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Executives

Rachel Schacter - Senior Vice President of Retail, Apparel, Consumer Goods

James E. Lillie - Chief Executive Officer and Director

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

Martin Ellis Franklin - Executive Chairman

Analysts

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

John A. Faucher - JP Morgan Chase & Co, Research Division

Joseph Altobello - Oppenheimer & Co. Inc., Research Division

Gregory R. Badishkanian - Citigroup Inc, Research Division

Jason M. Gere - RBC Capital Markets, LLC, Research Division

Lauren R. Lieberman - Barclays Capital, Research Division

Jon Andersen - William Blair & Company L.L.C., Research Division

Charles Strauzer - CJS Securities, Inc.

Jarden (JAH) Q1 2013 Earnings Call April 24, 2013 4:45 PM ET

Operator

Good afternoon, ladies and gentlemen, and welcome to the Jarden Corp. conference call. This afternoon'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 First Quarter Fiscal 2013 Results Conference Call. In accordance with Regulation FD or Fair Disclosure, we are webcasting this conference call. Any redistribution, retransmission or rebroadcast of the call in any form without the express 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 earlier today. While 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 in 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.

James E. Lillie

Thank you, Rachel. Good afternoon and thank you for joining us to discuss our first quarter 2013 results. With me on the call today are Ian Ashken, our Vice Chairman and CFO; and Jim Lillie, our Chief Executive Officer. The strong momentum with which we entered the new year was sustained through the first quarter, resulting in the solid financial performance we reported today, with each of Jarden's business segments delivering positive organic sales growth in the quarter. Ian will provide more insights on the numbers and Jim on our performance.

We're pleased that our diversified business model continues to deliver organic growth in sales consistent with our long-term average target growth range of 3% to 5%. Given the seasonal staples nature of our business, with order cycles often 6 or more months in advance of their selling seasons, Jarden's diverse portfolio affords us an early read on the macro environment. While weather often trumps other macro variables for Jarden, we actively manage our business to take advantage of the insights this forward view gives us, to seek to leverage internal and external opportunities appropriately.

Our historical performance clearly demonstrates our commitment to prioritizing and leveraging these opportunities to deliver shareholder value. This can be seen across all facets of our business, from the purchase of input materials, to utilizing our strong cash flow to capitalize on the low interest rate environment, to making timely acquisitions or investing behind target growth initiatives.

As we look at the current macro environment, we see that the pace of recovery has varied around the globe. The most important indicators of future opportunities are related to jobs and housing. Unemployment appears to have stabilized and started to improve in the U.S., where we generate approximately 60% of our revenue. In Q1, new home sales grew at their fastest pace since 2008 and sales of existing homes were at their highest rates since late 2009. Despite the fact that home sales fell slightly in March, driven by -- primarily by a shortage of inventory, we expect that this continued macro improvement in housing will translate into future increased revenue opportunities for such brands as Sunbeam and Oster in kitchen electrics, DIY products particularly in Lehigh's, garage and home organizational lines of products, and home safety and security products under our contracted brand, BRK, as well as the First Alert brand.

Sales outside the United States represent approximately 40% of our revenue. Europe, which represents approximately 18% of revenue, is an area where we continue to budget conservatively. On our -- in other areas of the world, we are increasing investments in new distribution product -- in new distribution, products and innovation to accelerate growth particularly in places such as Brazil and China. While the sales growth in these areas may be very high in percentage terms, they will only become meaningful in absolute terms over the longer term, as Jarden focuses on making appropriate investments and leveraging our teams across different businesses to enter or expand in markets where we believe the return on investment is highest.

Jarden's brand and product development spending continues to fuel innovation. Our new products provide us with margin and market growth opportunities. Our increase in brand equity investments, investing approximately $385 million in 2012, has continued to drive our sales, with 1/3 of our sales coming from products created within the last 3 years.

Beyond these statistics, consumer appreciation and industry recognition are important metrics that demonstrate brand strength and true innovation. Selective highlights from this quarter, with awards, include Marker Volkl receiving the highest number of total awards given to any single company at ISPO, the largest winter sports trade fair held every February. One of these awards included Product of the Year, which Völkl received for its new Katana V-Werks ski. A number of Jarden's other businesses also received noteworthy product rewards -- awards in Q1, including Pure Fishing, which received the Field & Stream 2013 Best of the Best Awards for its Abu Garcia Revo STX and PENN Spinfisher V reels.

Beyond brand investments and development, our strong Q4 cash flow, coupled with the historically low interest rate environment, provided Jarden further opportunities to effectively manage our capital structure in Q1. We launched a $250 million accelerated share repurchase program in February, which we expect to be completed during the summer. Our strong free cash flow, additionally, supports the current tender and redemption of our $300 million, 8%, 2016 senior notes, that we initiated in March. In the quarter, we also announced and completed a repricing and expansion of our senior secured credit facility. In combination, these activities will reduce our annualized interest cost by approximately $10 million, while providing additional flexibility under the facility.

Reflecting our confidence in our near- and long-term business prospects, we announced the 3-for-2 stock split, which became effective on March 18. As this quarter demonstrates, we remain positive -- responsive to opportunities within our own -- within our business and to the macro environment in which we compete. We've continually assessed how best to deploy our resources against our 3 primary growth drivers: Optimizing the performance of our existing businesses, effectively managing our capital structure, and investing capital in our business, including disciplined acquisitions.

As I said on our last call, we remain of the view that our best years are still very much ahead, as we strive to deliver the potential -- the full potential of Jarden and the value of our business model and brand portfolio. Jarden is unique in the composition and diversification of its brand and product portfolio, which we believe provides superior opportunities for consistent profitable growth.

I'd now like to turn the call over to Ian.

Ian G. H. Ashken

Thank you, Martin. As a reminder, consistent with our quarterly practice, we have posted a more detailed financial presentation of our Q1 performance on our website. We've also continued to disclose both as-reported and as-adjusted results separately in our press release.

For the first quarter, net sales increased 5.7% on an actual basis and 4% on an organic basis over the same period last year. As you can see from our supplementary slides, we reported organic growth in each of our segments during the first quarter. The strongest performances in our primary segments were in outdoor solutions and branded consumables, which delivered 4.9% and 4.4% organic growth, respectively. Jim will cover individual segment performance in more detail.

Adjusted gross margin increased by 30 basis points for the first quarter compared to the first quarter last year. This was largely driven by continued year-over-year savings on commodities and achieving operating efficiencies across our business units. For the remainder of 2013, we expect that gross margin should continue to benefit from the introduction of innovative new products which combine higher margins, as well as the disciplined execution of our ongoing manufacturing and operational improvements programs throughout Jarden.

Adjusted EBITDA margins for the quarter decreased 110 basis points compared to the prior-year period. As we noted in our fourth quarter call, Q1 has a higher noncash share-based compensation charge of $37 million, which represents an $18 million year-over-year increase. As Jim will cover, the percentage decline in the operating segment earnings margin is primarily due to the change in mix of sales between Q1 2012 and Q1 2013. And we anticipate that, on an annual basis, segment earning margins will increase in 2013 compared to 2012. If the increase in noncash compensation charge of $18 million had been excluded, our adjusted EBITDA margin in Q1 would actually have been up slightly above last year's level of 9.2%.

As we noted on our last conference call, leveraging our infrastructure as we grow has become an increasing focus. This should positively reflect in our capital efficiency metrics as well as overall margins. On February 28, we initiated an accelerated share repurchase program. The accounting associated with the program was recorded in Q1, with debt increasing by $250 million, 5.5 million shares being retired, and APIC being adjusted by $25 million. Once the program is complete, the exact number of shares retired will be trued up with the balance adjusting the APIC entry. For the first quarter, the impact on the weighted average share count was a 1.9 million share reduction.

During March, we launched 2 initiative to reduce our ongoing interest expense. On March 14, we announced the tender for the outstanding balance of our $300 million 8% senior notes due 2016. By the quarter end, we have received tenders for 56% or $168 million of the notes and we'll retire the remainder of the notes in May when they become callable. At the same time, we lowered the cost of our $1.2 billion senior secured credit facility through a repricing amendment, and borrowed $250 million from the facility to partially fund the tender and redemption. In combination, we expect to reduce our debt by $50 million and to generate annualized interest savings of approximately $10 million.

Adjusted fully diluted EPS for the first quarter, after giving effect to the stock split was $0.30, as compared to split adjusted $0.31 in last year's first quarter. The cash used from operations in Q1 was in line with our internal forecast of $206 million, compared to a use of $148 million in the first quarter 2012. We believe we're on target to achieve our goal of generating $500 million in operating cash flow in 2013.

We ended the first quarter with a bank leverage ratio of 3.5x compared to the below 3x at the end of the fourth quarter. This increase reflects the cash outflow to fund the ASR program and the use of cash during the quarter. Our intention remains to maintain this ratio at or below 3x at the end of each year.

Adjusted interest expense was approximately $47 million in the quarter, an increase of 4% compared to the prior year. This increase was due to the borrowings associated with the note tender, as well as the Q1 funding of the ASR program. Our weighted average interest rate for the quarter was 5%, versus 5.4% for the same period the prior year. Given the capital market activity in Q1, we now expect full year 2013 as adjusted net interest to be in the range of $175 million to $185 million.

Adjustments to operating earnings for Q1 are consistent with the disclosures we made on our last conference call, and include $29 million for Venezuela devaluation related charges compared to our estimate of $30 million, the vast majority of which was noncash; $5 million for intangible amortization, also noncash; $3 million for noncash original issue discount amortization; $5 million for inventory step-up from our Q4 acquisitions compared to our estimated range of $6 million to $7 million, with the balance to be recorded later in the year; and $70 million from the early extinguishment of debt, approximately 70% of which was cash outflow running through our cash flow from operations in the quarter.

In total, the tax effective value of these items result in $38 million of total net adjustments in the first quarter. We continue to anticipate a further manufacturing rationalization charge of $15 million to $20 million in 2013, related to the manufacturing optimization programs, which we have discussed on previous calls. The rationalization charge will fall primarily in the back half of the year.

We are increasing our full year fiscal 2013 adjusted earnings guidance based on our solid first quarter results, stock split, accelerated share repurchase and tender redemption of the $300 million senior notes. For fiscal 2013, we currently expect adjusted earnings per diluted share in the range of $3.20 to $3.25, up from our initial fiscal 2013 guidance on a split-adjusted basis of $3.03 to $3.13, which excluded the above mentioned items and which we provided in our earnings call in February.

With this increase in our outlook we continue to expect to achieve our longer-term goal of nearly doubling our 2009 adjusted EPS to $3.33 on a split adjusted basis, which as you know, was originally targeted by the end of 2014.

I'd now like to pass the call over to Jim.

James E. Lillie

Thank you, Ian. We're off to a healthy start for 2013, with our first quarter results continuing the momentum from 2012. It's gratifying to see that our strategies and disciplined execution continues to yield results in line with our long-term macro strategy of growing organic revenue on average by 3% to 5%; expanding gross margins, on average, by approximately 40 to 50 basis points; increasing adjusted earnings per share by at least 10%; leveraging our SG&A over the next several years to expand operating margins; and increasing cash flow from operations through improvements in working capital management, as well as increase in -- increases in operating profits. Our performance is, once again, a testament to the value of our diversified portfolio of brands and products and our geographic diversification, which creates natural hedges within the group and minimizes dependence on a single brand, product or region.

While Q1 is always our smallest quarter, we began the year very much on the right foot, delivering positive organic sales growth in each of our business segments and in line with our forecast. As we have said, our portfolio of seasonal staple products tends to be impacted by weather variables, more than almost anything else. This was true in Q1, as the cold, wet weather allowed us to sell through many season ending products, such as fire logs, heaters and electric blankets, as compared to Q1 last year when sales of higher-margin, fishing, baseball and camping products got off to a strong early start as the weather was relatively warm and dry.

This change in mix is the main driver behind the change in operating margins in the quarter, as we delivered healthy reported sales growth of 5.7% with organic growth of 4%, coupled with a 30 bp improvement in adjusted gross margins. With the cold and wet weather now generally behind us, we estimate that we likely lost a reorder cycle related to baseball as early spring got off to a slower start as compared to last year. As we move through the second quarter, we will continue to monitor any unseasonable weather to gauge its impact on our later spring businesses and their order patterns in product lines such as fishing, while looking to offset any impact in other markets across our diversified portfolio.

In our principal segments, organic top line growth was led by Outdoor Solutions, closely followed by Branded Consumables, with Consumer Solutions make a positive contribution at 4.9%, 4.4% and 1.2%, respectively, versus Q1 2012. Outdoor Solutions, with 4.9% organic growth and a segment earning margin of 10.2%, showed solid performance in Q1. Both our fishing and camping businesses were able to deliver positive year-over-year sales growth despite facing the tough comp comparison to last year. Coleman demonstrated healthy POS, signaling continuing demand for our products and consumer validation of our brand and product development efforts. Coleman's dramatically redesigned coolers, featuring a more contemporary look, environmentally friendlier materials, and increased capacity, without increased size, have been particularly well received. The new Coleman coolers demonstrate the power of innovation, even in our more traditional product categories.

In Outdoor Solutions, we are pleased not only to often be the first choice of consumers, but also a preferred partner to many of our retailers. While we receive lots of product awards and recognitions from retailers, we were particularly proud that Cabela's, just in Pure Fishing, the 2012 Vendor of the Year for the general outdoors category.

Branded Consumables delivered solid growth -- organic growth at 4.4% and a segment earnings margin of 12.6%. This performance is particularly gratifying, as approximately 28% of the Branded Consumables business in a given year originates from Europe, where the recovery is less evident than in the U.S. Innovation drove growth across JBC's product categories, with particular strength in First Alert smoke alarm sales, including the Atom, which we believe to be the world's smallest smoke alarm. The Atom has been receiving high customer acceptance at retail following its launch in January of this year.

There continues to be excitement within our Fresh Preserving business, with 2013 seeing the iconic Ball home canning brand, celebrating the 100th anniversary of the Ball perfect mason jar, the brand's first jar to achieve true lid-in-jar manufacturing integration. To mark this occasion, the Ball home canning brand has launched a limited-edition heritage jar in crystal blue that features the original Ball Jar design and logo from 100 years ago.

Consumer Solutions also experienced positive year-over-year growth of 1.2%, with a consistent year-over-year segment earnings margin of 12.4%. Our FoodSaver business continues to show steady growth, while rising food prices, coupled with consumers' continued desire to save money, make this a particularly useful and relevant product.

Our Crock-Pot brand, which is synonymous with the slow cooking category, also provided strong growth. New products, such as the Lunch Crock and our customizable crockpots continue to receive positive consumer response. The Crock-Pot Facebook page remains one of JCS's most engaged social communities. We value the social community's support and feedback, as we look for ways to extend the brand into relevant adjacencies. JCS is continuing its strategy for international expansion as well. And I'm pleased to report that all the international regions for JCS experienced positive organic growth in the quarter.

Martin and I attended an innovation day at JCS earlier this month, where we were presented with product ideas, new product category expansion plans and a very high level of innovation from over 20 innovation teams, which presented to us. We came away very impressed with the unique long-term growth opportunities for the business domestically, as well as internationally and we're very impressed with the passion for products displayed by those teams.

On the commodity front, cost were in line with our expectations and volatility came within forecasted ranges. Looking ahead, we expect increases in ocean container related expenses, but we expect those increased expenses to fall within our long-term forecasted rates. Cross-selling across the Jarden portfolio remains an important driver of organic growth. Recent cross-selling wins include: The growth of playing card sales in China, through USPC's Branded Consumables colleagues; Fresh Preserving sales in Australia, via a partnership with the local Coleman team; and our first order for smoke and CO alarms in Brazil partnering with Invicta, as well as various sales successes in North Africa and the Middle East through Jarden Home & Family.

Having spent much of Q1 on the road domestically and internationally with our teams, I remain confident about the prospects for our business, despite the inevitable pockets of challenges in various geographies. Our teams are focused on growth, innovation, margin and working capital improvements, while investing in processes, people and products to help ensure our long-term success.

Three things were abundantly clear from my meetings. First, each of our business segments is aligned with our macro goals and has developed micro strategies for meeting or exceeding these goals. Second, each is focused on investments related to their base business and their targeted growth initiatives, which are designed to achieve above-fleet average top line and profitability growth. And third, within each business, we are focused on continuous improvement, including manufacturing and efficiency improvements, and SKU rationalization initiatives among others.

Finally, as I've mentioned on earlier calls, we continued to see topline growth in line with our 2013 forecast as it continues to be weighted towards Q2 and Q4, while gross margin improvement remains weighted to the last 5 months of the year. We continue to focus on our long-term goals, investing in our products, our brands and our people, concentrating on our micro execution and staying true to Jarden's DNA and values. We believe that we are well positioned to meet the goals and objectives I detailed at the beginning of my comments for the balance of 2013 and beyond.

And with that, I'd like to now turn the call over to Martin for some closing comments.

Martin Ellis Franklin

Thank you, Jim. In summary, we're pleased with our results in Q1 and are confident in our ability to meet our stated financial goals for the full year 2013. We continue to actively manage our business to position Jarden for future success and long-term delivery of shareholder value.

Finally, hopefully, you have seen our annual report for 2012. In this year's annual, we focus on Jarden's DNA, which encapsulates the core values and principles on which we run -- upon which we run the company, and which we believe contribute greatly to shareholder value creation. We hope you enjoyed this report, which highlights a selection of the many achievements at Jarden during 2012, while also outlining the foundation for our future growth and success.

We look forward to providing you with an update on our performance and strategic plans on our Q2 conference call. Now, operator, we'd like to open the call to any questions. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Bill Chappell from SunTrust.

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

Just first question on the change of guidance, just want to make sure I'm looking at this right. I think you said you went from $3.03 to $3.13, now up to $3.20 to $3.25. And by my math, the accelerated share repurchase and the tender offer for the debt adds about $0.15 to annualized EPS. So if that's the case, your starting point's really $3.18 to $3.28 and it seems like the quarter was certainly better than even you expected. So what am I missing?

Ian G. H. Ashken

You're not missing anything, Bill. The reality is that we do, what -- about 10% or less of our earnings in the first quarter. And we are a conservative management team who prides ourselves on hitting our numbers. And therefore, we feel comfortable that $3.20 to $3.25 was a very small quarter under -- albeit a successful one, under our belt. Obviously, we will revisit the guidance at the end of the second quarter, as we've historically done and we'll also narrow down the range in that. So I think that it's -- that's sort of the thinking behind the guidance.

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

So no change in terms of kind of order demand or anything like that? This is just -- we'll revisit after 2Q?

Ian G. H. Ashken

As you can see, the quarter came in actually above expectations. The weather for the -- is off to a slow start and we'd like to see the sun come out. And as I say, we'll revisit it at the end of Q2.

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

Okay, that helps. And then just on the gross margin, can you maybe give us a rough guesstimate? Was half of it from more favorable commodities? Or less than half? And how sustainable that is going through the rest of the year?

James E. Lillie

I would say, Bill, the -- commodities are up on a year-over-year basis, but favorable to our plan. And I think your guesstimate of about half relative to pricing and other efficiencies in the manufacturing environment, it's a pretty good split. You could really go 1/3 price, 1/3 efficiency and 1/3 commodities, if you want to narrow it down a little more exactly.

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

Perfect. And then last one, can you just quantify what the push out on baseball was?

James E. Lillie

We're looking at probably around $10 million in what I suspect is a lost order cycle between Q1 and Q2. And so, not material, but baseball tends to have a harder stop when school starts. Whereas sports like fishing really just kind of extend as the weather extends. So we don't expect it to be recovered. And hence, our comments. Bill, I would just -- I would add to that, that we are outperforming the competition.

Martin Ellis Franklin

This is not unique to us. This is a weather -- this is a weather-related event.

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

Yes, I think I saw Easton was down around 10% for the quarter.

Martin Ellis Franklin

Yes, we're not alone in this. I mean, Easton has other businesses within the portfolio. We're talking specifically about baseball.

Ian G. H. Ashken

And unlike the professionals who don’t mind playing in the snow, most everybody else is not keen to.

James E. Lillie

Yes. I mean, quite honestly, kids were throwing snowballs, not baseball, in Q1.

Operator

We'll now move to our next question from John Faucher with JPMorgan.

John A. Faucher - JP Morgan Chase & Co, Research Division

I just wanted to ask a clarification on the revenue guidance, what you talked about. It sounds like you were talking about the revenue being weighted more towards Q2 and Q4. And I'm assuming that's from a growth standpoint, not in a dollar standpoint. Or -- and in that regard, it looks like your Q3 comp is actually easier. So can you talk about some of the shift in demand related to what Bill said and is that driving better top line performance in Q2 versus -- Q2 and Q4 versus the full year?

James E. Lillie

2013 is very similar to 2012. And as we budgeted out the growth, we were expecting more absolute growth in Q2 and Q4, which is what we expect again for 2013. The comp issue in Q3 that you referenced really goes back to the slow winter sports sales. And if you go to my comments on the last call, I said that it was an approximately 18 to 24 months recovery period. And so, unless there's phenomenal snow in Q3, I'm still not expecting any real upsurge in winter sports sales, coupled with the kind of filled inventory ranks of winter apparel that lots of retailers experienced as they moved out of Q4. So nothing kind of unique as compared to 2012.

Operator

We'll now move to Joe Altobello with Oppenheimer.

Joseph Altobello - Oppenheimer & Co. Inc., Research Division

Just the first question I wanted to start out with was with regard to your retailers. This quarter's been an unusual one given the increase in the payroll tax and things like that are impacting consumers. I'm just curious if you guys are seeing any oddities, I guess, when it comes to reorder patterns on that part of your retailers?

Martin Ellis Franklin

Did you say oddities?

Joseph Altobello - Oppenheimer & Co. Inc., Research Division

Yes.

Martin Ellis Franklin

No, I mean...

James E. Lillie

Just as far as the retailers are going, I think the more important metric that we look at is jobs. And jobs have improved on a year-over-year basis. And so, with seasonal staples, once again, the weather was really driving the performance of the categories more than a payroll tax or any other variable.

Joseph Altobello - Oppenheimer & Co. Inc., Research Division

Okay, so across in terms of your consumer and in terms of your retailer base, pretty much normal this quarter?

James E. Lillie

I think that's a reasonably fair statement.

Martin Ellis Franklin

I mean, it really does point to seasonal staples, because as you know, I've seen other businesses that are more hit by what they think -- they see much more direct impact of the payroll tax. But I would tell you that in our business, it's less impactful.

Joseph Altobello - Oppenheimer & Co. Inc., Research Division

Okay, that's helpful. And just secondly, the earnings guidance you gave this afternoon, can you tell us what average share count you're using for that, for the year?

Ian G. H. Ashken

Not off the top of my head, Joe, but we -- I will get back to you on that.

Operator

And we'll move to our next question with Greg Badishkanian with Citi.

Gregory R. Badishkanian - Citigroup Inc, Research Division

Have you guys kind of stripped out weather? Maybe looking at the sunshine states versus the colder weather ones and what patterns you saw in each of those different areas within the U.S.?

James E. Lillie

I think, we look at weather and we use weather services. But our outlook tends to focus on tomorrow as opposed to yesterday. So if you look at the weather patterns, the midwest and the central plains and the Rockies had snow. There was -- it was really the traditional Q1 whether that we all kind of grew up with and imagined Q1 to be. Nothing really unusual. But as compared to the last several years, where the weather has not been seasonable, having seasonable weather in Q1 was a bit of an oddity.

Gregory R. Badishkanian - Citigroup Inc, Research Division

Yes, exactly. I think a lot of the more discretionary companies that have seasonal products are being impacted a lot. So that's why I suspect it will be the same for you, but to a lesser extent.

Martin Ellis Franklin

What's nice about Jarden is, obviously, and Jim commented on it, is that we have products that benefit from that, whether they be heaters or electric blankets and fire logs, while some of the other are slow. And the real impact, and again Jim sort of touched on it is, if you get off to a slow start, you miss a reorder cycle. It's not like people aren't going to buy the product, it's just that the retailers won't -- if you get a good start to season, we'll always get an extra turn. And if you get to a slow start, some of it's made up by the, if you like, less markdowns and sell-through of the coming out of season. But the diversification definitely helps that's why we still reported strong organic growth. But you make more money on your sell-ins than on your -- the end of season products.

Gregory R. Badishkanian - Citigroup Inc, Research Division

Right. And how would you categorize the -- your overall retail inventory levels at this point?

James E. Lillie

I think retail inventory levels are appropriate. Obviously, we would like them to be a little bit higher. Occasionally, we feel the retailers are managing working capital and they lose sales opportunities. But I wouldn't say that there's anything that's really sticking out. And I think that over the last several years, we've just kind of moved to this new normal and there are variances every once in a while, but nothing markedly to talk about.

Operator

Our next question is from Jason Gere with RBC Capital Markets.

Jason M. Gere - RBC Capital Markets, LLC, Research Division

Just a couple of questions. I guess, first -- actually 2 are housekeeping and 1 is just a broader question. So the housekeeping, just want to clarify when you were talking about the second and fourth quarters, that -- is that total sales growth or organic sales growth would be the strongest or stronger than what we saw in the first quarter? And then, the other housekeeping is just the tax rate. I'm not sure, Ian, if you said, 33% -- what you did in the quarter is what we should be using?

James E. Lillie

The absolute sales growth were small in dollars and high in percentage on a year-over-year basis in Q1. Next quarter Q2, you're going to see absolute dollars higher. The percentage, I think, will still land within that 3% to 5% range that we've been talking about, from an organic standpoint.

Ian G. H. Ashken

I was just going to say, on your tax rate question, yes, 33% is the effective tax rate that you should use going forward.

Jason M. Gere - RBC Capital Markets, LLC, Research Division

Okay, so then -- okay, thanks on the tax. And then, Jim, so you're saying second and fourth, it's just those quarters will be -- okay, so it's just a higher percentage or concentration as opposed to growth rate. I just want to be clear on that.

James E. Lillie

Yes, you are correct.

Jason M. Gere - RBC Capital Markets, LLC, Research Division

Okay. Okay, and then, before, did you say operating margin would be up 40 to 50 basis points? Or is that kind of a long-term range? Or is that what you're kind of thinking about this year too? Especially, I guess, after the first quarter being up -- for the compensation expense?

James E. Lillie

We were talking about gross margins being up on average 40 to 50 basis points. If you recall on the last call, I said our 3-year run rate on gross margin improvement was 44 bps. I think we'll land somewhere between 40 and 50 basis points. Recalling that we ended the year up 70, which was slightly ahead of our plan. But I still think we'll be in that 40 to 50 range this year as we look out.

Ian G. H. Ashken

And we haven't given any specific guidance on the operating margins. We have said that we expect them to expand and we've also, obviously, got a goal of getting the overall company to 13.5% operating margin level.

Jason M. Gere - RBC Capital Markets, LLC, Research Division

Okay. Well, I mean and so I guess I'll ask another way though. I mean, the SG&A, obviously, has been creeping up over the last few years. What do you think is the right, I guess, normalized level to have to drive that 3% to 5%? So you have the marketing and then obviously corporate is leveragable. So I was just wondering how you think about longer term, the SG&A and taking into consideration those factors?

James E. Lillie

There are a lot of things that we can do to drive the SG&A performance over the next several years. It's probably not a great topic for this call. But suffice it to say, each one of the businesses has a multiyear plan to lower their SG&A percentages by working together, by leveraging our global infrastructure as the business expands and just watching our spending.

Martin Ellis Franklin

I'll say one other thing though. It's all about phases. And the reality is, what we've been doing over the last few years and we've talked quite a bit about what we call, brand investment, we've been growing our percentage of expenditure on marketing and R&D aspects to grow the percentage of sales that we have that invested in our business on a yearly basis. We are beginning to plateau as a percentage of sales what that expenditure needs to be, because we've gotten it a level where we think this is the right level of continuing expenditure. So what that means is, you should be able to get more leverage on your G&A as you're growing your organic sales, because those incremental investments start to take up less of an absolute dollar amount.

Jason M. Gere - RBC Capital Markets, LLC, Research Division

Okay, so we are getting to that level, that threshold levels?

Martin Ellis Franklin

Yes.

Operator

We'll now go to Lauren Lieberman with Barclays.

Lauren R. Lieberman - Barclays Capital, Research Division

First is on results on winter sports. I had thought, Jim, that you would talk about this last quarter you did, about planning to make some investments in inventory, assuming, hoping for some better sell-in given what it looked like, what it was doing in the first quarter. So that doesn't seem to tie with what you'd answer earlier on about third quarter winter sport. So can you just clarify that for me?

James E. Lillie

So what I -- well first of all, let me just remind everybody that winter sports are about 4% of our total revenue. And so I don’t want to spend a lot of time on the topic, because it's not an overall meaningful number. That being said, on the last call, I said historically, we traditionally build skis to order. This ski season for '13, '14, we were willing to take a risk on some SKUs that have a multi-year life and that we're pretty confident will sell in 2013 or 2014 or beyond. But that being said, that allows for probably an incremental $10 million to $15 million revenue improvement over the current forecast for skis and snowboards. And so, out of a revenue base of $7.50 billion, I don't think that's really going to drive our overall numbers terribly one way or the other. And so that's the scale of the inventory investment we're going to make. What I was trying to be clear on is, when you have a bad ski season because of weather, it generally takes 18 to 24 months to recover. So if we have great snow in the Q3, Q4 period, I may pick up an incremental $15 million on $400 million of winter sports revenue. It's not going to move the needle one way or the other, it just creates a little bit more opportunity.

Lauren R. Lieberman - Barclays Capital, Research Division

Okay, got it. Then on Consumer Solutions, it sounded like you were suggesting that all the international markets were up. So was U.S. up? Or was it still flat to down?

Ian G. H. Ashken

No, U.S. was down. And you will see that when you see the 10-Q in the MDA, you'll see the U.S. was down 1% to 2%.

James E. Lillie

Which was in line with our forecast.

Ian G. H. Ashken

Yes.

Lauren R. Lieberman - Barclays Capital, Research Division

Yes. And then I know that's been the case for a while now. So anything in terms of thoughts on what makes, when and how that turns? Obviously, like you're suggesting some positive data points are on housing. I mean, do you think with the start to a turnaround we're seeing from a macro standpoint, that we could see that business turn positive this year?

Ian G. H. Ashken

I think, Lauren, the fact that Jim and Martin went down for the first ever innovation date at JCS were in for a start to 2- to 3-year pipeline. This year, who knows. But I think I will be surprised if you don't see a turnaround there in '14 in terms of the domestic growth because a lot of focus is on that area. And with the macro, hopefully tailwinds, that should only help.

Lauren R. Lieberman - Barclays Capital, Research Division

Okay. And then, just the acquisitions, I feel like it's kind of a -- I would just love a little bit more clarity because you did a -- there was a number of acquisitions flowing in, and it was material contributions to the quarter and will be for the balance of the year. So can you just, for everyone's benefit, kind of walk through what business, what's in Branded Consumables and in Consumer Solutions, so we're all thinking about it and can start understanding what's now folding into the business?

Ian G. H. Ashken

This information is actually on the supplemental slides on the -- and we posted each quarter to the web. But just for those who don't have it...

Lauren R. Lieberman - Barclays Capital, Research Division

Well, I think the dollars are, but not what the businesses are, right? So...

Ian G. H. Ashken

In Consumer Solutions, where there's a $60 million adjustment, that is the Breville business that we bought in the U.K. And obviously we did that in Q3. So there's going to be another adjustment for that in Q2. And then on Branded Consumables, which is $26 million in the quarter, that's the Lifoam business, which is the...

Martin Ellis Franklin

Expandable.

Ian G. H. Ashken

And that we acquired on December 31. So that you'll see that adjustment. And it will be in about that size for probably each quarter this year.

Lauren R. Lieberman - Barclays Capital, Research Division

Okay, was there also -- what about Baby Sun [ph]?

Ian G. H. Ashken

Baby Sun [ph] is just too small to even mention.

Lauren R. Lieberman - Barclays Capital, Research Division

Okay. And same thing for the backcountry access, right?

Ian G. H. Ashken

Yes.

James E. Lillie

And just to put it in perspective, Lauren, Lifoam was about 90%, 95% of the total acquisition.

Operator

And we now go to Jon Andersen with William Blair.

Jon Andersen - William Blair & Company L.L.C., Research Division

I just wanted to ask an update on technical apparel. I think last quarter you commented that, that business continued to grow at a double-digit rate, and you're on track to doubling the revenues from the 2010 kind of initiation point. Any thoughts on how that business is performing?

James E. Lillie

Well, as you heard us say, we opened up our latest store on Rush Street in Chicago in the fourth quarter. Spring is kind of its slowest quarter. That business grew at about a 17% compounded rate last year. And we have now a firm plan in place to double the double over the next 4 years. And so we continue to invest behind the brands. Martin referenced targeted growth spending relative to the question on SG&A. And Marmot is one of those areas where we're investing behind people and products because we see accelerated growth opportunities in technical apparel. But it's really a multi-year strategy, a multi-geography strategy and its a multi-channel strategy.

Martin Ellis Franklin

And hopefully -- I mean hopefully you're seeing -- as a sort of layman, you'll see a far wider presence of the brand. Hopefully, you get to see that in your own experience, because the brand really is becoming quite broad.

James E. Lillie

But Jon, we do appreciate you holding your conference a block away from the new Marmot store. Hopefully, you'll be having field trips to it in Chicago in June.

Jon Andersen - William Blair & Company L.L.C., Research Division

That sounds like a plan. We'll put that on the schedule. Just one other question, thanks for the disclosure on the brand building investment. I think, Martin, you may have referenced $385 million in 2012, about 6% of sales or so. What's in that calculation? Does it include R&D? Does it...

Martin Ellis Franklin

It's 2 main -- it's 2 main buckets. It's what we spend on promoting the brands and what we spent in inventing the product. Now the reality is we don't break that down at various -- year-on-year, but to back to the question we were being asked before about SG&A, the reality is, we've gotten that to a level where we're comfortable that if we stayed at that rate, it's an appropriate level of spend. So we should be seeing incremental margin improvement based on holding those types of expenditures to that level and then building on top of that.

Jon Andersen - William Blair & Company L.L.C., Research Division

Excellent. It makes sense. And just the last question on gross margin, I wanted to make sure I heard you right, Ian. Did you say weighted -- the gross margin expansion this year weighted, really, to the last 5 months of the year? And is that due to the kind of the timing of new product introductions and maybe easier cost compares? Just trying to get a sense of why that is?

James E. Lillie

Well, if you look at Q2, which is dominated by home canning and fishing, which are 2 relatively high gross margin products, as you move through Q2 and Q3, and not seeing much substantive changes because they are such high gross margin products, the real opportunity for incremental expansion of margin really comes in that September, October through the end of the year timeframe, as we move into new Q4 products. Somewhat dependent on how SKUs turn, but being weighted more towards kitchen electrics and Jarden Consumer Solutions, as well as the technical apparel business and then late-season fishing opportunities, as compared to the prior year.

Operator

And we do have time for one final question. We'll go to Charles Strauzer with CJS Securities.

Charles Strauzer - CJS Securities, Inc.

Martin, if you can talk a little bit about the M&A side and obviously you've made a couple of small tuck-ins. But how much is the stock appreciation this year, you know, hurt your ability to find acquisitions? Do you find that the targets maybe you've been talking to has said, "Hey, your valuations has increased. We want a higher valuation as well." Did that hurt your targets at all?

Martin Ellis Franklin

That's a good question. That will be a first. And that's a high-class problem. But no, that hasn't -- I'll say it differently. I think there's no question that prices has moved up, particularly because of lower rates. We've managed to find opportunities in strong markets and weak markets over the last decade. I think the reality is, we still -- we still are very cautious about the opportunity set. There are things that we like, and that we've looked at. But to be honest, we're very selective buyers, and we haven't found anything that is sort of have to have in our portfolio above and beyond what we're building on today. So I would tell you that we continue to look. We've probably, it's the same old story, we've looked at lots of things, and there's quite a lot of activity. But the reality is, I have nothing in my -- nothing in my pipeline that, I think, for us, we would say is better than continuing to buy back our own stock. We still don't see ourselves as being a premium multiple company. We think we deserve to be one. And quite frankly, we're happy to just focus on what we're doing without worrying too much about what's for sale. The reality is, if there's something that we really want to buy, we have the capacity to buy it. But I would tell you that, as we speak, we haven't circled anything that we think is that compelling.

James E. Lillie

Charlie, I would also just remind everybody that we don't build acquisitions into our model. So we don't feel compelled to buy something and look at things opportunistically, as Martin says.

Operator

This concludes the question-and-answer period. Please continue with any closing...

James E. Lillie

And I think on that note we will...

Martin Ellis Franklin

I think on that note, we've got to close the call, because we don’t know who else came on the line. Thank you everybody. Bye-bye.

Operator

Ladies and gentlemen, that does conclude our conference call for today. You may disconnect.

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