Executives
Caren Barbara - IR, Financial Dynamics
Martin E. Franklin - Chairman and CEO
Ian G. H. Ashken - Vice Chairman and CFO
James E. Lillie - President and COO
Analysts
Charles Strauzer - CJS Securities
William Chappell - SunTrust Robinson Humphrey
Lauren Lieberman - Lehman Brothers
Christopher Agnew - Goldman Sachs
Reza Vahabzadeh - Lehman Brothers
Alvin Concepcion - Citigroup
Joseph Altobello - Oppenheimer & Co.
Jon Andersen - William Blair & Company LLC
Jarden Corporation (JAH) Q1 FY08 Earnings Call May 8, 2008 9:45 AM ET
Operator
Good morning, ladies and gentlemen, and welcome to Jarden Corporation's conference call. This morning's call will begin with management making some formal remarks. When they have concluded, a question-and-answer period will follow. [Operator Instructions].
I will now turn the call over to Caren Barbara of FD.
Caren Barbara - Investor Relations, Financial Dynamics
Good morning, and thank you for joining us. This morning's call to discuss Jarden's first quarter 2008 financial results will begin with management making some formal remarks. When they have concluded, a question-and-answer period will follow. The operator will provide instructions on the procedure again at that time.
In accordance with regulation FD, or Fair Disclosure, we will be webcasting this conference call. You can access the webcast at www.jarden.com through May 22, 2008. Any redistribution, retransmission or rebroadcast of this call in any form without the express written consent of Jarden is strictly prohibited.
Please note that on this call the Company may discuss events or results that have not occurred yet or have not been realized, commonly referred to as forward-looking statements. Such discussion and statements will often contain words such as expect, anticipate, believe, intend, plan, and estimate. These forward-looking statements are within the meaning of the Federal Securities laws and are intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995, including statements regarding the Company's adjusted earnings per share, repurchase of shares of common stock from time to time under the Company's stock repurchase program, the outlook for the Company's markets and the demand for the products, estimated sales, segment earnings, earnings per share, cash flow from operations, future revenues and gross margin requirement and expansion, organic growth, the amount of reorganization changes, the availability of NOLs, the achievements of financial and strategic objectives, the success of new product introductions, growth and costs and expenses, and the impact of acquisitions, divestitures, restructuring, securities offerings, and other unusual items, including Jarden's ability to integrate and obtain the anticipated results and synergies from its acquisitions, including the Pure Fishing and K2 acquisitions.
These projections and statements are based on Management's estimates and assumptions with respect to future events and financial performance and are believed to be reasonable, through and inherently difficult... though our inherently difficult to predict. Actual results may differ from forward-looking statements will be dependent upon various factors and risks, including those described from time to time in the Company's filings with the Securities and Exchange Commission, including the Company's Form 10-K and recent Form 10-Q.
The content of this webcast contains time-sensitive information that is accurate only as of this broadcast, May 8, 2008. The Company undertakes no obligation to make any revisions to the statements contained in our remarks, or to update them to reflect events or circumstances occurring after this conference call.
And now I'd like to turn the call over to Martin Franklin, Chairman and Chief Executive Officer. Martin, please go ahead.
Martin E. Franklin - Chairman and Chief Executive Officer
Thank you very much, and good morning. Good morning, ladies and gentlemen. With me on the call today is Ian Ashken, our Vice Chairman and Chief Financial Officer, who will review the financial results and Jim Lillie, our President and Chief Operating Officer. Who will review some of our ongoing operational and integration initiatives.
As you would have seen from our press release this morning, we delivered strong financial performance for the first quarter of 2008. While Q1 is our seasonally smallest quarter, we were able to execute against our 2008 plan and carried positive momentum in our Outdoor Solution segment into Q2, as well as prepare for our anticipated second half growth in our other primary business segments. We were especially pleased with the performance of our Outdoor Solution segment, which posted 3.6% organic growth for the quarter with four of the five divisions contributing to that organic growth.
Jarden Outdoor Solution is one of the largest outdoor equipment companies in the world, with arguably the greatest collection of active lifestyle brands ever assembled in one company. Jim will cover our integration activities in his comments, but our overall three year development program for this segment is on track.
We anticipate that our consumer solutions and branded consumables business will be down in the first half of the year, but based upon the sell-in for the seasonally more significant back half of year, we still anticipate that both the segments will show organic growth in the second half and for the full year of 2008. Hopefully, many of you have had the opportunity... had the opportunity to attend the Analyst and Investor Day we held on March 4th in New York or listen to the webcast of the event. At this meeting, we covered our strategy for each of the primary businesses, the back ground and philosophy behind Jarden's D&A, the operational tools we utilized to drive growth in margins, as well as reconfirming our long-term financial goals.
Since 2001, when the Ian and I assume the management leadership with Jarden, the blend of characteristics that makes up Jarden's D&A has fostered an entrepreneurial culture with strong operating disciplines. As evidence of the continued success we are achieving I'm particularly proud that Jarden was named to this year's Fortune 500 list for the first time.
In less than seven years we've growing Jarden into one of the leading global consumer products companies servicing diversified and defensible categories with market leading brands. We intend to maintain this position by continuing to improve our operation even during challenging economics times and focusing on our three core assets; our people, our products, and our brands. We'll be happy to answer any questions at the end of our prepared remarks.
I will now turn the call over to Ian to review our Q1 financial performance, and then ask Jim to provide additional inside into our operational execution. Ian?
Ian G. H. Ashken - Vice Chairman and Chief Financial Officer
Thank you, Martin. Jarden reported net sales for the first quarter increased 48% to $1, 217 million compared to $821 million for the same quarter last year. This growth was driven primarily by our acquisitions of K2 and Pure Fishing during 2007. On a pro forma basis in 2007, Q1 sales were $1,267 million. The overall decline was primarily driven by the macro weakness across most of our categories.
This was particularly magnified with Jarden consumer solutions and branded consumables, where the seasonal slowness did not allow our own relatively good performance within the categories we serve to offset overall market decline. This was in contrast of the organic growth of outdoor solutions whereas sales increases in the more significant seasonal quarter, particularly within the categories served by our Coleman, Fishing, Marmot, Ski and Rawlings product lines, allowed us to outperform the categories we served.
As Martin mentioned the decline of JCS and branded consumables were expected and while relatively large in percentage terms and not particularly meaningful in absolute dollar terms. We continue to anticipate that both these segments will organically grow in the second half and for the full year 2008. Our press release highlights two major categories of adjustments between the GAAP and adjusted results. The first is reorganization expenses, which totaled $10.7 million in the quarter, primarily related to the K2 integration.
These costs were incurred in order to realize longer-term synergies associated with aligning the acquired administrative and manufacturing platforms within our existing businesses. The major component of the $9.1 million reorganization expense in Q1 2007 related to JCS. This reorganization is now being completed and there were no reported reorganization expenses in Jarden consumer solutions to-date in 2008.
The second category of adjustments is the amortization of the client intangibles. These non-cash charges of $4 million and $1.7 million for 2008 and 2007 respectively represent the amortization through the P&L for intangible asset, such as customer relations, trade names and patents, directly resulting from acquisitions.
As you can see from our press release this morning, our adjusted earnings for 2007 include the FAS 123R stock-based compensation expense to conform to our 2008 and ongoing presentation. Included in SG&A the FAS 123R is $6 million for 2008 and $6.8 million for 2007. Gross margin improved to 27% in Q1 2008 versus 24.6% in Q1 2007. The improvement is primarily due to higher overall gross margins from acquired businesses and benefits from our reorganization and educational programs, which helped partially mitigate the rising cost of commodities that have continued from 2007 into 2008.
We expect rising commodity cost to continue to be a negative factor throughout 2008 and we will continue to attempt to mitigate their financial impact by managing our business and inventories carefully. The opportunistic repurchase on the supply chain side and continuing to identify additional cost savings where ever practical.
First quarter 2008, SG&A expense increased to 21% in the quarter from 80% in Q1 '07, primarily due to the high administrative costs of K2 and Pure Fishing. During the quarter, we maintained our controls over SG&A spend to reflect the recessionary macroeconomic environment, while continuing to invest in the developments of new products and the marketing support of our brand.
Adjusted EBITDA or segment earnings increased from $68.3 million to $97.1 million primarily due to the acquisitions. Depreciation, amortization for the quarter was approximately $29 million compared to approximately $80 million in the same quarter last year. Capital expenditures for the quarter were $22 million compared to $50 million in the same quarter last year.
The increased in D&A and CapEx is primarily a result of the K2 and Pure Fishing acquisition. Net interest expense for the quarter was approximately $46 million, offsetting an average effective interest rate of approximately 6.7% for the quarter. Interest expense increased $21 million for the quarter compared to the same period in '07, due to the 2007 acquisitions, which closed during the second and third quarter of 2007.
However, falling LIBOR rates during the quarter and better than budgeted cash flow help reduce our interest expense in the period. Our effective tax rates of 76% for the first quarter of 2008 continues at the same level as '07. As previously discussed, we estimated for the foreseeable future, we pay about 50% of our effective book tax in cash as a result of the significant domestic NOLs that exists within the group. Adjusted EPS for the quarter was $0.22 compared to $0.24 in Q1 '07.
Cash flow from operations in Q1 2008 was the use of the cash of $32 million compared to a use of cash of $56 million in the same quarter of '07. This improves cash performance came on the back of Jarden's strong cash flow performance in Q4 of 2007 or we produced over $280 million of positive cash flow from operations. The impact of the K2 transaction is to flatten out Jarden's cash flow for the first three quarters while leaving Q4 is the primary cash flow producing quarter, as it had been for the last three years.
Net current assets increased slightly from 12/31/07 to 03/31/08, with the $1.3 billion in the net current assets at the end of the March. At March 31, 2008 our net indebtedness was approximately $2.6 billion. For bank covenant purposes our debt-to- EBITDA ratio at the end of Q1 2008 was approximately 3.8 times. The calculation of this ratio is outlined in the credit facility, but the main difference in the bank covenant ratio and the straight net debt to adjusted EBITDA ratio, as the banks do not consider our securitization facility to be indebtedness and the bank agreement uses a pro forma adjusted EBITDA.
At the end of Q1, our liquidity position remains strong, and we have available capacity under our existing credit facilities to fund opportunity that may materialize as a result of the impact to the tougher economic conditions on potential tuck-in acquisitions or other investment opportunity. On March 31, 2008 our DSO was 69 days versus 55 days in 2007. This increases primarily due to the receivable turns associated with acquired businesses of K2 and Pure Fishing particularly the Ski business.
Within the legacy Jarden businesses, DSO actually improved by approximately two days in the year-over-year period. Additionally our accounts payable date increased to 41 days versus 38 days in the prior year, as we continue to expand terms and leverage our financial strength with our suppliers. Inventory increased from the seasonally low level of December 31st by $108 million primarily due to the impact of seasonal inventory build at outdoor solutions particularly the Coleman, Fishing, and team sports division.
I would now like to hand over to Jim, and we will be happy to answer any questions during the Q&A session at the end. Jim?
James E. Lillie - President and Chief Operating Officer
Thank you, Ian. Today I'm going to discuss some of the highlights of our operational execution so far in 2008. As I detailed that our Analyst and Investor Day in March, we've made a lot of progress in integrating the acquisition of K2 under the Jarden umbrella since completing the acquisition last August. As Martin mentioned Jarden outdoor solutions have made significant strides to become one of the leading outdoor companies in the world. Creating JOS we started with a vision or creating a more streamlined platform that would yield significant cost savings and synergies provide greater efficiencies in the purchasing of materials, implement lean manufacturing initiatives, and be able to leverage existing distribution channels to produce revenue growth.
During Q1, we continue to leverage our new scale to mitigate the significant cost increases related to the rise in the price of oil-based materials and distribution cost escalation. New agreements in domestic trucking, as well as ocean freight transit, which we just executed at the beginning of May should help, should continue to help us offset the macro cost headwinds. Additionally, we are seeing savings and other areas of our business including travel and administrative costs, such our telecom expenses.
In short, our strategy of leveraging our scale and swiftly integrating acquisitions coupled with our culture of continuous process improvement is yielding benefits for each of our business segments. We continue to leverage sale teams in our consolidating when we believe it's appropriate to do so, certain sales marketing, operations, and administrative functions. Additionally, we have strategically exited certain unprofitable product lines and started the rationalization of our Asian manufacturing platforms to reflect the current mix of our outdoor business. These initiatives should enable us to bring our overall cost structure down in the outdoor solution segment in 2008 versus the previous year.
As we previously disclosed, we believe the combination of the '07 acquisitions into our outdoor solution segment would create savings of between $25 million to $50 million within the 12 to 24 month period following the close of the K2 acquisition. Based on our current annualized run rate of more than $32 million of savings, we now believe that we would exceed the $50 million of savings within the 24 months period. However, we expect that most of these savings will offset the inflationary cost increases in the short term rather than grow overall margins.
Turning to an overview of our entire business, consistent with what we have stated in the past, we are not immune to rising global costs, but we do believe that we have a strategic advantage with our size and our processes to more effectively manage these variables in an inflationary environment. Key commodities such as oil-based materials, as well as certain metals continue to rise. As you may recall, we said that last year on our Q2 2007 conference call, that changes in these commodities have a much more meaningful impact on us than the labor cost increases in China or changes in VAT tax rebates.
As you know, we believe Jarden has a significant opportunity to expand internationally. The weakness of the U.S dollar while impacting our cost of goods creates an export opportunity for Jarden and increases the dollar denominated profitability of our overseas operations. But, we took a relatively conservative view on the trends and overall costs as we prepared our '08, budgets.
We continue to be opportunistic about the ways to further reduce our costs. I have focused in my comments and the actions we are taking to improve gross margins through synergies and cost containment. But, the other major macro challenge facing our business is the stagflationary environment where soft retail sales reduced retailers and suppliers ability to pass on cost increases and pricing. As highlighted by our approach in the second half of 2007, we remain focused on growing margins, as well as sales irrespective with the macro environment.
In conclusion, I am pleased with the continued integration of the '07 acquisitions and look forward to the ongoing execution of our integration plans. Relative to commodities, on a full year basis, we do not anticipate a significant change in the trends that we are seeing over the course of the last year and during the first part of 2008. We will continue to focus on taking additional costs out of our structure and our processes to help the businesses be in a position to benefit when the overall economy returns to growth.
With that I will turn it back over to Martin.
Martin E. Franklin - Chairman and Chief Executive Officer
I would like to now open the call to any questions. Thank you. Operator?
Question And Answer
Operator
Thank you. [Operator Instructions]. Our first question comes from Charles Strauzer with CJS Securities. Please go ahead.
Charles Strauzer - CJS Securities
Can you hear me, okay?
Martin E. Franklin - Chairman and Chief Executive Officer
Yes.
Charles Strauzer - CJS Securities
Okay, great. Just a have a couple of quick questions maybe Jim this is for you on the... when you look at the segment operating margins consumer operating margins were lot better than I was looking for and outdoors are quite a little bit lighter. Can you get a little bit more color behind there? Was it more mix, or is it more kind of the impacted raw materials?
James E. Lillie - President and Chief Operating Officer
Well, it's a lot of things Charlie. It's mix. It's the impacts of the raw materials. It's reduction in SG&A spending where we thought it was appropriate to do so, so we have a full compliment of initiatives to make sure we maintain the margins given our tough economic environment.
Charles Strauzer - CJS Securities
Got it and what would you expect going into next quarter for outdoors. There was some improvement on the margin side or kind of consistent where we were?
Ian G. H. Ashken - Vice Chairman and Chief Financial Officer
I think Charles this is Ian. The mix is the key element, because obviously the biggest element of Q1 is Coleman and team sports in the end of the Ski season. As we come into Q2, the fishing business kicks in, which as you know is a high margin business. So you should expect to see those go up, but it is a mix within outdoor solutions is the key driver.
Charles Strauzer - CJS Securities
Got it, great. And then just maybe Martin, can you touch a little bit more on what you seeing at some of the big box utilities continue to make self-base gains and you are optimistic for kind of your positioning versus some of your weaker competitors out there specially going into the difficult markets with difficult credits and access to capital?
Martin E. Franklin - Chairman and Chief Executive Officer
Yes, I mean I think that, as just being simplistic about it, whatever happens with the economy, there is no question that we have gained placement when it come to the planograms at some of our major customers at retail. So that will help us in the second half of the year, which is consistent with what I've said before. The business driver in the first half are the outdoor businesses it's really a very small quarter and first half in the JCS, but we've been seeing some progression there as you know as well. We've had some real wins with some new products and new placement in some of our major retailers. So that's reflected in the numbers today.
Charles Strauzer - CJS Securities
Great. And then Martin just ... when you look at the big picture you've seen a crack in the door and kind of the junk bond market again. Obviously, we are very early stages of before we can even call it a turn or stabilization. What are you seeing there, what are your bankers telling you, what's the need for you kind of going forward if we do see a reopening of the credit markets?
Martin E. Franklin - Chairman and Chief Executive Officer
Well, I personally don't think that in the... the like the large credit and to the credit market, the billion dollar plus size transactions. I just don't think for a while that's still going to be a credit market. There really isn't a term B market that's got the liquidity and demand cycle that you need, but you still got a huge backlog of paper that's trying to makes its way through the system. The junk bond market you are right you, the yields have corrected somewhat. Although I still believe that's a choppy market. So I don't think that the deal activity will be back to anything like normal for a number of months. I happen to think that until we start... if you like counting against where we are today and that's in sort of 18 months time will you see what I call real stability. But, there is a healthy asset based lending market... there is a healthy mezzanine lending market obviously the pricing is more like it used to be as opposed to what it's been in the last couple of years. But... still I think there are pockets of activities that will take place, but I think that if you like the stress in the system is not over yet.
Charles Strauzer - CJS Securities
Great. Thank you very much.
Martin E. Franklin - Chairman and Chief Executive Officer
You're welcome
Operator
Thank you. And we'll take our next question from Bill Chappell with SunTrust Robinson Humphrey. Please go ahead
Martin E. Franklin - Chairman and Chief Executive Officer
Hello, Mr. Chappell.
William Chappell - SunTrust Robinson Humphrey
Never gotten that right.
Martin E. Franklin - Chairman and Chief Executive Officer
One day, one day.
James E. Lillie - President and Chief Operating Officer
Let's just go by Bill.
William Chappell - SunTrust Robinson Humphrey
First question on consumer solutions, I mean being down 11% year-over-year for the quarter, my math it needs to be I guess up 3% for the remainder of the year to be half organic growth, can you just give me some color on how you get there, I mean is it international business... is there a way to quantify more placement or anything we can get on colors there?
Martin E. Franklin - Chairman and Chief Executive Officer
First of all 3% organic growth as you know is what is well within our bandwidth from the low end to the bandwidth of what we expect. Most of it is because of planograms. I mean, the Q1 activity is not about what the 2008 selling programs are there, about what the residuals were for the 2007 selling season, gift cards and all those kinds of things. And interesting statistic which is unfortunately a really sad reflection on America the number one gift card redemption, the number one and number two for this year were groceries and fuel. So we wish could keep that in perspective and in terms of our expectations for organic growth in the second half it's not so much about 3% on a comparative basis, it's about what the placement is that we have a retail food products that where we have gained positioning.
William Chappell - SunTrust Robinson Humphrey
Well, and I guess along those same lines, last year it seems the company was really hit by retailer focus on private label and now as we come into a kind of a weaker spending environment you would think that we see consumer trade down, so, and how do you look on a go forward basis about trade down or about how retailers are focused on private labels versus the branded products?
Martin E. Franklin - Chairman and Chief Executive Officer
Well, I want to correct a little bit to what you just said what happened last year was more retailers with their inventories of private label not what percentage of focus they had given to private label. In other words, they haven't made any decisions to take... to do less branded products and more private label. What happened was that the branded products were selling briskly and they were stuck with a whole bunch of private label inventory. Those are two very different things.
William Chappell - SunTrust Robinson Humphrey
Got it.
Martin E. Franklin - Chairman and Chief Executive Officer
And in 2008 I think they are little bit smarter about how they are managing their inventory since when it comes to private label they own that inventory and then the branded business they don't. So I think that we get a little more exposure if you like to the details and then we can go through here, but since we've made some placement gains with new products and in categories that we've been trying to get into for sometime for example in Coleman, in the flash light business we've gained some real placement there, which will help our sales this year that just didn't exist in the business last year. So there are some factors that drive our organic growth that have been because of new wins and new placements and it's also been... the retailers being a little bit smarter about how they handle that private label programs in 2008.
William Chappell - SunTrust Robinson Humphrey
So you're not seeing any major consumer trade down at this point?
Martin E. Franklin - Chairman and Chief Executive Officer
Well there is no question that the retail in general is tougher today than it was a year ago. That's a obviously fairly obvious, but I will say this and I've said it before, being the market leading brand it has a tremendous advantage in terms of protecting ones position than being less meaningful brand to the retail.
Ian G. H. Ashken - Vice Chairman and Chief Financial Officer
And Bill, I would add to that as the category leader in lot of these categories, we know that their consumers are trading down, the line that we put on the shelf reflects what we think is going to sell. So that is an important element of what's going on in the sense that our product line in our categories are... have been adjusted through reflect where we've perceived to be in the retail environment today.
William Chappell - SunTrust Robinson Humphrey
Okay, and Ian now I got you this, just two quick ones. Can you give us kind of an idea of where cash flow from operations would be in the second quarter just with all the different businesses and would it just comparatively would it be cash flow positive, negative in 2Q and then also any update on the refinancing the asset base facility?
Ian G. H. Ashken - Vice Chairman and Chief Financial Officer
Yes... the Q2 is... it's at the margin where there cash flow positive or cash flow negative. So it's not meaningful one way or the other and obviously this is the first time we've been through the K2 cycle. But, my expectation within the brand is going to be fairly neutral, either way. In terms of asset-based facility that market is Martin mentioned. It's actually pretty strong at the moment. We looked to it weather we should refinance that early because it comes in August and we decided that it wasn't the best thing to do because the market's robust. Why pay the extra interest expense for taking that now and paying the vig between the margins we pay and the high margin will... because obviously the markets have moved. So we feel comfortable that that's something that we can easily do, but economically, it pays us to wait.
William Chappell - SunTrust Robinson Humphrey
Great, thanks very much.
Operator
And our next question comes from Lauren Lieberman with Lehman Brothers. Please go ahead.
Lauren Lieberman - Lehman Brothers
Thanks, good morning.
Ian G. H. Ashken - Vice Chairman and Chief Financial Officer
Good morning, Laura.
Martin E. Franklin - Chairman and Chief Executive Officer
Good morning.
Lauren Lieberman - Lehman Brothers
Just a follow-up on just the issue of shelf-space. I think after the Analyst and Investor Day, we walked away understanding that Q1, the consumer solutions would be down. But, I thought the selling for the new shelf sets would have started in Q2. If that's... I don't know if that was the wrong understanding, but I think how is it that's it changed?
James E. Lillie - President and Chief Operating Officer
No,the programs are set in Q2.
Lauren Lieberman - Lehman Brothers
Okay. So but things ship in at the... are retailers taking on less inventory, so even if you've gotten the shelf-space, they're building up less inventory still in that process because their expectation is the categories not really going to grow very much. I am still just trying to connect like, more shelf-space is great, but if consumers aren't really shopping, is it Q3 sales growth that not much happens in Q4 if the consumer doesn't come back?
Martin E. Franklin - Chairman and Chief Executive Officer
Yeah I mean there is no question that Q3 is when you are loading up your retail shelf for that season. I mean that's part of the driver, you build, you start, we build inventory in Q2 with the shipping heavily in Q3, retail is stocking up their stores and you get a lot of... if you like reorder activity based on POS performance in Q4. I mean that's generally being somewhat simplistic...
Lauren Lieberman - Lehman Brothers
Yes.
Martin E. Franklin - Chairman and Chief Executive Officer
But that's generally what you see. If retail pull is bad in Q3 and early Q4, it obviously affects your sales in November and December. You know that's obviously a sum of all of these factors are in our own figures. We mean we have promotional programs, we have end-cap displays, we have all kind of different retail agreements, and programs with various different retailers that our gear towards what the consensus is among the retailers and ourselves as to what the sellingseason should be like in Q3 and Q4.
Lauren Lieberman - Lehman Brothers
And is the expectation now that the categories will be up in Q4
Martin E. Franklin - Chairman and Chief Executive Officer
I can't speak for its category. I can only speak for what I see in visibility, and what we are expecting in our own figures, so and it depends in some areas, in some areas they will be up, and in some areas they will be flat, and some areas they maybe down, but what you see in the figures and what we have told people we expect for the business as a micro is reflective of those programs.
Lauren Lieberman - Lehman Brothers
Okay, then I just wanted to catch up a bit on branded consumables. Again I know it's a relatively small quarter, but there it was both sales being down significantly and again the categories are weak all kind of categories,, so profitability often season looks great, which is a pretty contract to consumer solutions where you... profits were down only $2 million despite the sales being down somewhat so, kind of looking forward what are maybe some specific actions that you are taking in branded consumables. When can we... do we think about the top line stabilizing for us or is the profitability that you are targeting for us and just what's coming?
Martin E. Franklin - Chairman and Chief Executive Officer
Jim do you want to take that?
James E. Lillie - President and Chief Operating Officer
Sure, I mean I think Lauren if you look at last year Q1 '07, and you look back had a very strong firelog season in Q1 which really should have occurred in Q4, but it got colder later and so the profitability of '07 has compared to '08 was really impacted by the firelog business and a strong mix, so as we look at the full year, I actually feel good directionally, where they are going from new product development, the marketing plans they have in place to sell in the current POS occurring in the various product lines, so we've made some changes in management as you know over the last 30 days or so. I'm very comfortable with the new leadership, the road maps they have in place and so I think this is the year that branded consumables will execute and deliver what we expected them.
Lauren Lieberman - Lehman Brothers
So excluding the firelog difference in this year-over-year in Q1. Was the rest of the businesses profitability for margins flat, I mean if I accept it?
James E. Lillie - President and Chief Operating Officer
It's really more of a... it's more of a situation Lauren where like the load in on the home canning business starts a little bit later just from a seasonality standpoint on year-over-year basis. That's a nice margin business, but we are getting pricing across the various product lines in a single-digits to low double-digits on the various products. So it's a business from a consumable standpoint that it's a little more difficult to have a swift pricing increase and that goes back to stagflation comment I made, but we are getting them especially on our more petroleum based products like plastic cutlery and firelogs.
Lauren Lieberman - Lehman Brothers
Okay, great. Thank you.
James E. Lillie - President and Chief Operating Officer
Thank you.
Operator
Thank you. And we will take our next question from Chris Agnew from Goldman Sachs. Please go ahead.
Christopher Agnew - Goldman Sachs
Thank you, good morning. First question on K2, what are you seeing or what are you hearing in negotiations for the 2008, 2009 ski seasons and what are your expectations?
Martin E. Franklin - Chairman and Chief Executive Officer
Well, as you know we've come up with the both the business coming off with one of the worst ski seasons record and then experience one of the best ski seasons on record at least in the U.S in the 2007, 2008 ski season. So we've gone into the New Year with the lowest excess and obsolete inventory position I think this company has had in its history. So on the back of that we had a very favorable expectations, or relatively favorable expectations for how our business will perform in 2008, 2009. So are we seeing what we expected to see in terms of the order build up process? The answer is yes. The way K2 runs their ski business as you know it's a bill-to-order business, so we have a pretty good visibility, and I think we will have a good organic improvement in the business between 2007 and 2008 on the calendar year performance basis.
Christopher Agnew - Goldman Sachs
And I think last year you... the ski season, the ski business overall the industry was down significantly and you did extremely well with market share gains. And how should we think about, would you expect markets continue to take market share and how should we think about?
Martin E. Franklin - Chairman and Chief Executive Officer
I don't think that we are looking for significant share gains so much this year as a growth in the demand at retail given the ski season I mean our product did sell through very well last year, for those who review in the quarter know the ski business, you know that the K2 and local brands and the other aligned brands within the group like Line and Ride and 5150 [ph] all these component brands that we have in company have performed well. For 2008, 2009 season, we were not so much focused on what market share gains we will make, but focused on really benefiting on filling the channel from all the sell through that occurred during this year, so we will see organic growth. As I said before we see organic growth I'm not sure it will be because of market share gains so much as the market being better in general and I think we were hold on to the gains that we made in 2007-2008.
Christopher Agnew - Goldman Sachs
Okay. Thanks. And question for Ian, on restructuring charges you expect. I think you said before $10 million to $40 million we should expect to see in '08. Does that mean given charges in 1Q that there is $5 million to $30 million we should be expecting and can you help us map out when we should expect to see that over the coming the quarters and maybe as what we should expect in 2Q?
Ian G. H. Ashken - Vice Chairman and Chief Financial Officer
The first of all your question is easy to answer and it just a yes that's still obviously $10 million in Q1 and the... sorry I think that probably my best guess today is about $35 million for the full year. I can't do it by quarters because I don't know exactly when... for accounting purposes they hit different times when you actually given the notice of transaction severances and actually moved out of the buildings and things like that. But if you're modeling it I would straight line it, but I can't give you more than that.
Christopher Agnew - Goldman Sachs
Okay, fair enough. And you... this is last question, so Jarden has had a very conservative approach at setting your internal budgets, but given the very sharp recent increases in commodities, have you had to... or have you had to reset your budget expectations and kind of we sort through the with in terms of your full year expectations?
Ian G. H. Ashken - Vice Chairman and Chief Financial Officer
I mean what we did, which is something we haven't actually done before because we didn't feel the need for it in Q1, we get back to all of the businesses and to have contingency plans prepared for the environment because it has changed since we put the budget together in October and in November and those contingency plans are something that we signed off and at the moment some of the business is it's difficult to be generalized, because some of the businesses are winning and some of them are struggling a little bit more, so those that are struggling have to put in place their contingency plans and watch their cost etcetera, etcetera and those that aren't can continue along the same budget. But I think that your point is the true one in the sense that most companies rise particularly in oil prices is a lot higher than we budgeting and I guess most professional forecast is forecasted
Christopher Agnew - Goldman Sachs
Okay, great, Thank you.
Ian G. H. Ashken - Vice Chairman and Chief Financial Officer
Thanks, Chris.
Operator
And our next question comes from Reza Vahabzadeh from Lehman Brothers. Please go ahead.
Reza Vahabzadeh - Lehman Brothers
Good morning.
Martin E. Franklin - Chairman and Chief Executive Officer
Good morning, Reza.
Reza Vahabzadeh - Lehman Brothers
On the cost pressure as you quoted in the second half you obviously talked about all the cost savings in a core business as well as the synergies. Do anticipate needing some pricing action on top of that here and there as well or do you have internal enough internal sources to offset the cost issues?
Martin E. Franklin - Chairman and Chief Executive Officer
Reza we do pricing action everyday; I mean I don't have to say that in any other way.
Reza Vahabzadeh - Lehman Brothers
Okay.
Martin E. Franklin - Chairman and Chief Executive Officer
It's a constant process, it's not like we sit on one thing and... the retail... you don't understand that the retailers are in Asia and are dealing with shipping and are dealing with petroleum rise exactly the same way as we are and everybody understand it. So if there are pricing changes that need to be made because there are real impact obviously those conversations take place and in some places they happen and in some places they don't happen it really depends. What you should remember is that the inventory builds that we are doing right now our for products that will be in the shipping at retail in Q3 and Q4 so what happens between now and three months from now maybe less impactful on this year as oppose to where we will budget and put our set up pricing for 2009.
Reza Vahabzadeh - Lehman Brothers
Okay, and then as far as free cash flow Ian, do you anticipate using much as a free cash flow for debt reduction and or whether there is greater opportunities for tuck-in acquisition of a moderate size as you look ahead?
Ian G. H. Ashken - Vice Chairman and Chief Financial Officer
Well, I mean our stated goal obviously is that we want to get our debt-to-EBITDA ratio down to 3.5 times, it's around 3.8 times at the moment, so that is still our focus. There are... and there will always be and we continue to look at tuck-in acquisition opportunistically all the time and... but I don't think you will see us do anything of any size, because we are focused on getting our debt-to-EBITDA ratio down.
Reza Vahabzadeh - Lehman Brothers
Okay. And then I don't know if you have mentioned this or not, but how does the international business do in terms of local currency for you on this quarter?
Martin E. Franklin - Chairman and Chief Executive Officer
The international businesses are particular Latin America and Japan were up in local currencies as well as translated.
Reza Vahabzadeh - Lehman Brothers
Got you, thanks so much.
Martin E. Franklin - Chairman and Chief Executive Officer
Welcome.
Operator
Thank you. We take our next question from Alvin Concepcion from Citi. Please go ahead.
Alvin Concepcion - Citigroup
Hi, I'm just trying to see if you would... how would you characterize your retail inventory levels, your level comfortable with them at this point?
Martin E. Franklin - Chairman and Chief Executive Officer
We are actually feeling in very good shape, I mean our... obviously for the JCS businesses it's kind of irrelevant in terms of we are not... Q2 is still not the biggest shipping part of our year, but we are in good shape of retail. The pipeline is not fold, we feel the same way about our outdoor businesses and in POS it's kind of interesting, I mean we... you have pockets where you see POS not performing and then you see some pretty good pick ups that we saw in April, so it's overall healthy, and so we feel pretty good about it and obviously these all... how we look at the pipeline and how we see POS are all built into how we see the balance of the year, and we have already made it clear how we feel about where are business is today.
Alvin Concepcion - Citigroup
Okay, great. And did I hear you correctly about the outdoor business the sales momentum has continued into the second quarter, is that right?
Martin E. Franklin - Chairman and Chief Executive Officer
That's correct.
Alvin Concepcion - Citigroup
Okay, so I guess it's a pretty discretionary products that in the organic sales accelerated in the first quarter and I think it's seasonally stronger to Q3 business, so and could you put a little bit more color on your sales have been able to hold up so well in a pretty discretionary products in a tough environment?
James E. Lillie - President and Chief Operating Officer
This is Jim, if you think about some of the product lines and you think about the macro economy in general, people kids are going to sign up for Little League and they need a glove, if people are not going to take vacations they might be doing more local fishing, spending more time in and around the house that could tuning aspect bodes well for our business it didn't post 9/11 and as you look what's going on today it's being responsive if you will in the outdoor solutions business, both on the fishing the baseball side, the team sport type of activities.
Ian G. H. Ashken - Vice Chairman and Chief Financial Officer
AlvinI would add to that what Martin said earlier which is... we are getting more traction at the retailers as biggest shelf-space and although that doesn't itself get you higher sales, as the number one brand, a lot of these people are gravitating to the product line that we have to offer generally speaking better than the categories as a whole.
Alvin Concepcion - Citigroup
Okay. Thank you.
Operator
Thank you. And we'll take our next question from Joe Altobello with Oppenheimer. Please go ahead.
Joseph Altobello - Oppenheimer & Co.
Hey guys, good morning.
Martin E. Franklin - Chairman and Chief Executive Officer
Hi, Joe.
Joseph Altobello - Oppenheimer & Co.
First question is for Ian. I think you said the leverage ratio as per your bank credit facility was 3.8 times. If you add back the securitization facility, what is the leverage ratio as we would look at it?
Ian G. H. Ashken - Vice Chairman and Chief Financial Officer
Well, if you just take the 2.6...
Joseph Altobello - Oppenheimer & Co.
Yes.
Ian G. H. Ashken - Vice Chairman and Chief Financial Officer
And you add on $250 million and you divided it by the EBITDA number, then you can calculate by taking 2.6 and divided by 3.8.
Joseph Altobello - Oppenheimer & Co.
Okay, I'll figure it out. I just wondered if you had the number offhand. The second for Martin in terms of your business portfolio where you stand today, are there any businesses that you feel like may not fit or would probably be better off in someone else's hands?
Martin E. Franklin - Chairman and Chief Executive Officer
Short answer no, absolutely not, I've said it all along. There was no a business in the side of the portfolio, that couldn't be better and there is nothing that we are looking at selling off or spinning off.
Joseph Altobello - Oppenheimer & Co.
Okay. And then lastly, obviously you guys talked about buyback in the past. The stock as now, pretty close to a low here any thoughts on doing additional buybacks?
Martin E. Franklin - Chairman and Chief Executive Officer
As Ian said our goal is to make sure that we maintain our levels of liquidly and what is a very uncertain world, and to keep our leverage ratio down, we expect to continue to produce good strong cash flow as you know that comes in Q3 and Q4. If we get into Q4 and our stock is still where it is obviously we will have a lot more cash available to look at buybacks, but the reality is if we don't generate a lot of cash between now and then because of working capital movements there is not lot of points in doing any buybacks today.
Joseph Altobello - Oppenheimer & Co.
Okay. And then lastly in terms of modeling wasn't there is a piece of the K2 business that was in process solutions?
Martin E. Franklin - Chairman and Chief Executive Officer
Yes, yes it's the monofilament.
Joseph Altobello - Oppenheimer & Co.
And how big is that business roughly?
Martin E. Franklin - Chairman and Chief Executive Officer
22...
Ian G. H. Ashken - Vice Chairman and Chief Financial Officer
It's about $100 million on the top line.
Martin E. Franklin - Chairman and Chief Executive Officer
Yes, $20 million to $30 million in the quarter.
Joseph Altobello - Oppenheimer & Co.
Got it. Okay, thank you.
Operator
And we have time for one more question, and we will take our final question from Jon Andersen from William Blair. Please go ahead.
Jon Andersen - William Blair & Company LLC
Thanks for taking my question.
Martin E. Franklin - Chairman and Chief Executive Officer
Hi, Jon.
Jon Andersen - William Blair & Company LLC
Hi, just a quick one most of them have been answered obviously. Just in light of the current cost environment it sounds like you're running ahead of schedule with cost savings related to the K2 integration and that's another things in the pipeline with respect to ski rationalization, etcetera. Have you had to make any adjustments to your new product development investments or marketing spending or it's kind of full steam ahead with respect to those kinds of brand support investments?
Martin E. Franklin - Chairman and Chief Executive Officer
No, absolutely not we are not going to touch the amount of money that we spend on new product development it's the engine in the heart of the growth of this company so the short answer is, no.
Jon Andersen - William Blair & Company LLC
Thanks, and good luck.
Martin E. Franklin - Chairman and Chief Executive Officer
Okay. Thank you. Thank you very much every body for your time and we look forward to talking to you on Q2.
Operator
Ladies and gentlemen, that does conclude our conference call for today. You may all disconnect, and thank you for your participation.
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