillie

Approximately.

Martin E. Franklin

Yes.

Arnold Ursaner – CJS Securities

Okay. And I think you did clarify this one, your EPS, it does not assume the repurchase that you already have authorization and clearly doesn't assume additional acquisitions, correct?

James E. Lillie

There are no acquisitions or repurchases modeled because we wait till it happens and then we change the guidance at that point.

Arnold Ursaner – CJS Securities

Okay, and you gave an indication that the impact from currencies this year would be $10 million to $25 million. Is that in addition or does that include Venezuela?

James E. Lillie

No. That's outside of what we mentioned regarding Venezuela and even though the euro is strong, it primarily reflects what's going on with the yen.

Arnold Ursaner – CJS Securities

Okay. My final question is if you could more generally speak about variances you may have seen in trends by either retailer category or geographies and how you see these shaping up in the upcoming year?

James E. Lillie

Well, I think if you look at our businesses, Latin America is a relatively healthy market and I think Jarden is underpenetrated in that market. We see opportunities in Eastern Europe as well as the Asia Pac Rim. There is a lot of opportunity for baby and market share even though there is relatively flat birth rates around the world. You know, we only have about 8% overall market share and that business historically from our perspective had been underinvested in.

We've been investing a lot in that, we are expecting a lot of traction and momentum over the coming years in baby. We've talked a lot about the targeted growth initiatives probably over-talked about Marmot historically. We see opportunities for ExOfficio, for Rawlings Baseball in Japan, for our Zoot triathlon brand. We think there is a lot of excitement and opportunity in pet. And then having just acquired the Pulse business in Europe, which is now part of JCS EMEA.

We think there is a lot of opportunity to take their design features and bring them into the US, under our US brands. They are the Breville brand in Europe and that business primarily was in the UK. And so we have the rights to utilize that brand across the European continent and there is opportunities there as well.

So, you know, the nice thing about Jarden, we're not looking for a hockey stick to save the day. We're all about singles and doubles. It will take a triple if it comes, but the budget is based on singles and doubles and so we happen not to get on base with one product. We feel pretty good about another or if the weather hits us down, we think that there is opportunities as you saw last year. The diversification of all the natural hedges serve us well in the overall product categories and in the geographical regions.

Arnold Ursaner – CJS Securities

Final question if I can, you guys are obviously performance driven and have done a great job for all shareholders including yourselves, as you think about the upcoming years now that based on the fact that you're recognizing the compensation plan likely to be hit in 2014, when does the board set the next plan for the key executives?

Martin E. Franklin

Well that will be a happy discussion, but a premature one. The way we’ve did it, if you will recall the last time we had – when our company was doing about a buck and a quarter a share in earnings, we set those targets to hit $2.50 and then when we hit $2.50, we set new targets to hit $5 or it was?

Ian G. H. Ashken

$3.

Martin E. Franklin

It is $3. I beg your pardon. And we set a new set of targets. And we are going to cross that bridge when we get to it. I mean that's what our company and our board will require of us, but quite frankly, we haven't given that a lot of thoughts. We like the idea of long-term. We just think there is great alignment between management and shareholders, when you have long-term incentives that create goals that create value for shareholders.

If you look over the last again 10, 5 and 1 year periods, shareholders have been well rewarded for that, but we are in it for the long haul, we see – it isn't the flipping statement for us to say that we think our best years are still ahead. This is a very dynamic company. We've built – we've got a platform now of just fabulous brands and we just see so many different opportunities on creating more value.

We will have to evaluate on a four or five-year plan where we think we can take the company to on an organic basis and then we will have incentives put in place around it, but if we reach our $5 goal whether it'd be in 12 months or 24 months or somewhere in between that's when there will be more discussion with the board about how to set up the next round of incentives.

Arnold Ursaner – CJS Securities

Congratulations. Thank you.

Martin E. Franklin

Thanks Arnie.

Operator

And we have time for one more question from Andrew Burns with D.A. Davidson.

Martin E. Franklin

Hi Andrew. How are you?

Andrew Burns – D.A. Davidson

Great. Thanks. Good morning everyone. In the prepared remarks, there was some discussion on a focus on SG&A leverage. Could you spend a little more time walking us through the opportunities you see and the rough timeline you're thinking about for realizing those opportunities?

Martin E. Franklin

Sure. As many of you know, over the last several years, we've tried to lay out a very concrete, easy to understand roadmap for success, and that really started coming out of 2008 and 2009 and the downturn in revenue by talking about revenue and gross margins, the net income improvement.

Two years ago we started talking about extracting more cash out of working capital. So, this is really the natural evolution, but if you look back over the last several years, we talked about 5% of revenue going towards new products and new opportunities for advertising and marketing, I think that that investment dollar is at the appropriate amount, and so we are not hyper investing.

Now it becomes part of the ordinary run rate and as the companies work together and we share infrastructures on part of our global expansion, there is just a natural organic opportunity to see an improvement of leveraging the SG&A and seeing that drop to the bottom line, and so it's one of the sequential steps that we planned several years ago.

It's now rising to the forefront and you're seeing that improvement in our operating results and we expect to continue to see that again by leveraging the infrastructure as we head into emerging markets, doing it from a One Jarden basis rather than a one brand basis and that's going to yield results. And then also the management teams across all the businesses it's built into their longer-term incentives and so I'm not so focused on budgeting it in individual businesses plan, but the managers understand that over the next several years that's what they need to do in order to get their long-term incentive payouts.

Andrew Burns – D.A. Davidson

Thanks, and if I could ask one quick one here. There is a couple of acquisitions impacting '13, some of which we have revenue parameters about, but would it be possible to give all-in for the acquisitions the revenue impact potential for '13? Thank you.

James E. Lillie

So, I think Ian said earlier that these are really – the other two acquisitions were really product line extensions, and so they're de minimis numbers in the grand scheme of things. I don’t have the number directly in front of me, but we're talking about maybe an incremental $10 million or so, not a very large number beyond that.

Andrew Burns – D.A. Davidson

Okay. Thank you.

Martin E. Franklin Okay. So thank you very much everybody for attending the call. We look forward to reporting on our progress at the end of the first quarter. Thanks again.

Operator

Ladies and gentlemen, that concludes our conference call for today. You may disconnect and thank you for your participation.

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