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Jarden Corporation (NYSE:JAH)

Q3 2011 Earnings Call

October 26, 2011 4:45 pm ET

Executives

Jennifer Milan – Investor Relations, FTI Consulting, Inc.

Martin E. Franklin – Executive Chairman

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

James E. Lillie – Chief Executive Officer

Analysts

Charles Strauzer – CJS Securities

William Chappell – Suntrust Robinson Humphrey

Gregory Badishkanian – Citi

Lauren Lieberman – Barclays Capital

Jason Gere – RBC Capital Markets

Jon Andersen – William Blair & Company

Reza Vahabzadeh – Barclays Capital

Ann Gilpin – Jeffries and Company

Karru Martinson – Deutsche Bank Securities Inc.

Operator

Well, good afternoon ladies and gentlemen, and welcome to the Jarden Corporation’s conference call. This afternoon’s call will begin with management making some formal remarks, and then when they have concluded, a question-and-answer period will follow. (Operator instructions)

And now, I’d like to turn conference over to Ms. Jennifer Milan of FTI Consulting. Please go ahead, Ms. Milan.

Jennifer Milan

Good afternoon, and thank you for joining us for Jarden’s 2011 third quarter 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 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 today. While forward-looking statements made during this conference call are based on currently available informations, 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.

Please note that the company has posted supplemental financial data slides, as well as reconciliation of certain non-GAAP to comparable GAAP financial measures to its website. The presentation can be downloaded in the section "For Investors" on Jarden's website under the "Presentations" heading.

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

Martin E. Franklin

Thank you, Jack. Good afternoon ladies and gentlemen. With me on the call today are Ian Ashken, our Vice Chairman and CFO; and Jim Lillie, our CEO. Hopefully, you have all had a chance to review the earnings release we issued earlier today.

Q3 was a very strong quarter for Jarden, during which we achieved overall sales growth of 11% including organic sales growth in excess of 5%. This robust growth was driven by exceptional performances across the board within Outdoor Solutions and strong sales within Branded Consumables, particularly in Jarden Home and Family. As always, retailer support of innovative new products, our superior execution at retail and the value proposition we offer to consumers in the continuing difficult macro environment help drive this growth.

I am proud to say that as Jarden enters its second decade at least one of our products can be found in almost every home in America. Yet, Jarden itself is still relatively unknown to many investors despite the Jarden brand name appearing in small print on the vast majority of the products that we sell.

For those of you unfamiliar with Jarden, I’d like to highlight that we are a global consumer products company with a broad portfolio of primarily seasonal staple products. Our diversification, geographic and seasonal provides the benefit of several natural hedges, which help reduce the risk of our exposure to weather, commodity cost increases and broader macroeconomic conditions. We’re focused on offering innovative products supported by trusted authentic brand with compelling value propositions at affordable price points.

Many of the categories we sell, such as baby, pet, consumables and products for sports and outdoor enthusiasts are relatively recession proof. With our one stop offering across many categories, and broad distribution we tend to benefit irrespective of where the consumers choose to shop at specialty, club retailers or mass retailers. These are some of Jarden’s key strengths, which play an important role in ensuring that our products and brands remain leaders in the categories that we serve.

As those of you who are more familiar with us now, we are committed to building upon our brand heritage through additional investments, investments to ensure that our brands remain relevant and got a high awareness amongst our target demographics, including the younger generation and their ever changing wants and needs.

As an example, in honor of K2’s 50th anniversary in 2012, we have collaborated with the Rolling Stones, who are celebrating the same milestone on our line of commemorative skis and events. The K2 Rolling Stones’ limited edition ski collection, the first of many exciting anniversary related products and promotions is currently available at retail. I’d recommend that you buy early, as similar to many of our K2 skis and snowboards, we anticipate that demand will outstrip supply.

Similarly, our Crock-Pot brand is celebrating its 40th anniversary this year. As part of our efforts to keep the brand fresh and resonating with the cogeneration of users. We are developing new outreach initiatives that allow like-minded users to share that Crock-Pot recipes and experience.

As an example of our commitment to investing in new product development, we are pleased to announce recently that Mr. Coffee has broadened it’s relationship with Green Mountain Coffee Roasters and it’s K-Cups brewing system. Building on our launch of the Mr. Coffee single serve K-Cups in 2010. Our new agreement allows us to use Keurig technology and additional products with features such as instant hot a feature that allows consumers to enjoy multiple cups of coffee without needing to frequently replenish the water tank.

Looking beyond Q3, we are comfort that our core strengths position us well to prospect even if the economic environment continues to turbulent and macro growth indicators remain sluggish. We work to be proactive and preemptive in how we operate our business.

An example of our proactive strategic planning was featured in an article in TIME magazine earlier this month, which discussed our repatriation of the manufacturing of certain of our product lines from Asia back to the Americas. I believe that Jerden is at the forefront of this trend.

Our macro view is that wages and benefits in China will continue to rise by 15% to 20% annual as the Chinese economy becomes more consumer oriented and that the long-term trend in shipping and transportation costs will continue upwards. This combination of events make such repatriation an important part of our long-term strategy.

I’d now like to hand the call over to Ian.

Ian G. H. Ashken

Thank you, Martin. As a reminder consistent with our quarterly practice, we’ve posted a presentation containing more detailed financial analysis of our performance disclosure on our website. We’ve also continue to disclose both as reported and as adjusted results separately in our press release.

As Martin indicated, Jarden reported a strong Q3, which is particularly satisfying in light with some of the concerns over the week global economy. Sales grew by more than 11% over the prior year quarter on an actual basis, 8% on an organic basis and 5% on an organic basis adjusting for foreign exchange movement.

Adjusted gross margin increased by approximately 60 basis points for the quarter and had increased by approximately 75 basis points on a year-to-date basis. In addition to the benefits of integrating our prior acquisitions, the various initiatives we’ve undertaken this year to drive margins and offset inflation and commodities and other costs, particularly from China, have paid off.

Although commodity prices generally decline in Q3, they have remained volatile in Q4 and are still up on a year-over-year basis, although not by any meaningful amount. We expect to manage through any volatility in 2012 just as we have done for the last several years.

Segment earning margins in the quarter and nine-month period were roughly flat as compared to the prior year. We believe that the increases in gross margins in 2011 will start to positively impact EBITDA margins in 2012, as we’ve reached a run rate reinvest within our branded products that is sustainable at current levels in order to drive future organic growth.

Cash flow from operations in Q3 was $49.2 million compared to $16.1 million in the third quarter of 2010. As always, the vast majority of our cash flow is in Q4 and we believe that we are on track to meet or exceed our targeted cash flow from operations for the full year of $350 million.

Interest expense decreased by approximately $3 million in the quarter compared to the prior year. Our weighted average interest rate for the quarter was 5.4% versus 6% last year. The lower interest expense and average interest rate resulted from the opportunistic $1.3 billion refinancing of our senior credit facility completed in Q1, which also helped to extend our debt maturity profile. Our current ratio of fixed to floating debt remains conservative at approximately two-thirds fixed to one-third floating.

Working capital increased during the quarter, primarily due to our normal seasonal builds and the impact of recent acquisitions. Achieving greater efficiencies from working capital will be one of our key focus areas for the businesses in 2012. As we now have the systems and disciplines in place that will allow us to maximize the turns of all of our inventory, not just a core 80%.

We ended the quarter with a bank leverage ratio of slightly below three times, we continue to expect that this will be three times or less by the end of the year. As mentioned on our last conference call, we expected to record a charge in the second half of 2011 in the range of approximately $20 million to $25 million primarily related to the rationalization of our international manufacturing platform.

During Q3, we recorded adjustments of $15.8 million between our GAAP as adjusted numbers, related to this charge, the vast majority of which are fees and expenses related to the reorganization of international manufacturing, as well as accelerated depreciation and the write-offs of certain international manufacturing assets. The balance of the charge will be recorded in Q4.

Again as Martin discussed, we have recently ramped up our share buyback activity. During the quarter, we opportunistically repurchased approximately $44 million worth of our stock at an average price of $28.82. This also had the impact of reducing our weighted average fully diluted shares outstanding to 88.2 million and 88.9 million for Q3 and the year-to-date periods, respectively.

We feel good about being on track to achieving not only our 2011 goals, but also our longer term goals, goal of $5 of adjusted earnings per share by 2014. On our next conference call in addition to outlining more detail our income statement goals for 2012, I will cover our goals for improving working capital management in 2012, which aims to increase our cash flow from operations above the current 2011 run rate.

I will now pass over to Jim.

James E. Lillie

Thank you, Ian. As both Martin and Ian mentioned, we’re pleased with our result this quarter, particularly in light of a difficult macroeconomic environment. We remain comfortable with our previously stated goals for 2011 of 3% to 5% organic sales growth, with the full year rate close to the year-to-date rate of 3.2%, a minimum of 50 basis points of gross margin improvement and at least $350 million of cash flow from operations. Additionally, we remain comfortable with analysts’ current consensus adjusted EPS estimates for the full year 2011 as well as those for 2012.

The increasing organic sales and POS performance our businesses achieved during the third quarter speaks to the resilience of Jarden. In fact, Jarden has achieved organic sales growth for eight consecutive quarters in an extremely difficult economic environment and has been at or above our targeted 3% to 5% organic growth rate range on a trailing 12-month basis for the last five quarters with organic growth for the trailing 12-months ended September 30, 2011 of 4.5%. This resilience comes from Jarden’s DNA and our key competitive strengths resulting in our ability to deliver consistent profitable growth for our shareholders.

Our performance in Q3 was led by strong top line growth in our Outdoor Solutions and Branded Consumables segment, which grew by 17% and 22% respectively on an actual basis, including 10% and 7% growth on an organic basis. As I’ve mentioned many times before, in any given year there can be a swing of up to $100 million in seasonal sales between September and October, our two largest shipping months.

Due to the timing of shipments and customer needs, we have seen retailers move more quickly into new seasons and continue to see this trend in the third quarter. We estimate the impact of this to have been approximately $35 million.

Within Jarden Outdoor Solutions, noteworthy performances were reported in every one of our businesses. Coleman continued to deliver strong revenue growth at the end of that season helped by the impact of Hurricane Irene and continuing strong demand in Japan.

Our fishing business, which suffered in Q2 from the floods in the South and Midwest, and the natural disasters in Japan bounced back to report double-digit growth in Q3, and end the season on a high note. The majority of this growth was from our domestic business across rods, reels, and baits, but we’re also encouraged by the growth in our smaller international markets, especially the Asia-Pac region.

Our winter sports businesses, K2 and Volkl, Marker been benefited from strong early orders to start the season, especially in Europe as retailers look to replenish their record low inventory levels on the back of strong sell through in the 2010, 2011 winter season.

Our performance was supported by our impressive new product pipeline, which includes the award winning Volkl RTM old mountain Alpine ski line, the new code Alpine ski line with rafter technology and the Volkl Racetiger line with Psi and speedroll technology. Jarden’s technical apparel and team sports businesses both delivered stellar Q3 performances. Marmot’s new flagship store of Union Square in San Francisco is helping to drive our double-digit growth in this brand.

Part of the meaningful growth in team sports in Q3 was from our new product line of innovative rolling football helmets in the launch of the new tailgating initiative that leverages our licensing agreements with the NCAA, the NFL and major league baseball. As part of this new effort, we held events at five college campuses in search of the ultimate tailgaters and provided them with a collection of co-branded collegiate tailgating products offering real brands for real fans.

Growth also came from our close baseball business and it should be noted that nearly 50% of the players in the current world series are using Rawlings gloves including Albert Pujols, Yadier Molina, Chris Carpenter from the Cardinals; Michael Young, David Murphy and Adrián Beltré from the Texas Rangers. Within our Branded Consumables segment, our growth was driven by our Safety and Security and Home and Family businesses. Home and Family as you recall was with the Mapa Spontex business, until we changed its name earlier this year.

We experienced continuing strong demand for First Alert CEO, combo alarms resulting from the January, 2011 California’s CL, Legislation and high selling for several of our new products such as our line of web-enabled family security cameras. Additionally, we held our third Annual Clean Out Your Garage Day event in September, which promoted sales of our Crawford branded garage organizational products. Before concluding comments on Branded Consumables, the First Alert team would consider me remiss, if I also didn’t remind you the chance for that in your smoke and CO detectors as we change to product and pullback next week.

Sales in our Jarden Consumer Solutions segment were down modestly overall this quarter, and we expect them to be essentially flat for 2011, although, our international business in Latin America and Canada delivered positive results in the quarter. New product rollouts such as the Oster personal blender and Mr. Coffee Power Serve have helped to offset what has been a sluggish year-to-date in the overall market for small appliances.

Additionally, the growth in our pet business has offset some lower margin fan and heater businesses that we exited, as they did not meet our strategic criteria for gross margin expansion.

Finally, on the commodity front, as you know we are always opportunistic in taking advantage of pullbacks in commodity pricing, this is those that we saw in September to lock in some of our costs by entering into more forward contracts. We have continued this practice but don’t expect to realize any benefits till some time in the middle of 2012, as historically it takes about, takes to run about during about six to nine month feel the impact of changes in commodities.

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

Martin E. Franklin

Thank you, Jim. I’d like to comment on the recent acceleration of our share repurchases. We continuously prioritize our uses of cash. We invest in our businesses and our brand equity and in innovative new products is always our first priority, providing our debt remains within our leverage ratio targets.

Excess cash can then be used to make value enhancing strategic acquisitions and share repurchases. Given the relatively low multiple at which Jarden currently trades compared to its peer group. We have been increasingly focused on share repurchases and have pulled back approximately 2.5 million shares so far this year.

In August 2011, having completed our prior $150 share repurchase program, our Board of Directors approved a new share repurchase program for up to $500 million of common stock, we’re approximately 20% of our equity market cap at that time.

This is in line with our commitment to maximizing value for our shareholders over the long-term. Our success this quarter allowed us to completed Jarden’s first decade on a high note. A decade of delivering outstanding service to our customers, strong value propositions to our consumers and consistent returns for our shareholders.

Operator, I'd now like open the call to questions. Thank you very much.

Question-and-Answer Session

Operator

(Operator Instructions) We’ll go first the Charles Strauzer with CJS Securities

Charles Strauzer – CJS Securities

Good evening.

James E. Lillie

Hey, Charlie

Charles Strauzer – CJS Securities

Hey, just a quick question Jim or Martin, I’m not sure who want to answers this, but there have been obviously some talk about movement in which a tie with the management team there, can you may be explain a little bit on that?

James E. Lillie

Sure, as you know we put Robert Marcovitch in charge of the common business about 60 days ago. Robert and his senior team have been looking at looking at Coleman on a global basis, looking at where our customers are, and how we need to be able to respond to a growing global presence and out of the discussion came a decision to invest in a facility in the Denver area that puts us closer to an international airport, puts us closer to people to work in the outdoor industries in our core consumer group and we think it’s a move that is going to kind of reinvigorate Coleman and put us on its next leg of growth over the next 10 years.

Charles Strauzer – CJS Securities

Great, thanks so much. And then with all the repatriations (inaudible) that you had mentioned as well, are there potential tax benefits that you are exploring that maybe bringing more jobs back into the U.S. that you can take advantage of?

Ian G. H. Ashken

And Charlie you broke up just a little bit, please repeat that?

Charles Strauzer – CJS Securities

As you repatriate some jobs back to the U.S., are you able to take advantage of any tax benefits or do you see any tax benefits coming on horizon maybe with some of the potential legislation out there?

Ian G. H. Ashken

Yeah we’re working with local communities in areas where we think there is an opportunity to repatriate products and obviously we are doing with an eye towards the bottom line, including the tax impacts of any of those decisions. And I think any changes that we will make are going to continue to evolve over the next three to five years.

Charles Strauzer – CJS Securities

Got it, great. And then just lastly just when you look at, you know kind of the sell through in the current quarter you are in, are anything that kind of standing out good or bad that you can highlight?

Ian G. H. Ashken

It’s pretty early in the quarter. I know that Columbus weekend was pretty strong for ski sales and I think with the weather turning Denver getting about 12 inches of snow and New England getting snow this weekend it’s only going to support that kind of initiative.

Charles Strauzer – CJS Securities

Okay. Thank you very much.

Ian G. H. Ashken

Thanks Charlie.

Operator

And moving on to Bill Chappell with Suntrust.

Ian G. H. Ashken

Hi, Bill.

William Chappell – Suntrust Robinson Humphrey

Good afternoon. Can you talk a little bit more about on the consumer solutions side, just kind of the growth in the quarter and flat for the full year, I mean is that tougher comps or is that retailers just being more wary going to the holiday season or is it seeing anything on sell-through because I know you got a fair amount of new products and big push there and just trying to understand whether you see reacceleration in growth anytime soon or if that should be the norm?

Ian G. H. Ashken

The good news is we’re outperforming the category, but the category itself has been reasonably sluggish this year, it’s not a tough comp. That being said the load heading into the fourth quarter is certainly in line with our plan, and so we expect to see at least a flat year for the Consumer Solutions business, certainly a lot will tell based on Black Friday and consumer attitudes at that time.

William Chappell – Suntrust Robinson Humphrey

Just a followup on that, I mean as I look to longer 3% to 5% organic growth, is the best way to look that that the outdoor business is going to continue to drive that and be at the high end and then everything else will follow or can we see the consumer business get to that 3% growth next year.

Ian G. H. Ashken

We’re starting the budget discussions right now, but the early indications are across all of Jarden businesses that we’re looking at 3% to 5% growth.

William Chappell – Suntrust Robinson Humphrey

Okay and then just trying to understand on the ski business, can you just maybe break out what that – how big of a driver that is in the back half versus the rest of the outdoor business driving growth?

James E. Lillie

Well, I think if you look at the performance in September naturally you’re evolving out of the camping business, you’re evolving out of the fishing business, ski takes, our winter sports take a bigger chunk of the overall outdoor solutions business. Most of the pull forward of revenue that I discussed, primarily was driven by the winter sports business, but also all of the businesses had good performance remembering Marmot is a brand that we’re looking to double the size of that business over the next few years. So, they’ve been continuing to perform as well.

William Chappell – Suntrust Robinson Humphrey

Okay and just last one, just kind of again looking forward to 2012, are you still comfortable with 50 basis points of gross margin improvement is doable with kind of commodities pulling back and the pricing actions you’re taking?

Ian G. H. Ashken

We feel good about being able to grow the topline 3% to 5% expand the gross margins 50 basis points and deliver our profitability in my own consensus for next year.

William Chappell – Suntrust Robinson Humphrey

Perfect, thanks so much.

Operator

Greg Badishkanian with Citi has the next question.

Gregory Badishkanian – Citi

Thanks and good job in the quarter guys. Just a few quick questions. So, the $35 million that you pulled into third quarter plus maybe the currency may be give like an $0.08 benefit in the third quarter and that will negatively impact the fourth quarter. So, kind of just shifting around there is that how to think about it?

Ian G. H. Ashken

Yeah, I think the way I would look at it is I think you are directionally correct and I think we are very comfortable with the consensus numbers that are out there right now for the full year.

Gregory Badishkanian – Citi

Right, right. Okay. That is helpful and in terms of the appliance business, why do you it’s not doing well and do you think that could turn around next year?

Ian G. H. Ashken

I just think things are cycles and the overall category amongst our competition had a good year last year and is slightly off this year. But again I think that will be at least flat on a full year basis and we will outperform the category because we’ve invested in new products and I think you will see that innovation next year and the year after that as you see the things that are going to roll off of our innovation pipeline.

Gregory Badishkanian – Citi

Okay. And in terms of PLS, the stock market declines did you notice anything change when you saw the stock market going down or I mean it sounds like things held up really well?

James E. Lillie

I don’t think this is not – I don’t think some average consumer in Ohio really cares what happens to the stock market when they walk into Wal-Mart to buy whatever they need to buy? I just don’t think at the end of the day, what you’re is, this is a more macro point. And we’re not the only company I think that’s experiencing this. The (inaudible) is not lining up with what’s actually happening on the ground. And what we’ve seen is performance overall at retail is somewhat healthier than people sitting looking at their computer screens, they think in terms of settlement and that’s just really how it is.

Gregory Badishkanian – Citi

Okay. That’s great. Keep up your good work guys.

James E. Lillie

Thanks, Greg.

Ian G. H. Ashken

Thanks, Greg.

Operator

And we will now hear from Lauren Lieberman with Barclays Capital.

Lauren Lieberman – Barclays Capital

Thanks, hi guys. Just a first question, was it the – the pull forward in the quarter was it mostly in outdoor, because I wasn’t quite clear on that?

Ian G. H. Ashken

Primarily outdoor.

Lauren Lieberman – Barclays Capital

Okay and then so if we go back to branded consumables that the organic number there was the biggest I think we’ve ever seen. So, if there is no pull forward there and the comp was a little bit easier, but what’s going on there, is it incremental distribution should we assume that business slow significantly, or there were some onetime benefits in the quarter, or is there something that’s going to flow through in terms of distribution.

Ian G. H. Ashken

We own the Mapa business now for 18 months or so and so I think you’re seeing the benefits of the integration, the benefits of the investment and the incremental distribution that we’ve been picking up kind of around the world.

Lauren Lieberman – Barclays Capital

Okay, so were there more kind of new accounts or point of distribution this quarter than we should think about next quarter or…

Ian G. H. Ashken

I would think of, you know we’ve talked about the baby business being a little micro for a second, but we brought in somebody at the beginning of the year, who has built a team, we’re seeing them penetrate new channels, we’re getting revenue synergies out of the initiatives that we’ve implemented since we acquired Mapa. And so I think you will continue to see that evolve both (inaudible) on a global basis.

Lauren Lieberman – Barclays Capital

Okay. And then similarly actually the contribution, I guess it would be from Quickie, also looks like it accelerated, or this is a bit stronger, maybe just a bit stronger so then I would have expected, so is that – is there a progress there in terms of a momentum on what you guys have started to do with that business under your ownership?

Ian G. H. Ashken

I would say that Quickie performed up to expectations, but it didn’t drive that incremental growth that you are seeing on an organic basis. They’ve continued to make good progress, but remember we bought them in December of last year, so we are really just starting to see kind of the benefits of our influence as we move into new selling seasons with them. I think we can see it more so next year than anything dramatic this year.

Lauren Lieberman – Barclays Capital

Okay. And then I guess just finally the (inaudible) Jim, one thing I would recommend, you need to go little slower when you go to the commentary because you have a lot of detail, but it is tough to kind of get it all. So, the addressing Consumer Solutions that was in the pet business?

James E. Lillie

No, the exit in the Consumer Solutions was in the heat – OPT heater business.

Lauren Lieberman – Barclays Capital

Sorry, what does OPT stand for?

Ian G. H. Ashken

Operating price, sorry, part of the strategy, obviously, as we look to gross margin we will look to exit businesses that don’t meet our gross margin standards. And I think falling on an earlier question that’s one of the reasons why although, Consumer Solutions outperformed the category, we haven’t chased revenue into some maybe areas where traditionally the business would have done because of our focus on gross margin. So in ’11 we are less focused on the topline than we are on the gross margin and as you could see their margins went up nicely in the quarter.

Lauren Lieberman – Barclays Capital

Okay. And then just a last thing on that, did the impact on exit, should it be a little bigger in the fourth quarter because I'm guessing the heaters is pretty seasonal business, so Q4 maybe is the biggest selling?

Ian G. H. Ashken

I don’t think it should be bigger in the fourth quarter, no.

Lauren Lieberman – Barclays Capital

Okay. Great, thank you.

Operator

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

Jason Gere – RBC Capital Markets

Thanks. I guess, I just want to add on to Lauren’s comments, I guess the first one, when I'm thinking about the segments into the fourth quarter, I know your full year guidance for organic sales is three, but that would still imply something in that two to three range. So if Consumer Solutions, and tell me if my math is wrong, but Consumer Solutions is flat, Branded Consumables, should that be somewhere in that mid single-digit range or does it – is really to own this really again on Outdoor Solutions, even with some of the pull force. I guess, I was just wondering if you just maybe put it to rest and just kind of clarify that, and then I’ve a couple of other questions. Thanks.

Ian G. H. Ashken

Yeah, I think you’re right. I mean Outdoor Solutions obviously, let the charge, after the first five months of this year we expect them to continue to do that. Consumer Solutions as Jim already said will be flattish. Branded will be up too and we look out our – you could see from the slides that we filed, our year-to-date is 3.3% organic growth now obviously you can’t just add on Q4 because it’s a weighted average of the different quarters.

But looking at where we are, which is the end of October, we feel comfortable that we’ll be above the 3%, as again Jim said in the prepared comments. We’ve stayed within 3% to 5% for the last consecutive five quarters on a trailing 12-month basis. We’ve been up organically for the last eight quarters in a pretty tough macro environment. So I think that the strength of the business has shown and we fully intend to stay there within that 3% to 5%, albeit at the lower end next quarter.

Jason Gere – RBC Capital Markets

Okay. And just I mean, I guess say one thing of Outdoor Solutions, I think you are going up against the toughest comp, I think I’ve ever seen in my life, like 16%. So can you just paint kind of the bull and bear case just on that fourth quarter especially with the portfolio, it would sound like our Outdoor Solutions would have to grow mid single-digits. And Jim thanks for warning me about the snow this weekend. But I guess I’m just trying to kind of gauge that a little bit, just seems like there is a lot more pressure on that business to deliver. I was just wondering if you could just flush that out?

Martin E. Franklin

I’m not sure the number, I can’t remember our organic number for last year was good, but I don’t know if it was 16% apples-to-apples, I’ve to check that, I just don’t, just sounds high. But the reality is, you’ve heard earlier we’re seeing that momentum it’s in the business continuing. And I think what you really need to know, because at the end of the day we don’t tie to macro project each quarter for each division. What we’ll do is we feel comfortable at this point that we’ll have over 3% organic for the full year. You know we are year-to-date, we’re up to 3.3%. And I think we just leave it that if we want to go offline so try and understand the major trends, we’re happy to do that.

Jason Gere – RBC Capital Markets

No, no, that’s fine.

Ian G. H. Ashken

I don’t think there is no talking internally here about this being the most difficult comp that we’ve ever come across. There is something missing in, how you’re looking at it.

Jason Gere – RBC Capital Markets

Okay, I just remember fourth quarter of last year being phenomenal with the ski season, but yeah, we could talk about that offline. Just in terms of the share buyback, I guess I thought it would have been a little more aggressive in the quarter. And I guess I’m just trying to think of how you’re thinking about that $500 million. I know you guys typically like to put the cash flow towards good bolt-ons like the Quickies that are out there. But I was just wondering why the share count, I mean it didn’t seem to change that much and I guess maybe I thought it would have.

Ian G. H. Ashken

Okay, I said two things. First of all, what we are allowed to do, you have to remember we get in a blackout period, we really only have 45 days to be in the market in a buyout – in a buyback program in any quarter. Then, within each day you have limitations about what potential volume it can be, and if you go and work the math back, we pretty much did our allocations of what we were allowed to do within the rules in the time period that we had.

As to how we look overall at the buyback authorization, the Board of Directors provided, I think we’ve talked about this openly that we see that as, we didn’t want to sort of get a one year buyback authorization, we look at this as part of a three year program, and you should sort of look at it as being spread across that time period.

Jason Gere – RBC Capital Markets

Okay. That’s fair enough. And then just a last one, this is kind of more housekeeping. Just based on, and I know it’s such a fluid situation. For the fourth quarter, you are looking at FX negative 1.5, as we look at 2012, and I know you are comfortable with kind of where the sales expectations are out there, and some people have adjusted their models, other haven’t. So I guess should we be thinking FX more in that negative 2 range next year, is that kind of a preliminary way of thinking about it?

Ian G. H. Ashken

We haven’t finished our work yet. So I don’t know. Obviously, the number we give are organic number, which are excluding foreign exchange one way or the other. But I think where the Street is in terms of the – consensus in terms of sales looks fine. So how much of that you put in foreign exchanges, you are probably right, we just haven’t finished the work yet.

Jason Gere – RBC Capital Markets

Okay. Great. Thanks a lot guys.

Ian G. H. Ashken

Thanks for your question.

Operator

Our next question comes from Jon Andersen with William Blair.

Jon Andersen – William Blair & Company

Hi, good afternoon, guys. Congrats on a good quarter. I’m just wondering if you could comment broadly on some of the differences you might be seeing in category growth rates or changes in growth rates across your major regions, the U.S., Europe, developing Latin America, et cetera.

James E. Lillie

I mean, one of the things that’s just interesting to keep in mind is the vast majority of our customers don’t report data to IRI or Nielsen. And so I think people get kind of fix headed on what several large retailers do or don’t do on a given day and what their same-store sales are. But we’ve seen expansion of our business with retailers. We see the mom-and-pop channels doing very well for us. We see the Specialty Sporting Goods channels obviously doing very well for us. And as Martin said in his comments, I think when you live in the tri-state area, you hear a lot of news about what’s going on in Europe and the U.S. But I think our consumers are looking for good value propositions, innovative products and we’re seeing that kind of lift across all of our categories on a pretty consistent basis, with obviously, when there is snow and weather supporting our product lines getting even stronger lift.

Ian G. H. Ashken

And look, from an international basis, I'm sure it’s not surprised you. Europe is more anemic and Latin America has continued to have fairly healthy growth during the course of the year. So and that really follows the patterns that you’re seeing out there.

James E. Lillie

And Japan is rebounding well.

Ian G. H. Ashken

Yeah.

Jon Andersen – William Blair & Company

Okay. That’s helpful. In terms of commodity cost inflation, Jim, you kind of sounded maybe from your comments that commodity cost inflation may have kind of peaked at least on a year-over-year basis in the third quarter and maybe some moderation in the fourth quarter. Is that, did I hear that right and would that create some upside potential for margins?

James E. Lillie

Look, I think the way you need to look it is, when we entered 2011, I think I’ve said this on the call. We budgeted about $25 million increase and we’re in line with that budget expectation this year. I think we’ll be there by $1 million, give or take, at the end of the year. And as we look out into 2012 as Ian said, we’re still building the budget. We’re seeing increases in the $15 million to $20 million range, so from a positive note, it’s not the $25 million we saw on a ’11, but it’s still going to be an increase on a year-over-year basis, but a very manageable one at that that will get through pricing and new sku introductions and I’ll focus on improving our gross margins across other parts of the platform.

Jon Andersen – William Blair & Company

Right, thanks. Just one housekeeping, Ian do you have a full year, an update on the full year interest expense, thanks.

Ian G. H. Ashken

I think if you use the $43 million in Q3 for Q4 that’s probably a good number.

Jon Andersen – William Blair & Company

Perfect. Thanks guys’. Good luck.

James E. Lillie

Thank you.

Ian G. H. Ashken

Thank you.

Operator

Reza Vahabzadeh with Barclays Capital has the next question.

Reza Vahabzadeh – Barclays Capital

Good afternoon.

Ian G. H. Ashken

Hi, how are you?

Reza Vahabzadeh – Barclays Capital

Good, did cost inflation slow for you in the third quarter on a year-over-year basis from preceding quarters.

Ian G. H. Ashken

The cost inflation that we experience in products from the third quarter was cost we received six, nine months ago and so we don’t see instantaneous relief nor instantaneous pressure and I think that if you go back to my comment to John a moment ago about how we’re seeing $15 million to $ 20 million of cost in commodities next year instead of $25 million to $30 million like we saw this year, we’re seeing relatively less pressure, we’re still seeing cost inflation.

Reza Vahabzadeh – Barclays Capital

Right and so you’re going to see the benefit of the lower cost inflation in today’s stock market sometime in the first or second quarter 2012?

Ian G. H. Ashken

I would say later in the second quarter.

Reza Vahabzadeh – Barclays Capital

Second quarter, got it.

Ian G. H. Ashken

Remember the first quarter is the seasonally slowest quarter for us.

Reza Vahabzadeh – Barclays Capital

Right.

Ian G. H. Ashken

So on a weighted basis there’s not a lot of activity in Q1 and Q2?

Reza Vahabzadeh – Barclays Capital

And away from input costs, are sourcing costs in China continuing to rise at the same rate as in preceding quarters?

Martin E. Franklin

Yes.

Ian G. H. Ashken

Yeah, you are seeing, you know, as martin mentioned, we are seeing 15% to 20% wage in cost increases with Chinese labor, you are seeing global commodity costs, so we are trying to use to have different costs then you would see in the U.S. I think you are seeing parity on a global basis. And then you are just seeing just the cost of transportation that would be reasonably volatile on a quarter-to-quarter basis.

Reza Vahabzadeh – Barclays Capital

Got it. And then away from that, did your POS trends remain relatively steady during the third quarter, was there any significant movements strengthening or weakening that you saw?

Ian G. H. Ashken

I think as you’ve heard us talk about, we’ve always expected a U shaped recovery not a V shaped recovery. So you are just seeing a gradual improvement on a month-by-month basis.

Reza Vahabzadeh – Barclays Capital

Got it. Thank you.

Ian G. H. Ashken

Thanks, Reza.

Operator

Moving to Ann Gilpin with Jeffries and Company.

Ian G. H. Ashken

Hi, Ann.

Ann Gilpin – Jeffries and Company

Hi, how are you?

Ian G. H. Ashken

Good.

Ann Gilpin – Jeffries and Company

Question on the fishing and canning businesses, last quarter obviously with some of the weather issues there were some less sales there I think to the tune of $40 million or so, did some of that come back in Q3? And can you kind of characterize that in terms of your organic growth in the quarter? And also can you comment on the gross margin, I know that was kind of higher margin and when you did some of the gross margin expansion last quarter, did that fill some of the expansion in this quarter or was that kind of fairly broad based across your segments?

Ian G. H. Ashken

I mean, the simple way to look at is that the home canning or the fresh preserving business did not bounce back, you saw the crops dying on the vein, and so that business didn’t recover. And I would say the fishing business probably recovered 70% or 80% of what they lost in Q2. And also those being relative to high gross margin businesses, the branded and it had the benefit of a good home canning season would have seen a better overall economic performance in its results.

Ann Gilpin – Jeffries and Company

Got it. And then I just want to ask a follow-up to a comment you made in your prepared remarks about EBITDA margin expansion in 2012 and leveraging some of the brand spending. Can you maybe give us some more color on that, give us your kind of comfort level there, why organic sales growth will keep pace in gross margins can be leveraged, if you’re keeping your brand building spend sort of at a run rate for where you’ve been in 2011.

Martin E. Franklin

Yes, as you know, we have our targets are 3% to 5% organic growth, 50 basis points of gross margin improvement and to get to $5 a share in 2014, we need to see our EBITDA margins around 13.5% including corporate or 15% excluding corporate. And today we are approaching one way or the other around 12%. And that that should be in somewhat of a strategy in the sense that we take incremental dollars that we’ve improved and put them into new product, if you take Marmot for an example, I mean that business has been growing extremely strongly and yet you don’t see any expansion in EBITDA margins because it’s all being ploughed back into expanding the product line into these retail outlets that we’ve been opening including the one in, and marketing if you saw the (Inaudible) last year for Marmot.

So at some point we’re not going to be Amazon, it just continue to ignore the shorter term because we have that big skull of $5 a share in 2014, and we feel now that we are at a run rate where we can stop dropping some of the benefits of the things we’ve been doing to the bottom line and I hope you will see that in ’12.

Ann Gilpin – Jeffries and Company

Great. Thank you.

Operator

We’ll now hear from Karru Martinson with Deutsche Bank.

Karru Martinson – Deutsche Bank Securities Inc.

Good afternoon. I guess on that wane regarding Amazon, what are your goals here for Internet growth and e-commerce?

James E. Lillie

Well, it’s an interesting question. We spend a lot of time here talking about our e-commerce strategy. E-commerce falls into a number of different buckets, and it is, I would have to say, correct me if I’m wrong, guys, that it’s the fastest growing segment or channel of our retail sales and I’m sure we’re not unique in that regard.

So we spend a lot of time on this, it depends on the brand and depends on the segment. We spend different strategies with different parts of our business. Our goal obviously is to optimize for each one based on their requirement; for example, in some of our brands we’re creating direct platforms, in some we are working through partnerships, and others we’re just treating them as a third-party customer. So it’s really a multifaceted approach. What we have made over the last two years are the necessary investments on the IT front to be able to service those needs. So we’re not, I would say losing sales anywhere because we can’t do what we want to do strategically on e-commerce. But people like Amazon have been very fast growing customers, and we have not fallen down on their needs and their demand capabilities; in fact, we’re continuing to grow as their platforms grow.

So, and that also goes for major retailers, we deal with the major retailers who have online strategies and by the same token, we’re working very closely with them to maximize on our opportunity with them as well. So it is on the forefront of our strategic planning, it’s something that we’re not manage with each of our businesses present that’s the sort of strategic planning goals and forecast, if you like, these are the forefront of those conversions.

Karru Martinson – Deutsche Bank Securities Inc.

And from a big picture perspective, I mean is e-commerce today 5% of our business, 10%, is there kind of a number that you would guide us towards?

James E. Lillie

No, much less than that today. But as Martin mentioned, it’s a very fast growing area. And we, as you look at these things, I mean at some point, the rules of thumb of that Canada should be above 10% of what your domestic sales are. And (inaudible) and there is no reason if you look at what’s out there that e-retailer shouldn’t be 10% of our sales and one, I suppose it’s not surprising is the interest for even in the, particularly the outdoor space and things like Coleman for people to buy tens and those sort of products over the Internet. So I think the breadth of what we offer is actually we’re kind of excited about that. But today, still small, but very fast growth.

Karru Martinson – Deutsche Bank Securities Inc.

Okay. And when you look at the retail locations with Marmots and growing, are there other brands where you would pursue that kind of a strategy and I guess in Marmot itself, what’s the end target of number of locations and growth opportunities?

James E. Lillie

Yeah, I mean there are other brands, if you look in the Seattle area, there is actually a K2 concept store that’s opened on a seasonal basis, I believe it’s opening this week. There is one kind of retail strategy we have Rawlings outlet stores, we have Coleman outlet stores, and (inaudible) stores that are in urban locations as well as airport locations. And so what we see an opportunity to kind of accelerate growth. We’re looking at expansion, but I don’t want be premature and announce a plan before we’ve actually solidified what that plan is. But it certainly is something very high in our list along the lines of what we’re looking at on the eTailor side of things.

Karru Martinson – Deutsche Bank Securities Inc.

Okay. And just lastly, are there any changes in plans or thoughts regarding the Rossignol brand?

Ian G. H. Ashken

Well, Rossignol brand is an investment that we have, I think that people know that and we’ve got no current plans to change our current position there. It’s a business that has turned around. It’s making money today. And we’re quite happy with that equity investment, Macquarie is the leach holder in that company and we’ll be good partners to them and, but they’ll take the lead on what will happen with that investment.

Karru Martinson – Deutsche Bank Securities Inc.

Thank you very much guys. Appreciate it.

James E. Lillie

Thank you.

Operator

And ladies and gentlemen, we have time for one additional question, which will come from [Paul Cimino] with JPMorgan.

Unidentified Analyst

Hi, guys. Thanks for taking my call. I just have one question for you. Can you talk about maybe what you’re seeing in terms of acquisition opportunities or if you’re looking to build your business through acquisitions at all? I think you mentioned you’re looking for strategic opportunities. But any color you could provide there will be great. Thank you.

James E. Lillie

Yeah, I mean thank you. Look, obviously this company has been built from a series of acquisitions over the last 10 years. What we’ve said consistently and it continues to be true is, we’re opportunistic when it comes to acquisitions, it’s not a policy or a program, we don’t allocate capital to it at the beginning of the year or anything like that. I think overall, we’ve seen valuations to be a little bit out of range of what we think is appropriate in the current environment, which is why we’ve done very little. We continue to look at specific opportunities that are good tuck-ins or complements to our existing portfolio. We haven’t really looked hard at any significant new platforms, and more importantly I don’t think we’ve seen anything more attractive to buy than our own stock, which is why we’ve been buying it.

So, I don’t think we’ve done any acquisitions in 2011 of any size, we haven’t done any. So I think if we did anything, it’s not going to be material in terms of size. So that probably answers the question. But again, it’s all about the environment, if the environment changes and opportunities make good short term and long term sense for company arise, we’re not afraid to move on, we were well positioned to, but nothing that’s on our priority list right now.

Unidentified Analyst

Okay, great. Thanks guys.

James E. Lillie

Thank you. I think with that – that was the last question. So thank you very much everyone for your time, and we look forward to reporting to you at our trial year end. Take care. Bye-bye.

Operator

And again, ladies and gentlemen, that does conclude our conference call for today. You may all disconnect, and we thank you for your participation.

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