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Spectrum Brands Holdings Inc ( SPB 2.04% )Q4 2020 Earnings CallNov 13, 2020, 9:00 a.m. ET
Contents:
Prepared Remarks:
Operator
Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2020 Spectrum Brands Holdings, Inc. Earnings Conference Call. [Operator Instructions] After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]
I would now like to turn the call over to your speaker today, Mr. Kevin Kim. Thank you, please go ahead, sir.
Kevin Kim -- Divisional Vice President of Investor Relations
Great, thank you, Lisa. Welcome to Spectrum Brands Holdings Q4 and full-year 2020 earnings conference call and webcast. I'm Kevin Kim, Divisional VP of Investor Relations and moderator for today's call. To help you follow our comments, we have placed a Slide presentation on the Event Calendar page in the Investor Relations section of our website at www.spectrumbrands.com. This document will remain there following our call.
Starting with Slide two of the presentation. Our call will be led by David Maura, Chairman and Chief Executive Officer; Jeremy Smeltser, Chief Financial Officer; and Randy Lewis, our Chief Operating Officer. After their opening remarks, we will conduct the Q&A, as Lisa outlined.
Turning to Slides three and four. Our comments today include forward-looking statements, which are based upon management's current expectations, projections and assumptions and are, by nature, uncertain. Actual results may differ materially. Due to that risk, Spectrum Brands encourages you to review the risk factors and cautionary statements outlined in our press release dated November 13, 2020, and our most recent SEC filings and Spectrum Brands Holdings most recent annual report on Form 10-K and quarterly reports on Form 10-Q. We assume no obligation to update any forward-looking statement. Also, please note, we will discuss certain non-GAAP financial measures in this call. Reconciliations on a GAAP basis for these measures are included in today's press release and 8-K filing, which are both available on our website in the Investor Relations section.
Now with that, let me call -- turn the call over to David Maura.
David M. Maura -- Executive Chairman and Chief Executive Officer
Thank you, Kevin. Good morning, everybody. Thanks for joining us for today's call. With the announcement of this quarter's earnings, I'm pleased to tell you that our efforts to reinvest in and reignite growth across our business units are now driving real, tangible, impressive and most importantly, sustainable results. Since we began these efforts, we have freed up investment dollars from our Global Productivity Improvement Program, and we have thoughtfully invested in our people, our research and development activities, our innovation capabilities and new marketing initiatives. This has now reignited the flywheels of new product development launches and restored our top line growth; expanding our margins and is now driving much greater profitability and free cash flow generation to our bottom lines.
These achievements are allowing us to continue to reinvest for even further growth in the future on a sustainable basis, as we move our company forward. In short, I'm thrilled with the resilience of our people and our businesses and the financial results we have delivered in fiscal 2020.
If I could call your attention to Slide six. I'd like to pause to recognize the accomplishments of the Spectrum Brands family, which are impressive on their own, but are even more impressive considering the headwinds we encountered this year. Our teams faced and overcame many challenges, including demand and supply interruptions from the COVID-19 pandemic; gross tariff headwinds of over $120 million, which were about $70 million higher than the prior year; and delivered on our Global Productivity Improvement Program creating a better, faster and stronger company.
Our 12,000 plus employees around the world have really come together this year, as a unified team to build an amazing future. We have a lot of momentum now and we're making great strides. In particular our teams were motivated by our new identity as a home essentials company. We are [Technical Issues] consumers with brands and products that bring security, joy and happiness worldwide. Whether it's in the kitchen, the yard around the house or with your pets, we are delighted to make life better and more enjoyable.
Our balance sheet also improved sequentially, ending the year with net leverage of 3.4 times and we have over $1.1 billion in total liquidity. Our accomplishments this year give us further confidence in our ability to deliver sustainable growth.
Moving to Slide seven. Our fourth quarter and full-year financial results improved with net sales and EBITDA growth. During the quarter, our net sales accelerated as we grew 17.9% with strong growth across all business units. These top line results reflect elevated demand levels, strong POS and improved output. This is evidence of our teams, our company's quick recovery from the COVID-19-related supply disruptions we encountered earlier in the year.
Additionally, our incremental marketing and advertising investments are paying dividends by driving stronger organic top line growth. Operating income and EBITDA growth was driven by strong volumes and improved gross margins. We achieved a $190 million in adjusted EBITDA this quarter and $597 million for the year. We reported a reduction of $17 million to those amounts to reflect that starting with this quarter, we have changed our annual incentive compensation program to be paid entirely in cash instead of a mix of equity and cash that we've done in prior years. This change will have a corresponding reduction in our annual equity compensation expense, resulting in a net neutral impact on our annual compensation expense.
Turning to Slide eight. For the fiscal year, our net sales grew 4.3% and reported EBITDA grew 2.3% and we grew 5.3% on a comparable basis, when adjusting for the change to our incentive compensation program. And we generated free cash flow of $254 million, exceeding the midpoint of our initial fiscal 2020 guidance.
On Slide nine, as I've said before, we have embraced our position as a home essentials company and instead of pulling back in the face of the COVID-19 challenges, we're continuing to lean forward and improve our operating model, add talent, strengthen our brands through marketing and advertising and drive innovative product introductions. The plans we outlined on our third quarter call to invest an incremental $20 million in advertising and promotion remains on track. We started in the second half of 2020 and we're continuing into the first half of 2021. We firmly believe these incremental dollars have and will continue to produce results that create consumer excitement and awareness for our trusted brand portfolio.
While still in the early days, the initial results were very encouraging. As each of our brand campaigns experienced a clear POS lift. In security sales for HHI, our focus on Microban and SmartKey technology with Kwikset, drove 10s of millions of impressions. This collaborative work from our comm ops and HHI teams, further solidified our market leading position in the US residential security category with differentiated products. This also drove financial results in the second half with a significant lift in POS and a measured increase in our click-through rates.
Next if we turn to Slide 10. I'm also excited to provide you today an update on our Global Productivity Improvement Program. Earlier this morning, we announced an increase to our total gross savings target to $150 million over the life of the program. Additionally, in fiscal 2021, we expect more savings from this program to drop to our bottom line with less incremental tariff headwinds on a year-over-year basis. We believe, we are better positioned today than we have ever been to drive demand as a home essentials company with consumers needing our brands and products more than ever.
Additionally, with the supply chain disruptions from COVID-19 earlier in 2020 largely behind us. We are confident in our ability to deliver sustainable organic growth in 2021. We have tailwinds from continued momentum in consumer demand; we have a strong backlog of orders in HHI. The early benefit -- the benefit of early customer orders in our Home and Garden division continued strong demand for consumables from new pet parents in our Global Pet Care business, and we have a strong holiday lineup for our Home & Personal Care unit.
Earlier today, we provided a preliminary outlook of 3% to 5% net sales growth and mid single-digit adjusted EBITDA growth for fiscal 2021. Due to difficult comparisons from the second half of fiscal '20, we expect our fiscal 2021 growth to be first half weighted. Jeremy plans to provide a incremental details to help you with your model and the phasing of our year in his prepared remarks.
If we can turn now to Slide 11. Going forward, our capital allocation priorities continue to focus on: one, allocating capital internally to our highest return opportunities. This includes strengthening our brands through research and development, innovation, new products and advertising and marketing to drive vitality and profitable, sustainable organic growth. Two, we planned to return cash to shareholders via dividends and opportunistic share repurchases. And finally, number three, a disciplined M&A strategy with tuck-in strategic acquisitions that are both synergistic and help drive shareholder value creation.
As announced in late October, we're very excited to add Armitage, a UK-based market leader in dog and cat chews and treats to our highly successful and fast growing Global Pet Care business unit. Over the last few years, Armitage has grown sales at a 17% compound annual rate and we expect revenue synergies with our global scale and resources to expand that growth across Continental Europe and beyond. We will also strengthen its e-commerce business. I want to extend a big welcome to the Armitage team to the Spectrum Brands family and I'm confident in our ability to create tremendous value together.
During the fourth quarter, we reduced our company's leverage ratio from 3.9 times adjusted EBITDA to 3.4 times on a net debt basis. Going forward, we planned to continue to deleverage our balance sheet and maintain a high level of liquidity. We are updating our near to medium term target for net leverage ratio to the 3 times to 4 times area.
Before ending my comments, I want to take a moment to acknowledge the passing of Ken Ambrecht and Phil Szuba. Ken served our company as an outstanding Director of our Board and he passed away unexpectedly on September 25. Ken was not only a 10-year member of our Board of Directors, he was also a personal friend and a true gentleman's gentleman. Ken was a steady hand and a voice of encouragement to me and the rest of the management team during his tenure with the company. The Board and I will miss Ken and his guidance to us going forward.
Phil was the President of our HHI business and he passed away unexpectedly on September 19. Phil was a valued member of Spectrum Brands and our leadership team for the last 12-years, we will all miss Phil. We are thankful for our time with our friend and we will continue to honor him as we push forward with his love of HHI, his passion for innovation, caring for people and his love to win.
Now you'll hear more from Jeremy on the financials and Randy will provide you with additional insights, as we update -- and give you updates on the different business units. I'll now turn the call over to Jeremy.
Jeremy W. Smeltser -- Executive Vice President and Chief Financial Officer
Thanks, David. Good morning, everyone. If we could turn to Slide 13, I'll start with a review of Q4 results from continuing operations. Beginning with net sales. Net sales increased 17.9%, excluding the impact of $4.2 million of favorable foreign exchange and acquisition sales of $3.8 million, organic net sales increased 17.1% with growth across all four business units.
Gross profit increased $88 million and gross margins of 36.1% increased 240 basis points, driven by improved productivity from GPIP, favorable pricing and mix.
SG&A expense of $269.3 million increased 15.9% at 23% of net sales, with the dollar increase driven by improved volumes and higher marketing investments.
Operating income growth of 245% was driven by improved volumes and profit margins and lower restructuring spending, as well as no impairment charges in the current year period.
Net income and diluted earnings per share were driven by the operating income growth and lower shares outstanding.
Adjusted diluted EPS increased 52.2%, due to favorable volumes, improved productivity and positive product mix. Adjusted EBITDA increased 6.3%, primarily driven by volume growth, as well as productivity improvements and positive pricing. Adjusted EBITDA also increased despite a change to our incentive compensation program, which resulted in a reduction of stock-based compensation expense and consolidated adjusted EBITDA of $17 million for the full-year of fiscal 2020 and Q4 2020.
On a comparable basis, adjusted EBITDA grew 16.7%, by business unit, the adjusted EBITDA growth was driven by HHI, Global Pet Care and Home & Garden.
Turning now to Slide 14. Q4 interest expense from continuing operations of $38 million increased $1 million over last year's quarter. Cash taxes during the quarter of $7.4 million were $2.6 million lower than last year. Depreciation and amortization from continuing operations of $35.5 million was $6.9 million lower than the prior year.
Separately, share and incentive-based compensation decreased from $14.9 million last year to $0.3 million, driven by a change to incentive compensation payout methodology, which resulted in a reduction of stock-based comp expense and consolidated adjusted EBITDA of $17 million for both the quarter and the year.
Cash payments for transactions were $6.2 million, down from $6.7 million last year and restructuring and related payments for Q4 were $10.2 million versus $9.5 million last year.
Moving now to the balance sheet, the company had a cash balance of $531.6 million and approximately $579 million available on its $600 million cash flow revolver at year end. The company had approximately $2.5 billion of debt outstanding, consisting of approximately $2.3 billion of senior unsecured notes and approximately $164 million of finance leases and other obligations.
Additionally, net leverage was approximately 3.4 times at the end of fiscal 2020, compared to our previously disclosed expectations to end the year at the midpoint of our previously communicated net leverage target range of 3.5 times to 4 times.
Further, we sold approximately 1.5 million shares of Energizer stock for proceeds of $67.4 million during the quarter and held just under 1.7 million shares at year-end. Capital expenditures were $16.5 million in the quarter versus $18.1 million last year.
Turning now to Slide 15 and our expectations for 2021. We currently expect 3% to 5% reported net sales growth in 2021 with foreign exchange expected to have a slightly positive impact based upon current rates. We currently expect this growth to be first half weighted.
Adjusted EBITDA is expected to grow mid single-digits. This includes benefits from our Global Productivity Improvement Program, approximately 11-months of results from the recent Armitage transaction, which last year generated about $80 million in revenue and incremental net tariff headwinds of about $25 million, driven by the expiration of previously disclosed retrospective tariff exclusions in 2020.
From a phasing perspective, we expect Q1 to be positively impacted by replenishment of retail inventory levels in all four businesses and plans to fulfill retailer requests for early delivery of products for Home & Garden.
Fiscal 2021 adjusted free cash flow from continuing operations is expected to be between $250 million and $270 million versus $254 million in fiscal 2020. This includes a strategic investment in inventory levels of about $30 million. Depreciation and amortization is expected to be between $165 million and $175 million, including stock-based compensation of approximately $30 million to $35 million.
Full-year interest expense is expected to be between $140 million and $145 million, including approximately $6 million of non-cash items. Restructuring and transaction related cash pending is expected to be between $55 million and $60 million. Capital expenditures are expected to be between $85 million and $95 million. And cash taxes are expected to be between $35 million and $40 million, and we do no anticipate being a significant US federal cash taxpayer during fiscal '21, as we continue to use net operating loss carryforwards.
We ended fiscal '21 -- fiscal '20 with approximately $800 million of usable federal NOLs. For adjusted EPS, we use tax rate of 25% including State taxes. Regarding our capital allocation strategy, as David mentioned, we have updated our target net leverage range to 3 times to 4 times from 3.5 times to 4 times adjusted EBITDA and we ended the year with net leverage of 3.4 times. As mentioned on our Q3 call and from David earlier, we are also planning for incremental advertising investments in 2021.
Additionally, year-over-year comparability will be impacted in Q1 and Q4 of 2021, due to our fiscal calendar. This results in six additional days in Q1 of 2021 and conversely six less days in Q4 of 2021. And lastly demand in October remained strong with net sales up across all business units.
Now, I'll turn it over to Randy for a more detailed look at our operations.
Randal D. Lewis -- Executive Vice President and Chief Operating Officer
Thanks, Jeremy. And thank you all for joining us today. I'm very excited to provide the comments today that will focus on a review of each business unit to provide detail on the underlying performance drivers, including our operating results. And I will also give you an update on the progress of our Global Productivity Improvement Program. First, I wanted to note that we continue to prioritize the safety of our employees in light of the pandemic. The tireless work from our COVID-19 response team has ensured solid implementation and adoption of strict safety protocols to protect our people and minimize the risk of COVID-19 spread within our facilities, while also abiding by all government mandates.
Turning to the business results. The operating environment improved significantly across each of our business units, especially HHI. We experienced net sales growth across all four business units, as well as improved output levels and fill rates. As David mentioned earlier, we are recovering quickly from earlier supply challenges.
Let's dive into each business unit and our expectations moving forward. Starting with Hardware and Home Improvement, on Slide 17. The fourth quarter reported a net sales increase of 18.9% organic net sales increase of 18.7%. Strong POS and improved supply drove strong net sales growth across security, plumbing and builders' hardware categories. Adjusted EBITDA increased 29%, primarily driven by positive volumes, as well as productivity improvements, favorable mix and pricing, partially offset by higher tariff and COVID-19-related costs.
Recall that last quarter, we outlined our expectations of a significant improvement in shipments given our order position and improving factory outputs as we progress through Q4. That is exactly what happened is HHI recovered quickly from the supply disruptions caused by government shutdowns and reduced capacity mandates earlier in the year from two of our plants in Mexico and one in the Philippines. During the quarter, our supply chain teams were able to raise productivity levels significantly above pre-COVID rates, which resulted in the record sales quarter for HHI.
Looking ahead into fiscal 2021, we expect another strong quarter of net sales growth in Q1. Despite a solid recovery in production and shipments in Q4, retail inventories remain below normal levels and our backlog of orders actually grew from $40 million to over $50 million by the end of the fourth quarter, as we continue to see strong consumer demand. Our teams expect to materially reduce the backlog by the end of the first quarter of fiscal 2021, supported by those continued elevated levels of production.
Aside from open orders, we also expect demand in 2021 to benefit from our new product introductions and incremental advertising investments. This includes the benefit from incremental plumbing and security orders from Clayton Homes, a top builder of manufactured modular and site-built homes in the United States. We also expect to benefit from the rollout of Halo Touch, our retail partners are very excited about this innovative biometric and Wi-Fi enabled smart lock with voice assistance capability through Alexa and Google Assistant.
Additionally, our incremental advertising dollars for our Kwikset and Pfister brands are driving encouraging results with continued focus on micro bond, which incorporates antimicrobial technology into the coating. And SmartKey technology, which allows users to rekey their own locks to any Kwikset key in about 15 seconds.
Now to Home & Personal Care, which is Slide 18. Reported and organic net sales increased 5.8% and 5.6% respectively. Adjusted EBITDA decreased 22.8% to $22.7 million. Net sales were driven by growth in both small appliances and personal care, EBITDA was lower due to much higher marketing investments, as well as higher tariff and legal expenses. This was partially offset by improved productivity and higher volumes. This quarter represented the fifth consecutive quarter of year-over-year top line growth, including growth in the US, which was driven by convenience cooking and food prep.
Our team sees growth opportunities in the second half across cooking, food prep, breakfast preparation, as well as shave and groom. This included incremental advertising investment, focused on promoting George Foreman Smokeless Grill, which expanded beyond the initial retail partner in Q4, drove share gains to strengthen our number one position globally. This product enables convenient and healthier meal preparation without the mess and smoke from stovetop cooking. While our inventory levels have improved sequentially, continued demand again outpaced supply. We are still not back to normal levels, we are optimistic as we entered the critical holiday season with a much improved fill rate that we are making measured investments across key categories.
Demand remained strong for convenience cooking leading the way. Personal Care will continue to benefit from momentum of Remington innovations such as Twist & Curl, as well as new launches such as the Hydraluxe series overseas and watch the Straight in the Americas. Despite the challenges of COVID-19, our Remington partnership with the Manchester United Football Club is still flourishing with over 2,000 local market activations to-date and 45% awareness among friends and a Q1 product launch in China. Our focus in 2021 in Home and Personal Care will remain on consumer led insights, driven product introductions and continuing to incrementally invest in our brands and Halo ranges across more markets than ever before.
Moving to Global Pet Care, which is Slide 19. This quarter represented a record fourth quarter for revenue and profit with reported net and organic sales growth of 21.6% and 18.5%, respectively. And adjusted EBITDA grew 20%. Top line growth was driven by both aquatics and companion animal categories. Higher EBITDA was driven by volume growth, productivity, improvements and pricing, partially offset by higher volume driven tariff costs and additional marketing investments. Q4 represented the eighth consecutive quarter of year-over-year top line growth and sixth consecutive quarter of bottom line growth.
Our Pet Care team continues to build its worldwide market leadership position in the core categories of aquatics, dog chews, pet grooming and pet stain and odor, and we recently further solidified our leadership position in the dog chews category in late October with the acquisition of Armitage PetCare. This transaction creates an excellent platform for continued international expansion of our chews business, as Armitage is well established in the UK grocery channel and offers an attractive assortment of not only dog, but also cats chews, treats and toys.
We expect 2021 and beyond to benefit from the continued execution of our global growth strategies, coupled with the strong category growth fundamentals. Particularly the sustained demand of consumables, given all of the new pet parents in companion animal and all the new hobbyist, who have recently entered the aquatics and reptile categories. These are long-term commitments and bode very well for the future demand of our products.
And finally, Home & Garden which is Slide 20. Fourth quarter reported net sales increased 37.8% and adjusted EBITDA increased 60.7%. Top line growth across controls, household insecticides and repellents benefited from strong point of sale and replenishment as retailers supported an extended selling season, results this quarter reflect a strong recovery from the supply chain disruptions earlier in the year. The EBITDA increase was driven by higher volumes, pricing and productivity improvements, despite significantly higher marketing investments and higher manufacturing and distribution costs.
We plan to continue to invest more advertising dollars to tell our story around Spectracide, Cutter, Hot Shot and EcoLogic, along with more research dollars to deliver even more innovative products. We believe these actions will further enhance our vision to be the recognized leader in providing consumers the best solution to conquer natures challenges and enjoy life. This is only possible with the continued focus of our distinctive combination of brands and formulations and registration supported by efficient manufacturing and strong customer relationships.
The fundamentals in this business remained strong and with solid profitability and high barriers to entry. We are confident that our strong brand equities increased investments in product development and marketing, will accelerate long-term growth rates. In addition to Jeremy's comments about retailers requesting earlier delivery of product in Q1, we plan to exit our TSA manufacturing agreement with Energizer in February. This will negatively impact sales in the second half of the year by approximately $14 million. The decision to exit this low margin business will open up available capacity in our facilities for supporting our innovation-driven branded products.
Now let's turn to our internal growth and efficiency efforts on Slide 21. Known to our external shareholders, as our Global Productivity Improvement Program. As outlined in our earnings release, we've raised our gross savings target to $150 million of savings by the end of fiscal 2021. To-date, our teams have already captured approximately $90 million of gross savings, since the program inception. And this has helped cover for tariff expenses and allowed for reinvestment back into the businesses. And this includes our drive to grow our brands and products through new capabilities and increased investments, while we harness the collective knowledge, expertise and resources in the key areas shown on this page. This program continues to be our most important strategic initiative to transform into the new Spectrum Brands and our teams have laid a great foundation over the past year for partnership and collaboration.
Our results in 2020 reinforce, if this is the right strategy, the Spectrum Brands is headed in the right direction to deliver long-term, sustainable organic growth. As we focus on quicker, more globally aligned strategies in decision-making. While we will continue to increase our investments into growth initiatives and consumer insights, R&D and marketing across each of the businesses, we do believe a greater portion of the GPIP savings will flow to the bottom line has incremental tariff headwinds, which were substantial in both 2019 and 2020 are expected to be lower in 2021.
Additionally, our digital teams continue to leverage new data to identify consumer trends for new products and sales opportunities and create promotional content that appeals to those consumers across all four businesses. This quarter e-commerce grew by more than 36% and represented more than 12% of total net sales.
To end my section, I want to acknowledge another outstanding quarter of progress on our operating culture and our strategic initiatives and to thank our 12,000 plus employees for all they are doing, to make us a better, faster and stronger Spectrum Brands.
Now back to David.
David M. Maura -- Executive Chairman and Chief Executive Officer
Thank you, Randy. Thanks, Jeremy and everyone for joining us today. Given that we've covered quite a lot on today's call, let's conclude with a couple of takeaways.
Please, if I could have you turn to Slide 23. First, our fourth quarter financial results reflected a strong acceleration in sales with exceptional growth across all business units. Second, momentum in the business remains positive with continued strong demand in October, our fiscal 2021 is off to a great start. Third, actions from our Spectrum family to improve the business is nothing short of remarkable. We have embraced our position as a home essentials company and instead of pulling back in the face of the COVID-19 challenges, we are continuing to lead in -- lean in to improve our operating model, to add talent, strengthen our brands through marketing, advertising and drive innovative product introductions.
Furthermore, we raised our gross savings target to $150 million over the life of our Global Productivity Improvement Program, as we continue to improve our commercial and operating capabilities as a quicker, more globally aligned company. We believe, we are well positioned financially and operationally to continue to grow and we will continue to be laser focused on our employees, our consumers, retail partners and our shareholders over the long-term. I want to thank you for your time and your continued support.
Before we turn to the questions, I again want to address our employees. I encourage you to keep finding ways to be part of our continuous improvement journey. Keep listening to each other, keep working together, collaborate and move quickly on ideas that will help us move our company forward. Focus on the positive and drive innovation and insight wherever you can. Through your hard work, we are building a better, faster, stronger Spectrum Brands and it's an absolute privilege to be a part of this great team.
Now I'll turn the call back over to Kevin to take any questions you may have.
Kevin Kim -- Divisional Vice President of Investor Relations
All right. Thank you, David. Lisa, let me jump right into Q&A.
Questions and Answers:
Operator
[Operator Instructions] Your first question comes from the line of Nik Modi with RBC Capital Markets.
Nik Modi -- RBC Capital Markets -- Analyst
Yes. Good morning, everyone. Congratulations on a great end to the year. David, maybe you can just help frame how to think about. I mean there's so many moving pieces, you guys have been very active, a lot of initiatives. So maybe you can just talk about the results and kind of how you think about the guide as a result of the following, kind of, vectors, share gains, the organizational design changes that you made and maybe any specific examples of key wins that you had during the quarter? And then just kind of underlying category growth, so just we can understand how much you guys have underperformed relative to the overall category? Thank you.
David M. Maura -- Executive Chairman and Chief Executive Officer
Hey, thanks for the question, Nik and I appreciate you joining the call. Let me just say there's not no rocket science here. I mean, when you invest in people, talent, R&D, consumer insights, innovation and marketing, your inputs just lead to better outcomes. And at the end of the day, this is -- this quarter, this year-end finishes is really the amalgamation of a lot of hard fundamental work that we've done since 2018. And it all begins and ends with culture. I mean, we've got 12,000 employees now that not only resilient, they not only get the vision, the strategy, they've been not only buy up on vision clarity, focus, the faster, smarter, stronger Spectrum. They're seeing the tangible benefits in their day-to-day lives, in their business units from the productivity dollars that we freed up from the Global Productivity Improvement Program. They're seeing the ability to reinvest those dollars and to really create exciting product for our retail partners for the consumer.
But I would tell you today, we're probably taking market share across the board. I think, we could be doing even better, quite frankly in HHI. I mean, look the good news that I have to tell you is, this isn't just the end of the year or we did great for one quarter. What we've got today is our feet on solid ground, we've got a sustainable model, we've finally achieved what I call a scape velocity on the flywheel and that we're ploughing money back into continue to accelerate things going forward. So we just look -- I gave guidance, we had a big debate over whether or not to give guidance. We do want to give you something for your models going forward. But at the end of the day, I think, what we've given you is hopefully very achievable.
Nik Modi -- RBC Capital Markets -- Analyst
Great. I'll pass it on.
Operator
Your next question comes from the line of Olivia Tong with Bank of America.
Olivia Tong -- Bank of America Merrill Lynch -- Analyst
Great. Thanks. Good morning. Congrats. Where do I start? Let's see, obviously, your growth rates are very strong. So, hopefully, you can elaborate on a couple of things. First, where you think your underlying growth rates are and your share positions?
And then second, what you think consumption is in these categories and then just to sustainability, not necessarily, obviously, at these levels, but if you could just unpack, sort of, how much was catch up? How -- you did talk about how much you stood up to go to the $10 million or so to recover -- incremental $10 million? But just if you could talk about those three things, that would be great? Thank you.
David M. Maura -- Executive Chairman and Chief Executive Officer
I'll turn the call over to others. But I guess my first comment would be, I think, we're trying to give you a view of what's core and sustainable with hopefully the guide for '21. But I think that's currently right now even if -- I think, what you're asking is, even if we're benefiting from COVID, if you were to strip that out, I think, our growth rates are very, very healthy. And we're going to continue to be able to talk about that as we move through the year. We do want to help you in terms of, obviously, we had supply disruptions in March and April, and then they lingered a little bit and we're just getting, the fill rates back and replenishing retail inventory. So, obviously, that does bolster the growth rate to be above what we view is a sustainable, which is part of what we reported today.
But I think, going forward, you're going to see a very, very healthy business and my goal is, by the end of this year, all four business units are taking market share and are growing -- and all four business units are growing above category. But let me flip it to Randy to give you more detail.
Randal D. Lewis -- Executive Vice President and Chief Operating Officer
Good morning, Olivia. I guess, I would say, trying to discern exactly what the underlying growth rates and share positions are, has been obviously, a bit difficult with all of the moving pieces in the macro sense. But in our reported channels, we are increasing our share position in most all of our major categories and what the driver of that is, is what we're focused on trying to understand.
Now, the good news is, as David has pointed out several times on the call, we feel really good about the general overall health of the business and the way we're performing. We do not believe that our results are driven in a temporary fashion based upon COVID. As a matter of fact, when you look at the full-year, we still believe it was a net negative draw on our topline and our bottomline. So we feel good that our categories are not likely to see any dramatic reduction in COVID-related demand anytime soon. So, we think that the underlying growth rate for us is -- like David said, is represented fairly well in the guidance we've given.
Olivia Tong -- Bank of America Merrill Lynch -- Analyst
Got it. That's helpful.
David M. Maura -- Executive Chairman and Chief Executive Officer
I hope that helps. Okay. Great.
Olivia Tong -- Bank of America Merrill Lynch -- Analyst
Yes. And then just flipping over to the cost savings program, the GPIP program, clearly, you're progressing well and now this is going to raise your targeted saving. So can you talk about where the incremental savings are coming from and then just put aside the thoughts on areas of reinvestment?
David M. Maura -- Executive Chairman and Chief Executive Officer
Sure. So, Olivia, part of this was just making sure that we were conservative in our communications to you as we had internal targets to overdrive to the numbers that we were originally looking at. And as time has gone by that the organization has done a fantastic job of delivering on expectations, in many cases over delivering, so this is about premium execution to most all of the initiatives and attributes within the program. So savings has come across, I think, we've shown you there's six major work streams within the GPIP program. The largest, of course, is in the sourcing and strategic purchasing areas. But overall, all of the work streams are delivering at or above the original expectations. And that's what's allowing us to have more and more confidence in our ability to deliver over the next 12 months to 18 months.
Olivia Tong -- Bank of America Merrill Lynch -- Analyst
Great. Thank you. Best of luck.
David M. Maura -- Executive Chairman and Chief Executive Officer
Thanks, Olivia.
Operator
Your next question comes from the line of Bob Labick with CJS Securities.
Bob Labick -- CJS Securities -- Analyst
Good morning. Congrats on a great quarter there.
Jeremy W. Smeltser -- Executive Vice President and Chief Financial Officer
Good morning, Bob.
David M. Maura -- Executive Chairman and Chief Executive Officer
Good morning.
Bob Labick -- CJS Securities -- Analyst
Hi, I wanted to start with question on operating leverage. Obviously, you're getting tons of cost savings from GPIP and you're reinvesting them, and you're increasing your R&D and advertising and promotion and stuff. So when should we start to see -- when do you catch up to where you want to be in terms of your sustainable investment in the brand? And when do you reach that balance? So you return to more, kind of, expected operating leverage based on the revenue growth going forward?
David M. Maura -- Executive Chairman and Chief Executive Officer
I mean, look, we're seeing, you can see operating leverage in the margin structure of this quarter. And I think, we've been -- the first year of the program, we had an exceptional amount of tariff headwinds and we were not able to invest back in the business like we really wanted to in 2019. I think this past fiscal year, we've really turned the investments up and we're seeing pretty fast payback. And so, I think, it's our fiduciary obligation to continue to do that. But I think, we've also got a couple more years in front of us of continuing to invest and get the vitality, the product mix, the margin structure lift and the higher growth rate.
I'll turn the call over to -- on this question to Jeremy and Randy. But I see a solid 24-months more of what we're doing, in terms of, the innovation that we can provide our retail partners and our consumers really continuing to lift the organic growth rate of the company with higher margin structures. And as long as we can continue to do well in supply chain, fulfillment and maximize output in our facilities continue to absorb our fixed costs in a better manner also.
Jeremy W. Smeltser -- Executive Vice President and Chief Financial Officer
Yes. I think, Bob, if you pull back the layers a little bit both on '20 and 2021 guide, you really do see nice leverage. So reminder on '20, right, we were facing into $65 million to $70 million of additional gross tariffs from fiscal '19 to fiscal '20. We delivered a lot of savings. But we also invested, right? So our spend, our IT spend rate, our comm op spend rates, our advertising and promotion spend rates are all up year-over-year in F'20, and yes, we still delivered growth, before the adjustment we delivered $597 million of adjusted EBITDA. So I think that really demonstrates pretty strong leverage with some smart reinvestments.
If you look at the guide for F'21, which obviously, presumes growth in the overall environment, you see really good leverage, you see an incremental $25 million or so of net tariff of some of the exclusions that we had in F'20, roll-off -- rolled off in August of 2020. But you see a budget for additional incremental spending in all the areas that I just mentioned. Obviously, those are decisions that we make as we move forward, we measure ROI and we can decide to ramp that up further or we can decide to tamper down and make sure we have the right talent driving that spend to make sure we get return for our shareholders and that's the way we'll kind of think about it.
As we think about the overall level in F'21 of spend and all those areas, as compared to the ideal level of where we want to be, it's probably still a little bit light. But I would say that, the budget for F'21 reflects probably the largest increase that we would expect to see in overall organizational spending around operational excellence and consumer insights.
Bob Labick -- CJS Securities -- Analyst
Okay. Great. Very helpful. Thank you. And then, just regarding your brands, I think, you have like 18 or 19, kind of, core brands that you're supporting. Is that the right number for the business to leverage your advertising promotional dollars? If not, what is -- how are you thinking about the -- seemingly a lot of brands going forward?
David M. Maura -- Executive Chairman and Chief Executive Officer
So our top 15 brands make up around 80% of our revenue, Bob, across the four business units. I will let Randy talk -- we've done a lot of brand and SKU rationalization over the last couple years. I will let Randy jump in on his thoughts on the overall number.
Randal D. Lewis -- Executive Vice President and Chief Operating Officer
Yes. Bob, it's obviously a great question, something we spend a lot of time on and it varies by business unit, as well as categories and channels. And so we play in a space where oftentimes, brands are very important to the identity of particular product or to optimizing particular channels or customers. And so we've had substantial rationalization of the brand portfolio over the last two years during our improvement initiatives and we're still in the process of continuing to do a lot of rationalization work. But the top brands are the ones that we're currently very committed to and we'll be putting most all of the drive behind.
David M. Maura -- Executive Chairman and Chief Executive Officer
Yes. I mean, look, let me just add, this may seem a little bold, but this company is no longer content to be number two or number three player. We want to be number one. And you're going to see a lot of these brands over the next 12 months to 24 months become number one players across the Board.
Bob Labick -- CJS Securities -- Analyst
Right. Sounds great. All right. Thanks very much.
David M. Maura -- Executive Chairman and Chief Executive Officer
Thanks, Bob.
Operator
Your next question comes from a line of Faiza Alwy with Deutsche Bank.
Faiza Alwy -- Deutsche Bank -- Analyst
Yes. Hi. Good morning and congratulations on really strong results. I have two questions. One, is just going back to the categories and the segments. With respect to your guidance, are there any particular segments that you expect to over perform or outperform that guidance? And I'm specifically thinking about, your outlook for HHI? I know, it sounds like things are really good. You have this backlog for the first quarter. So I'm curious how you're thinking about that business in the back half of the calendar year, next year?
And then my second question is, I just wanted to take a step back and maybe, David or Jeremy, if you could talk about, the -- it seems like the company has come a long way, just in the last 12 months to 18 months. And I just love to hear some examples of, what are some of the things that you're now, what are some of the actions that you've taken and what are some of the things that you're able to do now, just operationally, whether it's from an IT perspective, you've mentioned automation, you've mentioned commercial improvements, what are some of the things that you're able to do now that you maybe weren't able to do sort of 12 months to 18 months ago?
David M. Maura -- Executive Chairman and Chief Executive Officer
No. Yes, let's go in reverse and then the whole team will respond, because this is actually the -- this is the flywheel component that we talked about on the top of the call, that is really the thing that's gotten the most jazzed about the future performance of the company. We now have a brand new comm ops team. We have real consumer insights. We have tremendous e-com and digital and AI learning tools in the company that we never had before. We have -- that gives us an ability to get real time data to really see into what the consumers are looking for, what the needs are, how we can make the products, have greater efficacy, greater benefit, greater convenience and the ability to produce those products through R&D, innovation. We build entirely new R&D teams in some of these verticals. And so now we're able to take a concept proof, get it -- get a prototype, test it and get it to market in speed. So we could have never done before as a company. And so that's feeding this innovation pipeline, the new product launches, which is accelerating the topline and giving us a higher margin structure. That's the general theme. That's the flywheel. And then, obviously, that creates greater cash flows, greater profitability, which allows us to continue to fuel that as we go forward. That's the simplistic term, the way I would describe it. Randy?
Randal D. Lewis -- Executive Vice President and Chief Operating Officer
Yes. Faiza, I think, David's comments are spot on. I mean, we're really focusing on creating business units that are challenged with understanding there in consumer and their retail channels in a way that they can solve the problems for them and drive brands product and channel growth. And then we're taking all the ancillary, distracting, non-value added activities that oftentimes businesses have to deal with and we're centralizing those with people that are outstanding talent and proven leaders in the industry. So whether that be supply chain or whether that be transportation or whether it be demand planning, whether it be controller ship.
These are things that used to be in our businesses and distracting day-to-day versus the efforts to create new products that consumers want to buy and retailers want to sell. And so as we strip away those non-value added pieces and really get the talent in the businesses and say, spend as much time as possible on the innovation cycle, it's really starting to pay off.
Jeremy W. Smeltser -- Executive Vice President and Chief Financial Officer
And then on your first question, Faiza, I -- what I would say is, we're not going to give specific segment guidance, but I will give you a little bit of color, which is, we would expect to the -- 3% to 5%, the bias to the upside would be around Global Pet Care as have been in the last couple years, as well as HHI, with the supply replenishment that Randy talked about. And then, I think, prudently, to the bias to the lower end of that range will be toward Home & Garden and HPC, given the strong years that they had than F'20 and the uncertainty around what happens with the pandemic as the year goes forward. So I think it's a pretty prudent and intelligent guide. That's the color I'd give you. We will just update you as each quarter progresses as we get into the year.
Faiza Alwy -- Deutsche Bank -- Analyst
Great. Thank you so much. Very helpful.
David M. Maura -- Executive Chairman and Chief Executive Officer
Thank you.
Operator
Your next question comes from the line of Ian Zaffino with Oppenheimer.
Ian Zaffino -- Oppenheimer -- Analyst
Hi. Great. A couple questions here. I guess, the first one would be, David, you mentioned, the tariff headwinds. If we're looking at maybe potential softening of some of the stance on China, what's the actual net benefit you could stand to gain, let's just say, for tariffs do go away, because why if the tariffs, you're also able to offset it with some pricing. So maybe help us understand what the net impact would be and what the puts and takes would be if that happens? And then I have a follow up. Thanks.
David M. Maura -- Executive Chairman and Chief Executive Officer
Yes. I mean, let me hit it on the front end. I mean, we're actually -- we're going to have more tariffs this year. It's just they're going to be tariffs at -- they're going to grow at a slower pace. So it's a lessening of the headwind. It's not an elimination of the tariffs. And I would say, right now, as we sit here today, we're not we're not planning for any sort of tariff relief. Any Randy?
Randal D. Lewis -- Executive Vice President and Chief Operating Officer
Yes.
Jeremy W. Smeltser -- Executive Vice President and Chief Financial Officer
Go ahead, Randy. Okay. Well, I mean, early commentary from the Biden camp, doesn't indicate any early softening on stance with China and so to David's point, we're not going to plan for that. Does something happen in fiscal '22? Perhaps it does, but early indications are not headed that direction. As it relates to, what happens in a theoretical, if they do go away, it would depend on how they go away and how it's communicated? But the reality is that -- it's been a shared challenge across POS, across suppliers, across retail partners and ourselves, and companies like us, and it would be a shared conversation around what happens with the unwind of that as well. Randy could probably give you a little more color.
Randal D. Lewis -- Executive Vice President and Chief Operating Officer
Yes. I would just say, I don't think anybody would think of it as a windfall in the event that there was a reversal of tariffs. But I think that we think that we'd be most excited about is, if those tariffs were able to flow through all the way to the consumer actually driving volume and getting benefit that way, but not -- again, as David said, we're not currently modeling anything based upon what we're hearing early on in the change.
Ian Zaffino -- Oppenheimer -- Analyst
Okay. And then, second question, I guess, or two other questions would be, what was the motivation in the change in the form of compensation? What drove that decision? And then also, what's your decision on the leverage ratio change, you lower the low end of the range, while keeping that the high end -- at the high end? So just some color on that? That's it. Thank you.
David M. Maura -- Executive Chairman and Chief Executive Officer
Yes. So real quick on the comp adjustment. This company for four years or five years, I can't remember how many, but it's -- there's hundreds of employees in the organization that have literally their only cash compensation came from the form of their base salary. And so their annual MIP was always paid in equity. And we were listening to shareholders during our last proxy meeting and they wanted less of a burn, less equity issued, less dilution from the management team. Our comp consultants viewed it as highly unusual to pay a -- pay one-time bonuses and equity, they prefer that to be paid in cash.
Actually, I think, it helps us retain people and attract talent better. So, it's a -- we obviously had a great finish to the year and viewed it as appropriate as a Board of Directors to make that change, and quite frankly, just level sets us, that's exactly what our peer group does. I think it makes us a more attractive place where a big part of the fundamental change here starting two years ago is I wanted to upgrade talent and making that change is going to allow us to attract higher caliber players to our company as we continue to accelerate the growth going forward.
In terms of the leverage ratio question that you're asked. It's just -- prices for companies remain elevated. We are laser focused on -- we spent two years doing the hard work, getting the fundamentals going in the right direction. We feel very, very good about our outlook fundamentally. We think it's time for our share price to start performing and we want to continue to deliver the balance sheet and execute higher growth rates, greater free cash flow production. And we think continuing to deleverage, be prudent with the balance sheet, maintain tons of liquidity and drive much higher quality earnings streams going forward, is going to cause our multiple to expand and so that's what we're doing.
Ian Zaffino -- Oppenheimer -- Analyst
Okay, thank you.
Operator
Your next question comes from the line of Jim Chartier with Monness, Crespi, Hardt.
Jim Chartier -- Monness, Crespi, Hardt -- Analyst
Thanks for taking my question. You mentioned in the prepared remarks, expanding Remington into China. Just curious what potential you see for that brand in China. Are there any other brands where you see the potential for going to China? And then just more broadly, other opportunities to expand overseas and what you think the international penetration of the business could be? Thanks.
David M. Maura -- Executive Chairman and Chief Executive Officer
Yes. I think, look, the Chinese opportunity really follows, again, this new approach where we're really advertising the brand Remington is one of our strongest global brands and with Manchester United Football team, they've got hundreds of millions of followers in Mainland China and so it's just a natural extension of the brand to be able to launch it into China. Jeremy, Randy, any other color on that?
Randal D. Lewis -- Executive Vice President and Chief Operating Officer
Yes. Very consistent? No.
Jim Chartier -- Monness, Crespi, Hardt -- Analyst
Thanks. And then just on HPC, your margins were down, despite solid growth this quarter. You mentioned higher advertising, promotional investments. Were those a shift from earlier in the year in terms of timing or are those investments expected to drive growth next year? And then what do you see as the real margin potential for that business over time?
Jeremy W. Smeltser -- Executive Vice President and Chief Financial Officer
Yes. Jim, I think, you hit it. So in Q3, we were fairly restricted on supplies. So we've pulled back on an awful lot of investment in that business. As we caught up in Q4, some of those expenses came back. But on top of that, we put substantial investments into Q4 in preparation for holiday in the current quarter. So a lot of what you see in the margin in Q4 of HPC is designed to benefit the fiscal 2021.
David M. Maura -- Executive Chairman and Chief Executive Officer
I think the longer term we've said many times, we're working to get this business back to low double-digit EBITDA margin. We think that's the right place for it to be given the current macro environment.
Jim Chartier -- Monness, Crespi, Hardt -- Analyst
Great. Thanks. Best of luck.
Jeremy W. Smeltser -- Executive Vice President and Chief Financial Officer
Thank you.
David M. Maura -- Executive Chairman and Chief Executive Officer
Thanks. Thank you, Jim.
Randal D. Lewis -- Executive Vice President and Chief Operating Officer
Thanks, Jim.
Operator
Your next question comes from the line of William Reuter with Bank of America.
William Reuter -- Bank of America Merrill Lynch -- Analyst
Hi. Just one for me, you got the Armitage acquisition that you'll be in the midst of integrating. I guess, your outlook for additional M&A. And I guess maybe how you're thinking about the capital structure, you have the 2024 notes that are relatively small, but with a relatively large coupon. I guess thoughts on taking those out with cash versus refinancing? That's it. Thanks.
David M. Maura -- Executive Chairman and Chief Executive Officer
Yes. Look, we got lots of levers to pull. Again, when you start really driving the fundamentals of the business, it creates a lot opportunity. Like I said, I think, we still believe our stock is materially undervalued. We believe that accelerating the topline growth of the business, expanding the margins, deleveraging the balance sheet will drive pretty good shareholder returns over the next couple of years. So that's really the focus. We're still wide open to tuck-in acquisitions that are -- within our wheelhouse that create a lot of synergies. But also have the potential to create a lot of shareholder value over the long run and so we'll continue to weigh that.
But, it's -- I think, look, if you look back, my kind of first 10-years here was all about allocating capital external to the company and doing quite large M&A. I would think, over the last two years, in my new role, all the energy has been really mostly exclusively around investing internally into the company, allocating capital internally. And so really we're in a period where we're just trying to drive the organic growth through to the business, have number one market share across our business units and really drive excellent shareholder performance. So that's the chapter we're in right now.
William Reuter -- Bank of America Merrill Lynch -- Analyst
Okay. And I guess with regard to the 24th, any thoughts on that maturity specifically?
David M. Maura -- Executive Chairman and Chief Executive Officer
It's very expensive paper relative to where we can borrow or take it out with cash. We'll let you know in the summer.
William Reuter -- Bank of America Merrill Lynch -- Analyst
Sounds good. Thank you.
Operator
And we have reached our allotted time for questions. Are there any closing remarks?
Jeremy W. Smeltser -- Executive Vice President and Chief Financial Officer
I know we have a couple people left in the queue. We've obviously gone over the hour. But Kevin and myself will both be available to follow up anytime you're ready. Thanks for your time.
David M. Maura -- Executive Chairman and Chief Executive Officer
Thanks, everybody.
Randal D. Lewis -- Executive Vice President and Chief Operating Officer
Thank you.
Operator
[Operator Closing Remarks]
Duration: 63 minutes
Call participants:
Kevin Kim -- Divisional Vice President of Investor Relations
David M. Maura -- Executive Chairman and Chief Executive Officer
Jeremy W. Smeltser -- Executive Vice President and Chief Financial Officer
Randal D. Lewis -- Executive Vice President and Chief Operating Officer
Nik Modi -- RBC Capital Markets -- Analyst
Olivia Tong -- Bank of America Merrill Lynch -- Analyst
Bob Labick -- CJS Securities -- Analyst
Faiza Alwy -- Deutsche Bank -- Analyst
Ian Zaffino -- Oppenheimer -- Analyst
Jim Chartier -- Monness, Crespi, Hardt -- Analyst
William Reuter -- Bank of America Merrill Lynch -- Analyst
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