Jarden's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Feb.13.14 | About: Jarden Corporation (JAH)

Jarden Corporation (NYSE:JAH)

Q4 2013 Earnings Conference Call

February 13, 2014 08:30 am ET

Executives

Martin Franklin – Executive Chairman

Jim Lillie – Chief Executive Officer

Ian Ashken – Chief Financial Officer

Rachel Schacter – ICR (Investor Relations)

Analysts

Bill Chappell – SunTrust Robinson Humphrey

Joe Altobello – Oppenheimer & Co.

Jason Gere – KeyBanc

Lauren Lieberman – Barclays Capital

[Bob Levick] – CJS Securities

Taposh Bari – Goldman Sachs

John Faucher – JP Morgan

Andrew Burns – D.A. Davidson

Kevin Grundy – Jefferies

Operator

Good morning, ladies and gentlemen, and welcome to Jarden Corporation’s Q4 2013 Earnings Conference Call. This morning’s call will begin with formal remarks by management followed by a question-and-answer period. (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 Q4 2013 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 Jarden’s cautionary statement regarding forward-looking statements at the end of our earnings release issued earlier today. Some of the statements made today during this conference call will be considered forward-looking. All forward-looking statements are based on currently available information. Jarden’s actual results could differ materially from those predicted. However, Jarden undertakes no obligation to update any such statements whether as a result of new information, future events or otherwise. Please refer to Jarden’s SEC filings for a more detailed description of the risk factors that may affect Jarden’s results.

Please note that Jarden 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 Events & Presentations heading.

And now I would like to turn the call over to Executive Chairman Martin Franklin. Martin, please go ahead.

Martin Franklin

Thank you, Rachel. Good morning and thank you for joining us to discuss our Q4 and full-year 2013 results. With me on the call today are Ian Ashken, our Vice Chairman and CFO; and Jim Lillie, our Chief Executive Officer.

Before we get going on our formal remarks just bear in mind we have had some telephone issues, we think probably due to the weather. If that causes a problem during the call we apologize; we will try and fix it while we’re on the call.

So we’re pleased to report strong results for Q4 and the full year driven by continued positive momentum in our core business. For Jarden 2013 marks a year of record revenues, record segment earnings, record adjusted gross margins, record operating cash flow and record adjusted earnings per share.

Q4 included several noteworthy accomplishments. Most significantly we completed the acquisition of Yankee Candle on October 1st. The acquisition expands Jarden’s portfolio of market-leading consumer brands in niche seasonal staple categories while creating opportunities in cross selling and broadening the global distribution platform. Yankee Candle now operates within the Branded Consumables Division. Q4 results fully reflect the acquisition and related financing activities.

Opportunistic acquisitions are always on the radar for Jarden, however our strategic priorities are driving consistent, profitable organic growth. This has been and will remain our core strategy. However, we believe that Jarden has the bandwidth both financially and in terms of management capacity to take advantage of accretive acquisition opportunities if and when they present themselves.

We are extremely proud of the many awards and recognitions our brands received in Q4. To highlight just a few, Rawlings was named one of America’s Greatest Brands by the American Brand Council; the Good Housekeeping Institute named the First Alert Atom Smoke Alarm as one of the year’s Most Innovative Products; the Ball Jar Heritage Collection was included in This Old House’s Top 100 Best New Home Products List.

The K2 Ski Group won the Gear of the Year Award from Ski Magazine; the Volkl UME Women’s Ski and RTM-81 Men’s Ski models won the Gear of the Year Award also from Ski Magazine; Marmot’s Isotherm Hoodie was named a Top 25 Game-Changing Product by National Geographic Adventure and also won the 2015 Gear of the Year Award..

But it’s not just about consumers. We strive to be outstanding partners to our retail customers and to support the communities in which we operate. In Q4 Jarden Consumer Solutions was named Supply Partner of the Year at Target. Coleman helped the community of Charleston, West Virginia, by delivering truckloads of coolers and beverage jugs to aide in the relief efforts surrounding the chemical spill there, helping make drinkable water more accessible.

And we sold our investment in Rossignol which was not only a significant financial success but also demonstrated Jarden’s commitment to the ski industry by helping rescue an iconic brand and business by investing in Rossignol in Q4 2008 when no other industry players were willing to do so.

As we think about our global community I also want to wish the best of luck to all of the athletes who have chosen to use Jarden equipment in the current Olympic Games. Jarden, through brands such as Full Tilt, K2, LINE, Madshus, Marker, Marmot, Ride and Volkl will have approximately 145 athletes representing 25 distinct countries using our products in Sochi.

In terms of competitive performance, on behalf of our shareholders, Jarden finished the year as a top-performing consumer stock as compared to household and personal care peers in the S&P Consumer Staples Index, with the stock increasing 78% during 2013. Last year was another year of strong financial performance consistent with our track record of generating uncommon value.

Jarden has the highest stock return relative to HPC peers in the S&P Consumer Staples Index across multiple prime periods: the last one, five, and ten years and since our 2001 inception. We fully intend to continue focusing on long-term value creation and above our peer group in the years ahead.

With our strong results in 2013 I’m pleased to report that we now have exceeded the stretch goals that the Board approved in January, 2010, of nearly doubling our adjusted earnings per share within five years. At the plan’s inception in 2010 our (inaudible) share price was $21.37 and our market capitalization was $2.9 billion. At the end of 2013 when we achieved our plan in the fourth year of the program, a year ahead of schedule, our share price was $61.35 and our market capitalization was $8.3 billion, representing growth of over 185% during this period.

Similarly, in January, 2005, after we closed the American Household acquisition the Board set ambitious five-year goals for the company and we saw our market cap grow by over 105% over this period, versus the S&P 500 Index declined 6% over the same period. Setting aspirational targets for management to achieve has worked well for shareholders as well as for our team. In keeping with this historical, successful formula, our Board approved yesterday a new long-term EPS five-year stretch target which Jim will address in his comments.

Suffice it to say, as we start on the path of trying to achieve another long-term ambitious goal some of our evergreen financial performance targets, such as delivering 3% to 5% organic revenue growth per year, will remain unchanged; while other metrics, such as our EBITDA margin objectives will need to be stepped up. Jim and Ian will discuss some of these changes on this call and over the ensuing quarters but our overall priorities remain unchanged – to deliver innovative products that present great value through leading brands that consumers desire and trust; to capitalize on our strong core to expand by category and geographically; to deliver earnings growth well above our rate of sales increase; and to optimize our capital structure for the benefit of all our shareholders.

I’ll now hand the call over to Ian.

Ian Ashken

Thank you, Martin. As a reminder and consistent with our quarterly practice we have posted a more detailed financial presentation of our Q4 and full-year 2013 performance on our website. We also continue to disclose both as-reported and as-adjusted results separately in our press release.

For Q4 net sales increased 21.8% on an actual basis and 4.0% on an organic basis. For the full year organic net sales increased 4.4% at the high end of our targeted 3.0% to 5.0% range. As you can see from the supplementary slides we reported organic growth in each of our business segments for the quarter as well as on a full year basis. Jim will cover the individual segment performance in more detail. For 2014 we again expect that we will be within our long term average target range of 3% to 5% organic net sales growth.

Adjusted gross margin in Q4 increased by approximately 360 basis points year-over-year largely due to the contribution of Yankee Candle. For the full year 2013 adjusted gross margin increased by approximately 80 basis points year-over-year largely due to Yankee Candle, positive mix changes and a relatively benign commodity cost environment through 2013.

Adjusted SG&A as a percentage of sales increased 90 basis points in Q4 on a year-over-year basis reflecting the higher SG&A costs related to Yankee Candle and its retail footprint. For 2014 modeling purposes we expect adjusted gross margin to increase by approximately 150 to 200 basis points with segment earnings margins of approximately 13.5% to 14.0%.

As mentioned, one of our goals for 2013 was to achieve EBITDA margin expansion. I am pleased to report that we were able to deliver this goal and we’ve further room for improvement in this area. While we maintained brand equity investment at approximately 5.7% of sales for the year, adjusted EBITDA margins increased both in the quarter and for the full year. Adjusted EBITDA margins for the full year increased by 50 basis points year-over-year to 12.7% of net sales.

Adjusted fully diluted EPS for Q4 increased 54% to $1.31 and increased 29% to $3.59 for the full year, inclusive of the impact of the Yankee Candle acquisition. In comparison full year 2012 adjusted fully diluted EPS was $2.78. Our earnings pare share growth reflects legacy (inaudible) underlying operating performance and the benefits of the Yankee Candle acquisition.

Cash flow from operations for 2013 increased by nearly 40% to a record of approximately $670 million in 2013, reaching the goal that we set of exceeding $600 million in operating cash flow. As a reminder, we increased this goal to $600 million from our original goal of $500 million upon announcement of the Yankee Candle acquisition.

For 2014 we have set a goal of generating at least $650 million in cash flow from operations. This target reflects the historical cash use at Yankee Candle in the first nine months of the year which we did not experience in 2013.

As I discussed on our last quarterly call, depending on our stock price our convertible notes may have an impact on our diluted share count. The 2018 notes have a conversion price of $47.23 and the 2019 notes have a conversion price of $58.64. As we have stated, our intention is to cash out all the principal amounts of the convertible notes together with any accrued interest and according to the [extended] cash level there will be no dilutive impact.

Any premium could be settled in shares, and as a simple rule of thumb, for every $1.00 above the $47.23 conversion price approximately 200,000 shares are added to our diluted share base from an accounting perspective based on the 2018 and 2019 convertible notes. For example, at $60.00 per share there would be approximately 2.4 million incremental shares added representing an increase of approximately 2% to our Q4 diluted share count.

Our bank leverage ratio was 3.0 at the end of Q4 which includes the impact of the Yankee Candle acquisition financing. On our last call we stated that we anticipated returning to at or below the 3x level by the end of 2014. We are thus pleased with the early achievement of this objective. Our long-term goal remains to retain our bank leverage ratio at or below 3x at the end of each year. As a reminder, Q1 is typically [our use] of cash while Q4 is our strongest cash flow quarter given the seasonality of our business.

Adjusted net interest expense increased to $47.2 million in the quarter compared to $46.5 million in the same period in the prior year due to the acquisition financing. We currently expected our adjusted net interest to be in the range of $200 million to $210 million for the full year as we anticipate our average cost of (inaudible) to be slightly above 2013 at 4.5%.

Capital expenditure in 2013 was $211 million or 2.9% of sales. We expect CAPEX will return to more normal Jarden levels of approximately 2.0% to 2.5% of sales in 2014.

Adjustments to net income for Q4 were approximately $130 million and included our regular adjustments for noncash amortization of acquired intangible interest, OID interest, and tax; as well as approximately $79 million associated with the manufacturer’s property and inventory charge to cost of sales which is the purchase accounting fair value adjustment to inventory associated with the Yankee Candle acquisition; approximately $2 million of accelerated depreciation primarily associated with the ongoing rationalization of international manufacturing facilities – we expect this project will be completed before the end of 2014; $11 million of acquisition integration-related costs including those associated with the Yankee Candle acquisition; $18 million of reorganization costs associated with international operations; and a charge of $39 million related to stock competition (inaudible) December 20 [before vacating].

Additionally, while the sale of Rossignol was announced in Q3 this transaction did not close until October, and accordingly the approximately $50 million of considerations received, including approximately $40 million in cash, is reflected in our Q4 results as well as the booked gain on our investment. This gain has been backed out and is not included in our as adjusted results.

Our only currently anticipated adjustments in 2014 relate to adjustments for the noncash amortization of acquired intangible assets, OID interest, tax, and manufacturing rationalization charges related to our Chinese manufacturing base of approximately $20 million.

Our effective tax rate for Q4 and full-year 2013 was 33.0%. We expect the 2014 effective tax rate will increase to approximately 34.5% due to adverse changes in laws dealing with the taxation of certain foreign income and the high concentration of relative profits in the United States due to the Yankee acquisition. Our adjusted tax expense in 2013 was $203 million compared to cash taxes paid of approximately $72 million.

Another important consideration for modeling our 2014 performance is the potential impact of year-over-year fluctuations in currency, particularly the Venezuelan Bolivar, the Japanese Yen, the Canadian Dollar, and the Euro. Based on current rates we anticipate a full-year negative 2014 revenue impact of approximately $60 million to $75 million versus the $113 million experienced in 2013.

We expect the impact on an adjusted EPS basis to be in the range of approximately $0.05 to $0.15 of which we anticipate approximately $0.05 to adversely affect Q1. As we look at this year’s plan we see currency, rather than commodity or interest rate fluctuations as one of the key macro risks. The lower end of our EPS guidance, which Jim will discuss, anticipates moderate headwinds from current currency levels.

With the acquisition of Yankee Candle the quarterly weighting of EBITDA is expected to change slightly from 2013. Q1 is expected to represent approximately 10% of EBITDA, Q2 at approximately 20% to 25%; Q3 at approximately 25% to 30%; and the balance of 35% to 40% in Q4. As we continue to reiterate, weather is the main cause of volatility good or bad against our budget. Many of Jarden’s seasonal businesses tend to ship on the cusp between quarters, making the exact quarter weighting difficult to predict. The above is our best estimate of the seasonal weighting using seasonally traditional weather patterns.

I will now pass the call over to Jim for further discussion of segment performance as well as an update to our 2014 and longer-term financial outlook. Jim?

Jim Lillie

Thank you, Ian, and good morning everybody. As Martin and Ian mentioned we are very pleased with the strong results of our business and how they delivered both for Q4 and for the full year 2013. Our 2013 performance results have met our financial goals as Ian outlined and in many cases have set new records for Jarden. This performance reflects broad-based portfolio strength and disciplined execution.

As we look to 2014 we enter the year with positive momentum from each of our core businesses. Each of our segments delivered organic top line growth in 2013 leading to Jarden expanding segment earnings margins year-over-year both for the quarter and for the full year.

As we’ve discussed many times in the past we budget for traditional seasonal quarterly weather activities. At the end of 2013 we experienced a true winter season. This was a refreshing change from some of the milder or later winter seasonal weather patterns that we’ve experienced over the last few years. With the late December cold burst we saw many seasonal products increase their POS performance. While this did not add significant incremental revenue for 2013 it did clear the decks for seasonal products at retail which should be a positive opportunity as we enter the 2014-15 winter season.

Turning back to 2013, amongst our primary segments organic growth was led by Consumer Solutions followed by Branded Consumables and then Outdoor Solutions. Jarden Consumer Solutions delivered organic sales growth of 6.7% for the quarter and 6.2% for the full year led by international growth. This revenue growth along with SG&A leverage allowed JCS to deliver a segment earnings margin of 15.1% for the year.

JCS had balanced global growth with new products and expansion into new geographies contributing to its overall performance. JCS had strong category performance in beverage, blending, slow cooking and food preservation aided by leading brands such as Oster, Crock-Pot, FoodSaver and Sunbeam and winning innovations such as the Crock-Pot HookUp and the Mr. Coffee Café Barista Single-Serve Brewing System.

With a very solid North American base we continue to focus our investment dollars at JCS on geographic expansion as we believe that this creates the best opportunities for organic growth and margin expansion for JCS over the long term.

Branded Consumables delivered organic sales growth of 1.8% for the quarter and over 4.4% for the year. The segment exhibited broad based [trends] from fresh preserving, First Alert designer safety products, casual entertaining, home cleaning and fire logs. However, with the addition of Yankee Candle this quarter the nonorganic performance of JBC takes on very special meaning.

With the addition of Yankee Candle Q4 revenues increased 29.3% year-over-year while segment earnings increased 56.8%, increasing segment earning margins to 18.1% for the full year 2013 versus 14.8% in 2012.

As noted on our Q3 call, the integration process is now fully underway close to Yankee Candle’s very important Q4 selling season. I’ve spent significant time with the team and we’ve reviewed the high-level direction of their strategic plan. We will be formally reviewing the plan together at the end of Q1.

The focus on the plan is on creating long-term organic growth opportunities we should start to ramp up in 2015 using Jarden’s existing platforms and network. Jarden-branded consumables have a strong global network with relationships at many of the potential retail customers that Yankee will certainly consider under any growth plan.

Outdoor Solutions delivered 1.7% organic growth in Q4 and 2.9% for the full year. In this segment, currency created a significant headwind largely due to the Yen which impacted reported revenue as well as segment earnings margins. Despite this impact Coleman, Technical Apparel, Volkl and others have experienced broad-based revenue growth. New products such as the [Abu Garcia Reva Reel], designed to improve the angler’s experience by being lightweight and compact, and the K2 Pinnacle Ski Boot with its revolutionary walk-ski mode performed above expectations.

Jarden Team Sports experienced good success with licensed NFL and NCAA products ranging from coolers produced with Coleman and LIFOAM to canopy shelters. We believe that JOS will return to 3% to 5% organic growth in 2014 as some of the specific headwinds experienced in 2013 and detailed in earlier calls throughout 2013 are not anticipated to recur during 2014.

From a commodity perspective we expect 2014 to be relatively stable. However, in line with my winter comments and the continuing below average cold weather we are seeing an increase in certain resins, energy and natural gas costs. While unfavorable to our plan the impact should be minimal.

Based on this current outlook and taking into account the potential currency outlook as Ian outlined, we are providing guidance for as adjusted fully diluted earnings per share for 2014 in the range of $3.82 to $4.02 per share assuming 128,000,000 fully diluted shares outstanding per our Q4 ending balance.

While we expect full year pretax income growth to outpace our 2014 revenue growth, the EPS will be impacted due to a higher adjusted tax rate as well as a higher number of shares outstanding in 2014 versus 2013. We expect the variance within our EPS guidance range will be largely driven by currency fluctuation and not operational performance.

At Jarden we are the brand of everyday life and we take pride in doing the everyday well. A significant factor in delivering reliable performance has been the consistent elements of our long-term financial goals and associated planning. We view our performance on these metrics as part of our report card and commitment to you, our investors and stakeholders. Many aspects of our objectives are evergreen by design as Martin mentioned. There are some aspects we have clearly outgrown.

Going forward, our macro financial goals can be summarized in five points. Hopefully this list is now largely familiar, but our new five-year operating plan is designed to meet these goals not necessarily every quarter but rather over an extended period of time.

These goals are as follows: one, on average delivering 3% to 5% organic sales growth per year; two, continuing to leverage our SG&A; three, expanding segment earnings margins by 150 basis points from the current level of 12.7%; four, generating annual earnings growth of at least 10% on average; and five, improving working capital to increase operating cash flow to generate at least $4.0 billion of cash flow from operations over the next five years compared to the $2.5 billion generated over the last five years.

If we are able to achieve these objectives Jarden will continue to grow and succeed in line with analysts’ expectations. The Board has set an ambitious target by achieving by year-end 2018 adjusted fully diluted earnings per share of $6.00. This is a lofty goal and represents an approximately 70% growth target over the 2013 full-year adjusted earnings per share of $3.59.

However, as with the targets set in 2005 and 2010 we are motivated and focused on achieving this result. It will require meticulous operational execution, detailed strategic focus, leveraging our scale and platform to create synergies, disciplined and creative access to the capital markets, opportunistic acquisitions and the support of macro events outside of our control.

We will cover some of the specific financial and other actions that we will be taking in the next twelve months to help achieve this goal on our next quarterly conference call. However, from the Office of the Chairman down to the ranks of our Senior Managers and to the newest employee we are very excited and energized about the opportunities Jarden has in front of us.

The first strand of Jarden’s DNA is strive to be better, and that is what we plan to do. We are constantly focused on modifying and improving our structure and team to supplement and support healthy growth, and we intend to maintain this approach to managing the business in the years to come.

With that update I’d now like to turn the call back over to Martin for some final comments.

Martin Franklin

Thank you, Jim. We look forward to delivering a strong 2014 while focusing on our updated financial goals. A $6.00 per share adjusted EPS goal within five years is in our view and the Board’s view appropriately aggressive.

As we saw in the last five years there was tremendous volatility in the world coupled with economic cycles to be considered. We’re extremely proud to have consistently met or exceeded expectations over the twelve plus years of Jarden’s existence. During the next five years we expect to continue to be opportunistic deployers of our capital and thoughtful managers of our balance sheet.

From our earliest days at Jarden we have set and delivered ambitious long range goals and we are excited to be embarking on this latest challenge. The [release] of the Office of the Chairman under which Jarden operates is the best structure to continue delivering results for our stakeholders. Ian, Jim, and I believe that we have the breadth of talents and the depth of skills within the organization to continue to deliver exceptional results.

At Jarden we are very proud of our past performance but our focus is solely directed towards the future. As I conclude our formal comments we would like to thank our retail partners, customers, suppliers, business partners, stockholders and particularly our employees for their support over the last twelve years and we look forward to their continued support as we turn the page on a new chapter of growth.

We look forward to seeing many of you at Cagney as we present for the first time there on February 20th. Operator, I would now like to open the call for any questions. Thank you.

Question-and-Answer Session

Operator

Thank you. (Operator instructions.) And our first question comes from Bill Chappell from SunTrust Robinson Humphrey.

Bill Chappell – SunTrust Robinson Humphrey

Good morning. Just first kind of looking at the guidance and basically what you’re seeing on interest expense and share count, is that assuming that you’re just holding on to the $1.2 billion in cash through this year? And I guess I would ask if you have plans for use of that cash any time soon?

Martin Franklin

I would say we’ve made no assumptions for things like buybacks and the like which I think is probably what you’re referring to but obviously that is something that we’ll be evaluating in due course.

Bill Chappell – SunTrust Robinson Humphrey

Okay, and then if I look at the currency, just kind of what the puts and takes are this year, is it primarily the Yen that’s weighing on it and the Bolivar or are there other things that we should be watchful for?

Ian Ashken

I think there are two things to watch for. Obviously the Latin American currencies are the most volatile. The Yen has continued but I know there was a bigger impact in 2013 than we’re seeing so far in 2014, but that rolls forward from year to year; and the Euro a little bit but not that much. So I’d say the volatility is more likely to come from Latin America but the Yen is, and you can see from the fact of our range of $60 million to $75 million is less than the $113 million we experienced last year at the top line and you all have seen other companies. So looking ahead we do think there will be some volatility on the exchange rates.

Bill Chappell – SunTrust Robinson Humphrey

Okay, and last one from me, just looking at Outdoor Solutions, any kind of pickup you’re expecting? I know last year some of it was weather; some of it was also Rawlings, some weakness there. Do you expect kind of the spring/summer sports to get a bounce or is it maybe the bounce back to normal growth is mainly due to winter sports bouncing back?

Jim Lillie

No, I think that it’s going to be spread across the entire JOS platform. We had a choppy first half of the year with a strong late winter and then a very wet spring which negatively impacted load-ins and incremental turns of products. And so we’re anticipating relatively normal weather patterns through the balance of the year, and looking at where we ended 2013 on load-ins we don’t see the headwinds that we saw last year.

As you know, Bill, and as we’ve discussed, inventories are obviously lower particularly in the Northeast US on winter sports. Europe has not had the kind of snow that we’ve seen in this country and we’ve seen the drought on the West Coast. And so I think that we’re in a pretty favorable inventory position. We just had a couple of international ski shows and I would say the receptivity to new products and the opportunities exist in the plan for the back half of the year much more so than they have over the last two or three years.

Bill Chappell – SunTrust Robinson Humphrey

Got it, thank you.

Operator

We’ll go next to Joe Altobello with Oppenheimer.

Joe Altobello – Oppenheimer & Co.

Hey guys, hey, good morning. The first question I want to go back to the gross margin, obviously up nicely in the quarter – I imagine most of that was Yankee obviously but how much of that was the legacy Jarden business up in the quarter in the gross margins?

Ian Ashken

Again, it all depends on which business you’re looking at and for, Jod, it’s much more a question of what’s going on in the mix. You can see for example in Branded Consumables our margin in our legacy business was actually up because of the mix we were selling. If you remember our blue Ball jar, that continued which helped the mix; and the margin on our fire log business is also better this year over last year.

Outdoor Solutions’ gross margin on some of the businesses were up, on some of the businesses were down. Consumer Solutions again, our margin in international tend to be higher than our margins domestically; but having said that, some of the domestic margins in some of our product lines, for example – beverage – were actually down year-over-year. So as with most things, Joe, it’s not as simple as we’re a diversified group so there’s some good points and some bad points.

Obviously the nice thing is as we sit here in February, 2014, some of the areas of weakness that we had in 2013 such as our Outdoor Solutions become easier comps for 2014.

Joe Altobello – Oppenheimer & Co.

Okay, but overall the gross margin for legacy Jarden was in line with what you guided for?

Jim Lillie

In Q4 it was, yeah.

Joe Altobello – Oppenheimer & Co.

Okay, gotcha. And in terms of Yankee, we have not really factored into our model much in the way of revenue synergies for Yankee in ’14. Can you walk us through what you’re thinking of for ’14 on the revenue side and maybe give us an update on the Yankee cost synergies as well? Thanks.

Jim Lillie

Sure, thanks Joe. As I said in my prepared remarks we’ve been putting together a strategic plan. The reality is we bought the business on October 3, and while we started working immediately on cost synergies – and that continued through the end of the year, we feel very good about the cost synergies we’ve identified. But as I’ve told people at the ICR Conference and at other public events we’re taking that money and reinvesting in SG&A, primarily in international staffing so that we can support the growth that we anticipate the plan will begin delivering in 2015.

We like you have not planned any revenue pickup in 2014. Obviously their biggest selling season is Q4, and so there may be an opportunity for upside surprise but we’re not relying on it and we’re not spending against it as much as planning for the long haul which we believe will begin in 2015.

Joe Altobello – Oppenheimer & Co.

Okay, so in terms of Yankee’s growth for ’14 you would expect it to be sort of mid-single digits on a pro forma basis?

Jim Lillie

Well, yeah, I think historically as you know from the acquisition slides they grew at 7%. Our plan is to make sure that we grow at a higher level of profitability rather than just focusing on growth at any costs. And so that’s the discipline we’re looking to instill in the system as we plan out for future growth.

Joe Altobello – Oppenheimer & Co.

Okay great, thank you.

Operator

We’ll take our next question from Jason Gere with KeyBanc.

Jason Gere – KeyBanc

Thanks, good morning, nice day outside. So let me just start off first following up on Joe’s question about Yankee Candle. So if you look at the pro forma year-over-year sales I think there was another acquisition you guys had, and it looked like the growth was probably at the low end of that 3% to 5% target. So I guess one, just for clarification, was this just more of a timing issue with closing and not really… I think you’ve talked about not chasing some of the quick deals out there. Or was there any type of promotional issues out there just given the holiday was so bad from that perspective? So maybe that’s just kind of the first question and then I’ll ask the real question.

Martin Franklin

Right. If you look at our slides obviously we back out Yankee Candle from our organic growth, so for Q4 and for the first three quarters of next year they won’t impact the organic growth as Jim said. I mean they are above our 5% for 2013 overall but it won’t impact us on an organic basis until Q4 next year. And really there are no other acquisitions. We did a tuck-in of a small company, a fishing company called Hardy & Greys but it’s tiny. So for those fly fishermen on the call you’re probably very familiar with the Hardy brand but it’s a very, very small business in England.

Jason Gere – KeyBanc

Okay, so of the 363 that’s really almost all Yankee Candle.

Jim Lillie

Yes.

Jason Gere – KeyBanc

Okay, that’s good. And then I guess just another kind of interesting question – I know you guys talked about the cutoff in the seasons, winter to sprig, and obviously I think we’ve heard in the past is the sweet spot for you guys is the middle of February when winter stats to end and then retailers start to kick in for the sports season, for baseball and as such. Obviously when you see a day like today and you hear about what’s going on in the US, are there any updated thoughts with the retailers? Are they looking to take in more of the spring sports equipment like later on in the season just given that this Polar Vortex is just kind of out of control and there’s a little bit of uncertainty? [laughter] So just maybe to help me understand, a clarification.

Jim Lillie

Just a little color. I think that over the last three to five years we’ve seen retailers manage working capital so that nobody’s really taking any significant orders until after February 1st when most of their year-ends occur. And so this is a global business. This weather is limited to this country and products like fishing, camping which typically load in the February/March timeframe, I’m not expecting any real significant changes to that. You may have sales move slightly between quarters but remember Q1, as Ian said in his opening comments – the EBITDA associated with Q1 is approximately 10% and so it’s a very, very small quarter and there’s three more quarters to manage if there’s any speed bumps.

But looking at the weather and then talking to some of you this past week, you know, the Pine Mountain fire logs are clearing so we’re not looking at returns. Whatever heaters may have been left or Coleman coolers relative to power outages or other of our products we expect will have relatively decent POS performance which should offset any load in challenges as we move through. So I just think that this is a relatively small quarter and we ought to give it that level of attention.

Martin Franklin

I mean retail will undoubtedly be impacted because of the weather in the Northeast, but again, to go back to the diversification of Jarden, some of our products do better in extreme weather conditions and historically the two seem to offset each other – natural hedges.

Jason Gere – KeyBanc

Okay. So within Q1 you would expect, I mean I know you said for the year 3% to 5% organic but you would think that Q1 would be consistent with that? I mean wherever it falls in the range it falls but within that 3% to 5%?

Jim Lille

Yeah. We’re halfway through the quarter at this point so I would expect it to fall within that range. We actually cross-country skied to the call today. [laughter]

Jason Gere – KeyBanc

Goodness. And then I guess the last question, as I look at my model and I think going back to Joe’s question on the gross margin in the core business, the 150 to 200 seems like it’s mostly going to by Yankee Candle, maybe a little of the core business, and interest expense up and some of these assumptions that you’ve made. So can you really talk about maybe the SG&A side? So put aside the impact that Yankee Candle will have on SG&A, look at the core SG&A – how much do you think that you can actually reduce that core SG&A as you think about incorporating them? I’m sure this is a part of your long-term $6.00 EPS target too.

Martin Franklin

In fact we’re going to talk about this more on our next conference call but you’re absolutely right. Our focus for legacy Jarden really is on the SG&A line rather than on the gross margin. Obviously we’ll continue to try and get gross margin to be as good as it can be but I said in the prepared remarks that we think we can increase or improve our SG&A by 150 basis points from the current level it’s at but we’re going to talk more about some of the actual things we’re doing in regard to that and that’s going to help drive the EBITDA line. So I think you’re absolutely right in that our emphasis, if you go back up in years was on the gross margin where now our emphasis in the next couple years is going to be on the SG&A line.

Jason Gere – KeyBanc

Okay, great. Thanks and stay dry today, guys.

Operator

We’ll take our next question from Lauren Lieberman with Barclays.

Lauren Lieberman – Barclays Capital

Thanks, good morning. I did want to talk a little bit about the Outdoors business. I understand the full-year conversation but I did feel like Q4 was a bit short of expectations. So were there any issues there? I understand inventory looks good as you think about selling in for next year but anything with the brands maybe not performing or new products not having the impact you expected? It was a little bit light at least versus my expectations.

Jim Lille

Honestly Lauren, Q4 was in line with our expectations. I know it wasn’t necessarily in line with your expectations but the shortfall if you think about it, we told people that we weren’t going to build extra skis so there wasn’t a huge revenue opportunity. Coleman does not have a Q4; the fishing business shut down a little bit early because of the strong cold weather so that was probably a little bit disappointing to the tune of several million dollars.

So for my standpoint it wasn’t a disaster but I think it clears the decks for this coming year and so I’m comfortable where we performed. I don’t view things as if they were an operational deficiency as much as there were some currency headwinds as Ian talked about and then some late season cutoffs relative to fishing in Q4.

Lauren Lieberman – Barclays Capital

Okay, but it wasn’t [in string], it wasn’t in line with long-term organic goals so that’s where the shortfall was.

Jim Lillie

No it wasn’t.

Ian Ashken

And Lauren, if you go back again, if we look two to three years ago, Outdoor Solutions was growing quicker and JCS was growing at 1% to 2%. Now you see it turn around and I think that’s what is the great thing about Jarden, that we always anticipate and budget that we’ll be working on three cylinders rather than four cylinders. If we’re fortunate enough for everything to be going then we’ll blow through the numbers, but when you have a business in 2013 with a rather difficult year for Outdoor Solutions, we’re still able to deliver our overall numbers.

And as I mentioned earlier that business now will be expected to step up more in 2014 not only because they won’t have some of the macro headwinds or weather headwinds but also they’ve got easier comps. And maybe you’ll see JCS down to the 3% level and these guys up. So I think your observations of Outdoor Solutions is right but what Jim was saying is we don’t feel that there’s anything wrong with the business. It’s just one of those years and now 2014’s a new year.

Martin Franklin

Lauren, this is Martin. I would say the one thing that you questioned which I want to emphasize that couldn’t be further from the truth is whether or not any of our brands are showing any weakness. The reality is our brands are very strong and it’s a result of all the money that we’ve been spending.

I mean you’ve seen in the GA line every year we’re spending more as a percent of sales, and we’ve sort of gotten to a level that we feel is optimal. It’s 3x plus what the brands used to spend and the reasons the brands are strong is we’re spending more money than ever in promoting them; we’re spending more money than ever in developing new products. And so where I’m focused, which is not just a quarter or even a year but how are these brands positioned for the next five years, those investments are going to be paying off.

Lauren Lieberman – Barclays Capital

Okay, great. Thank you, Martin. And then just on JCS, that obviously continues to pace terrifically so I’m curious if you guys had any insight into sell through. I mean getting the new distribution is obviously great because getting shelf space will eventually yield sales, but any sense of how sell through is going in what I would think of as still a very tough macro environment in your categories [in Europe].

Jim Lillie

Well if you look at where a lot of the growth came from it was from the international platform, but Q4 in North America – the Black Friday period through the holidays – performance was good, POS was good really across multiple categories, the ones that I referenced on the call. The POS performance internationally – Latin America, Europe and Asia – was appropriate for the seasonality.

So a lot of the growth that you’re seeing really is because of the reorg that we talked about over the last year and a half or so and just seeing those results and putting advertising and marketing behind the brands. So the POS performance in fine within JCS across the global network.

Lauren Lieberman – Barclays Capital

Okay. So in aggregate it’s in the kind of corporate goal range, like you’re doing at least a 3% sell through in JCS.

Jim Lillie

Yeah, it’s not just a load in because you’ve seen that performance over the course of the entire year – they have a strong Q2 and Q3. And so yeah, obviously reorders are driving that traction as well as incremental doors.

Lauren Lieberman – Barclays Capital

Perfect, thank you.

Operator

We’ll take our next question from Charles Strauzer with CJS Securities.

[Bob Levick] – CJS Securities

Good morning, actually it’s Bob Lavick in for Charlie – Charlie’s escaped the snow today. [laughter] I wanted to start with a question, maybe a little bit difficult but I’m sure you guys are up for it – can you give us a sense of the organic growth across your categories? And then I’m asking that because I’m assuming you’re taking share with your strong organic growth. So where is the share coming from and what are the drivers that keep taking share?

Martin Franklin

That’s a very long question and we can try to be helpful but there’s just too many categories we’re in to try to give organic growth by category.

[Bob Levick] – CJS Securities

I’m asking you to try to put it all together and say if you do 4.5% your categories in aggregate did 2% or something like that.

Jim Lillie

Well, what I would say is there are no hockey sticks where it’s masking the performance of an underperforming area. We’ve had good organic performance really across the entire portfolio in line obviously with JCS doing better, and then Branded, and then Outdoor Solutions. But across each one of those segments there’s not something in there that’s masking negative performance.

Ian Ashken

What he’s saying is the categories are growing at X so we’re gaining in the category or we’re less in the category, and the reality is that that’s a benchmark that we do look at because if the category’s down 5% and we’re down 2% that’s a great performance. If the category’s up 5% and we’re up 3% that’s not a great performance. And we are the market leading brand in our categories and we pride ourselves on driving a lot of them, so I think generally without getting too detailed as Martin said, yes, we’re outperforming our categories.

[Bob Levick] – CJS Securities

Okay, great. And then just switching over to, I think Martin, in your opening comments you discussed the continued bandwidth that you have for additional acquisitions – I know you just completed Yankee Candle. But can you talk a little bit about the acquisition environment out there, if there are targets out there that you’re looking at that are available, how multiples look and give us a sense on that.

Martin Franklin

Yeah, I think that as Jarden’s matured and developed over the years we’ve really continued to have the same five core priorities on how we look at an acquisition. The reality is I don’t think on our radar we have sort of imminent ideas that we think are the right things to action on. We continue to ferret – that’s a big part of my job. I’d say it’s no big surprise for people to know that prices are high but what we’ve managed to find are good opportunities in both high markets and weak markets.

The key is being very disciplined on what our criteria are and at the end of the day we’re still looking for businesses that enhance the portfolio. To us that’s the key and they’ve got to be margin accretive as well as financially accretive. And we continue to look at those opportunities and we’ll only take those opportunities at the right price, but M&A doesn’t make our numbers, it never did. We’re not predicating any of our goals on transactions, M&A transactions – they’re purely opportunistic.

[Bob Levick] – CJS Securities

Okay great, thanks very much.

Operator

And we’ll take our next question from Taposh Bari of Goldman Sachs.

Taposh Bari – Goldman Sachs

Hey, good morning and congrats on the great year. A question on just your intended or desired uses of free cash. You obviously have a history of repurchasing stock; you also have some debt that you can technically repurchase. I’m just curious on where your priorities lie right now, and if we think about timing while not obviously tipping your hand I’m curious to see if we should kind of consider the fact that your cash flow is skewed towards Q4 as a sign that maybe that’s when you would prefer to do that kind of action. [laughter]

Martin Franklin

Well that would be tipping my hand. Look, I think the simplest thing to say is I think that we’ve established ourselves as having a pretty consistent track record of trying to do things that are well-timed and that are shareholder friendly. So that hasn’t changed. We want to keep a conservative balance sheet but we have capacity. We want to make sure that we are being good stewards of capital at all times.

So these windows change at different moments but I wouldn’t say that we wouldn’t take any sort of capital actions until the end of the year because the cash flows are back-ended. The cash flows at Jarden for the last few years have always been back ended – they’re just even more back ended now with Yankee Candle in the mix. But that hasn’t inhibited us being proactive on the use of our capital so I wouldn’t take that as any indicator of what we may do in the coming quarter or two.

Taposh Bari – Goldman Sachs

Okay, that’s helpful. And then a question on geographic context – I’m hoping you can provide some color on the general consumer environment versus your expectations as we enter 2014 in some of the major geographies that you operate in?

Jim Lillie

I would just say, as Martin said several years ago, we expected a U-shaped recovery and every day it gets a little bit better. I think Europe which had struggled over the last two or three years, we’re seeing continued evolution. We have a nice industrial glove business that picked up well in 2013. Our Consumer business, we’re seeing people not necessarily shop for the lowest price point as opposed to looking for good quality products at a fair price.

And then in Asia because we’re relatively new entrants into the market I just think there’s excitement about new products, new brands, and new opportunities. And then obviously in Brazil you’ve seen a slight slowdown in the economy but with the World Cup and the Olympics we think the spending will contribute at a rational level and we think Latin America creates a lot of opportunity for organic growth for us.

Taposh Bari – Goldman Sachs

And just one quick housekeeping item – on the currency in your guidance are you reflecting current spot prices or are you leaving some cushion in the event of further FX [off the leash]? I’m trying to get a handle on how much….

Martin Franklin

We’re reflecting current prices.

Taposh Bari – Goldman Sachs

Okay thank you, good luck.

Operator

And we’ll take our next question from John Faucher with JP Morgan.

John Faucher – JP Morgan

Thanks, good morning. Most of my questions have been asked. I wanted to ask one question sort of following up on Europe and also on Yankee Candle. There’s no question that the growth in Europe there over the past couple of years has put a little bit of a dent in the EBITDA margins. When you talk about maybe going after a little less growth in the business is that what you’re talking about – maybe pushing a little less aggressively in Europe or is there other stuff in the US that you’re focused on?

Jim Lillie

What I was really referring to is you know, we are long-term owners and we’re focused on making sure that we have appropriately profitable growth; whereas if you’re a PE firm with a limited time horizon and you’re looking to sell the business, more of your emphasis is on the top line growth rather than the bottom line growth. And so our focus is just making sure that the strategy when we review it has nice balanced growth but also it has more focus on profitability than perhaps historically they have had.

John Faucher – JP Morgan

Okay, great. Thank you very much.

Operator

We’ll take our next question from Andrew Burns with Davidson.

Andrew Burns – D.A. Davidson

Good morning and congratulations on a stellar 2013. On Yankee Candle with your first key earnings season behind you did you see anything noteworthy that surprised you in terms of untapped opportunities, areas for improvement, things of that nature? Thanks.

Jim Lillie

It was a very thorough diligence process that we went through and so we weren’t really surprised about performance. I would say that the Polar Vortex, the closing of certain malls because of the weather is something new to us but not unexpected to them. And I think the business has legs and there were no real negative surprises. It’s a very strong team; it’s got great brand. They’ve got a lot of very interesting, good, interesting new products and we see opportunity to put them in our channels.

But we’re very much focused on doing it right rather than necessarily doing it very fast, and so we’re looking forward to the strategic plan review, challenging them on what they present to us, and then moving forward on executing the opportunities and the right priorities.

Andrew Burns – D.A. Davidson

Great, thanks. And just some clarification on the commentary on Outdoor Solutions – adjusted segment earnings declined in the quarter and in the year. And on the quarter I just wanted to confirm the biggest headwind there was currency? And as we roll through ’14 it sounds like the margin profile can improve. I was hoping you can elaborate – is that just the non-recurrence of some headwinds or are there some operational benefits perhaps from the manufacturing investments you’re making in the area? Thanks.

Martin Franklin

Yeah, I think the biggest impact for 2013 was weather which is always the biggest impact for Jarden. I mean we knew coming into the year, and obviously going back to Q1 last year that winter season would be typical because there was inventory in the pipeline – and that’s why I think Jim made the comment that we’re looking pretty hopeful for the 2014-2015 season. And so I don’t think that the… Fishing was impacted at the beginning and the end of their season negatively. These things tend not to repeat each other, and so as there was less product that was sold in this year, in 2013, it gives the opportunity for 2014.

And we’ve always said, I mean if you go back to what we said three or four years ago when we actually bought K2 is that there tends to be a year’s lag on the prior year’s weather. So you’re seeing the impact through 2013 but that means that you have cleaner shelves into 2014. That’s important.

Andrew Burns – D.A. Davidson

Thanks and good luck.

Operator

At this time we have time for one last question, and we’ll take our last question from Kevin Grundy with Jefferies.

Kevin Grundy – Jefferies

Good morning, guys. So a few from me. The first one, I apologize if I missed it, is the $6.00 number that’s the target now for the next five years – that does or does not include any buyback and acquisition?

Martin Franklin

No, it’s a macro number. So if you look at what the company has done in the last… The future is where our past is. If you look at the past two programs, we actually achieved them in four years instead of five years. And there were things like buybacks and M&A and all kinds of things that happen in a business that can help accelerate the goal. But the reality is part of our job is to achieve objectives and if we can get there faster, all the better for our shareholders and ourselves. So the answer is to get to $6.00 we can do it organically. That’s our operating perspective. If we have opportunistic windows to advance that by intelligent deployment of capital obviously we will do so.

Kevin Grundy – Jefferies

Okay. I guess just as I look at it, I mean it’s not terribly different from what we see from some of the larger cap staples [names] which is generally in the high-single digits sort of range. You guys are putting up that sort of organic growth – there’s now more emphasis in leveraging SG&A. So it would seem like, and you guys can tell me where I’m going wrong here, that even like an organic kind of number with a little bit of financial leverage gets you to a high-single digit EPS growth sort of algorithm. That’s the kind of growth you guys are doing kind of in line with the peer group, so it wouldn’t seem like a 10% EPS keger would be heroic. Is that fair?

Martin Franklin

Yeah. In one of Jim’s five bullets he has 10% organic growth on earnings per share is one of our baseline objectives as an annual objective. The reality is, and you know us I think well enough now – we’re not people who try to overpromise. We live in an uncertain world; we try to manage expectations. If we’re able to deliver better than that obviously we will – that’s what we’re all motivated to do.

Kevin Grundy – Jefferies

Fair enough. A couple small housekeeping ones – I guess philosophically, maybe Jim, would you look at pricing as a vehicle to maybe offset some of this FX? And you’ve said before in certain of your categories you had more pricing power than some of the larger CAP HPC guys. Are you viewing ’14 through that sort of lens? Are you looking to take some pricing to offset some of these FX headwinds or no?

Jim Lillie

Well, look – FX tends to come at you fairly quickly; it’s tough to get a price increase to respond to that particularly since we’re seasonal products. If you look at the seasonal portfolio, most of those products are in the market 100, 110 days. We set pricing, because of the long lead times and the visibility curve we have on orders it’s not so easy to respond to FX fluctuation in pricing within the season.

Martin Franklin

And pricing is an everyday discussion for us. It’s not something that changes. Obviously the easiest way to get pricing is through new products and that’s what we do. Getting pricing on the same product in any category today is difficult; that’s why we focused on new prodcuts.

Kevin Grundy – Jefferies

A couple more from me, I apologize if I missed it – did you guys talk about share count assumption and timing of buyback with respect to when you thought we’d begin that this year?

Martin Franklin

We talked about 128 million shares is the assumption and we did not talk about buybacks. We only talk about buybacks when we have something to say.

Kevin Grundy – Jefferies

Okay, fair enough. And one last one from me – just even ballpark can you, I guess sort of frame how much of your cash is sort of overseas, your willingness to bring some of that back, etc., to deploy?

Ian Ashken

Yes, a little under half of our cash is overseas. We brought back over $100 million last year relatively low cost so that’s just something that we look at continually.

Kevin Grundy – Jefferies

Okay, very good. Thanks for the time, good luck.

Martin Franklin

Thanks very much. I think that concludes the Q&A. For those of you who are in the Northeast please be safe out there.

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